Russia’s BANKRUPTCY! Money is RUNNING OUT, the Kremlin SHOCKS the population

[00:00:00]Russia's war expenditures are rapidly increasing and have already exceeded all budget plans according to Bloomberg.

[00:00:06]According to the publication, Moscow plans to raise additional trillions of rubles in loans. However, debt repayments are becoming an increasing burden on the country's economy.

[00:00:17]Since the beginning of the year, Russia's budget deficit has grown to 6 trillion rubles or more than 2 and 1/2% of GDP.

[00:00:25]According to Bloomberg sources, Russia's defense spending could reach 5 trillion rubles, which is almost 40% higher than the expenditures allocated in the budget.

[00:00:37]Russia won't go bankrupt tomorrow, but money is no longer its main problem.

[00:00:42]Even if oil prices and accordingly the Kremlin's revenues rise, it is unable to quickly convert them into manpower or equipment.

[00:00:52]This is the conclusion reached by the foreign intelligence service of Ukraine.

[00:00:56]One of the factors in this is in particular the Russian Federation's dependence on China, especially for its dual-use goods.

[00:01:04]Moscow covers about 80% of its needs in certain sectors with these goods.

[00:01:09]At the same time, intelligence notes that major Chinese banks and companies are also in no hurry to take risks for Putin due to the threat of secondary sanctions.

[00:01:19]Joining us is Oleg Ustenko, the economist and former advisor to the president of Ukraine. Oleg, welcome and good afternoon.

[00:01:28]>> Greetings to you. Thank you for inviting me.

[00:01:30]>> Thank you for joining us on our broadcasts.

[00:01:33]Mr. Oleg, the liquid part of the National Welfare Fund of the Russian Federation has significantly decreased.

[00:01:40]It used to be 6 and 1/2% now it is 1.8.

[00:01:45]Russia has already started selling gold to cover budgetary needs and the budget deficit has also already exceeded 90% of the annual plan. From the perspective of the state's financial stability, What does this indicate?

[00:01:59]>> Well, this indicates that they have significant problems, but we shouldn't deceive ourselves either.

[00:02:06]They are more likely to cut spending on the social sector, which they are already actively doing now, than to reduce spending on their military sector.

[00:02:15]And this is what we have observed throughout this entire year. Even if you look at the first quarter, their state budget deficit was 50 billion dollars, 50 billion dollars. And this is despite the fact that they were supposed to reach those 50 billion by the end of this year, but already in the first quarter it was 50. And now, if you look at it, their deficit by the end of the second quarter will total approximately 80 billion dollars.

[00:02:44]This is a significant deficit. This is 1 and 1/2 times more than what they were supposed to reach over the entire year.

[00:02:51]They are looking for money, trying to find it, but finding it in the middle of the year is not that easy. And I would even say it's impossible. They have tried and continue to try to extract financial resources from their own entrepreneurs, specifically from financial industrial groups that are positioned at a certain distance from the Kremlin. In the first quarter, they managed to do this when the entrepreneurs themselves came to meet with Putin and said that they would like to contribute funds to our budget. To the budget for the development of our military sector. Take these funds. Obviously, it wasn't their own idea. They were instructed to do so.

[00:03:31]Otherwise, they could have lost their property altogether. Well, that's one way to squeeze out funds, but even that won't be enough. So, where do they get the money? That's why they're cutting social spending. So, what we're seeing now in their budget is a sharp drop in spending on the social sector. This is happening across all regions. Most regions are now also in the deficit zone.

[00:03:55]The federal budget cannot and is not able to help everyone at once.

[00:04:00]So, they are trying to cut social spending. They continue to keep military spending at its current level, even increasing it slightly, not just at the rate of inflation, but actually increasing it while spending on the security sector is rising sharply. And this is generally a trade characteristic of all totalitarian countries. If you cut back on social support systems, you have to be fully prepared to face the possibility of rising social tension.

[00:04:31]And if social tension increases and you don't know exactly when or at what level it will happen, you need to keep your security forces ready. This is what we are observing with them right now.

[00:04:43]>> Russia was clearly satisfied by the significant increase in global oil prices after the United States initiated its military operations in the Middle East, specifically in Iran. But even the surge in global market prices did not save the nation often referred to as a global gas station because the armed forces of Ukraine did not allow it to export, transport, or even process that oil.

[00:05:08]And now the strategic Strait of Hormuz is officially open. That's it. The United States has finally lifted the blockade, which means that oil will once again begin to flow freely to the world.

[00:05:19]And moreover, Iran will export oil to the United States. Some of the sanctions have been lifted, and at the same time, they themselves have increased their oil export volumes. Venezuela is increasing the amount of oil it supplies to the global market.

[00:05:36]In your opinion, how will all this affect the Russian Federation and what should the price of oil be?

[00:05:43]How low does it need to drop for it to become unprofitable for Russia to sell and extract oil at all?

[00:05:50]>> Yes, um that's a very good question.

[00:05:53]And you are also describing the situation correctly. At first, global oil prices began to rise when the crisis began in the Hormuz Persian Gulf when the strategic Hormuz Strait was blocked.

[00:06:07]After that, we saw that the price reached as high as $120 per barrel of Brent crude oil. It is clear that Russia could receive such additional funds for its budget. I estimated them at about 4 billion uh additional funds to their state budget every month that they were receiving. Well, that's a large sum, of course, but not uh significant enough to completely change the situation in Russia. Then our armed forces of Ukraine really got to work uh reducing the capacity for exporting Russian oil uh by sea from 5 million barrels per day to 3.5 million barrels per day. This is what is happening right now. Why is this happening?

[00:06:53]By blocking these critical locations, a significant number of their shipping ports, which is the essential logistics that allows them to import, or rather to export their own oil to the world.

[00:07:05]It's also true that the price on the global market has now dropped sharply.

[00:07:10]At the moment we are speaking, the price is $79 for Brent crude oil.

[00:07:17]They have begun to scale back on and even refuse purchasing Russian oil in the same large volumes as before.

[00:07:25]Even in a major partner like China because China immediately received alternative and reliable methods to obtain their oil supplies.

[00:07:35]India has officially lifted these restrictions.

[00:07:39]And just in case, let me take a moment to remind your viewers that starting from the 17th of this month from 0 hours and 1 minute, a series of stringent new sanctions against Russia have been imposed once again.

[00:07:53]Meaning they will no longer possess the logistical capability to transport their oil by sea as they were able to do before on a global scale.

[00:08:02]And this means that Lukoil and Rosneft are once again under sanctions and this means that India has started to refuse and terminate contracts that were for the purchase of Russian oil.

[00:08:15]And you can even see this on the Indian market. They are still buying Russian oil but at a huge discount. The same thing is happening in China.

[00:08:24]And accordingly, Russia has started to face problems with the ability to receive payments for its oil.

[00:08:32]If we are talking about what price level we would like to see for Russian oil exports, as I understand the situation, what is called their marginal cost of production, that is to say, the point at which it becomes unprofitable for them to extract oil, unprofitable from a financial standpoint, is somewhere around $30 per barrel.

[00:08:55]I hardly believe that we will see, at least in the near to medium term, a price as low as $30 per barrel. That could happen in the long term, for example, if there is some kind of technical or technological breakthrough, but to hope for this and consider it our strategy or benchmark, I definitely would not advise.

[00:09:16]I believe that what can be done is to continue, well, the strategy that the armed forces of Ukraine are pursuing, reducing their ability to export oil through seaports. If you can't export oil through seaports, you have to store it or process it.

[00:09:34]And they no no have that capability because it can only be stored and processed at oil refineries. We also see the second story line that our armed forces are developing on Russian territory. So, you can't process it and you can't store it either.

[00:09:49]Furthermore, there are major issues related to the fact that if you extract crude oil and your refineries are not fully operational in the European part or in part of the European Russian territory, they then try to redirect it to other regions. Then here the third story line of the Ukrainian armed forces comes into play as well, which destroys these logistical hubs, leaving them unable to redirect oil to other regions. And fourth, it eventually starts working on its own. If you find that you simply can't consume the oil you extract, then you can't sell it.

[00:10:25]And you certainly can't process it either. You would have to completely shut down oil production.

[00:10:32]And when it comes to oil production, it is not a simple binary system where you can just produce a bit less than you are right now, like a quarter of what you're currently extracting.

[00:10:46]It just doesn't work that way with these oil wells.

[00:10:49]Either it's working or it's not working.

[00:10:52]There can only be two modes.

[00:10:54]If you have nowhere to put it, either you pump it back into the ground or you simply shut the well down. And this could really be a problem for them.

[00:11:02]Well, again, the primary objective of this strategy is to significantly decrease Russia's income from oil sales and to make their situation both budgetary and economic so unstable that these active fermenting processes begin to take place.

[00:11:19]>> Mr. Oleh, we truly hope that this will come to pass very soon. Thank you for joining us. Oleh Ustenko, economist, former advisor to the president of Ukraine.

[00:11:30]>> [music] [music] [music]