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Russia's Ivanov 'Not Happy' With Oil Above $100, Prefers $80

Russian Oil WellApril 8 (Bloomberg) -- Oil prices above $100 a barrel are discouraging Russia from diversifying its economy, Deputy Prime Minister Sergei Ivanov said.

Ivanov said the current price was unsustainable and that Russia's budget will fall into a deficit when it drops. He would prefer oil and gas prices to be "around maybe $80 per barrel," which is a "more realistic" level.

"When the gold rain is pouring on your head, you are not motivated to diversify," Ivanov said in an interview yesterday in Miami, where he was speaking at the Everest Group Emerging Markets Forum. "I wouldn't say I hate high oil and gas prices, but I am not happy with them."

Oil today headed for a third week of gains in New York. Crude for May delivery rose as much as 35 cents, or 0.4 percent, to $110.65 a barrel, in electronic trading on the New York Mercantile Exchange, and was at $110.60 at 9:40 a.m. Sydney time.

Higher oil prices have helped boost Russia's international reserves to $504.5 billion, the most since 2008. The cost of protecting Russian bonds against default also fell to its lowest level yesterday since August 2008, according to data provider CMA.

Once prices fall, running a long-term budget shortfall is not an option for Russia, Ivanov said. "We can't live for long with a deficit budget. We are not like the" U.S., he said.

Space, Nuclear

He said that even with high oil prices, the country was taking steps to diversify, including investing in technology industries, space and aviation programs, and nuclear energy.

Ivanov stopped in Miami after meeting with U.S. Secretary of State Hillary Clinton, Trade Representative Ron Kirk and several lawmakers to discuss Russia's entrance into the World Trade Organization.

The "political window of opportunity" for Russia to enter the WTO may "start to close down" at the end of the year as the U.S. and Russia enter election years, Ivanov said. He is hopeful an agreement will be reached before then, he said.

Ivanov said Russian arms exports, which doubled to $10 billion in 2010 over the previous five years, may rise to $10.6 billion to $11 billion this year.

Ivanov, 58, was appointed first deputy prime minister in 2007 after serving as the country's defense minister since 2001, according to the Russian government's website. The former KGB officer was regarded as a potential successor to then-President Vladimir Putin before the 2008 election.

Ivanov also said he would resign as chairman of the board of Rosavtodor, a federal toll-road operator, and United Aircraft Corp., an airplane manufacturer, after Russian President Dmitry Medvedev called for government officials to step down from their posts at state-owned companies and be replaced by independent directors.

"I will leave with a light heart because apart from those two boards I have lots of other fish to fry," he said. Whether the independent directors will improve corporate governance "remains to be seen" he said.

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