Russia's oil pinch: Budget strain deepens as prices plunge
Urals brand oil is currently the cheapest it has been since 2023. The head of Russia's Central Bank warned that falling oil prices worldwide could impact the country’s budget, which finances the war in Ukraine, reports "The Moscow Times." According to economists, "the most apocalyptic forecasts are beginning to come true."
The reference price of Russian Urals oil was about $50 per barrel, which indicates a 15% decrease compared to March and the lowest level since 2023. Meanwhile, revenue from commodity exports accounts for about one-third of Russia’s annual budget.
As "The Moscow Times" points out, Russia’s budget for 2025 assumes that a barrel of oil will cost $69.70. In April, the Kremlin reduced its forecast to $56.
Russia’s revenue from oil sales fell in the first quarter compared to the previous year by 10% to $31 billion - reported the Ministry of Finance on Tuesday, warning of further declines "due to a weakening price environment."
Analysts from MMI believe that "the most apocalyptic forecasts are beginning to come true." In real terms, Urals oil is the cheapest it has been since the pandemic.
- This means that current oil prices at the current ruble exchange rate are 17% lower than the level the government is currently using for planning budget revenues for 2025. There are several solutions to this difficult situation. The first is the devaluation of the ruble. The second is the amendment of the state budget - says Aleksandr Potawin, an analyst at the Finam portal, quoted by "Rzeczpospolita."
Additionally, the National Welfare Fund (NWF), accumulated during the prosperous years of Putin’s rule thanks to prudent economists, is, as economists explain, gradually being depleted to support the economy.
In 2024, over 100,000 kilograms of gold disappeared from Russia's NWF. The Russian Ministry of Finance did not disclose the sale transactions in its reports. Meanwhile, according to the law, the gold from the fund is to be used solely for improving the living standards of the federation’s citizens.
"The lower the oil prices, the less money for the war"
Ukraine, which has long criticized countries buying Russian energy, stated on Monday that it hopes the price drop will strain the Kremlin’s war budget - notes "The Moscow Times."
The lower the oil prices, the less money Russians will have to finance their war - posted Andriy Yermak, head of the office of Ukrainian President Volodymyr Zelensky, on social media.
President Vladimir Putin said last year that Russia spends nearly 9% of its GDP on defence and security - a level unseen since the end of the Soviet Union.
