Russia faces financial strain as Ural oil prices plummet
Urals brand oil is currently at its cheapest since the beginning of 2023. The head of Russia's Central Bank has 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, representing a 15% decrease compared to March and the lowest level since earlier this year. Meanwhile, revenue from commodity exports accounts for approximately one-third of Russia’s annual budget.
As "The Moscow Times" highlights, Russia’s budget for 2025 presumes that a barrel of oil will cost $69.70. However, in April, the Kremlin revised its forecast to $56.
Russia’s revenue from oil sales fell in the first quarter year-on-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 prevailing rouble exchange rate are 17% lower than the level the government is currently using for planning budget revenues for 2025. There are several ways out of this unpleasant situation. The first is the devaluation of the rouble. The second is the amendment of the state budget, assesses Aleksandr Potawin, an analyst at the Finam portal.
Additionally, the National Welfare Fund (NWF), accumulated during the prosperous years of Putin’s rule thanks to prudent economists, is gradually diminishing, as economists explain, to support the economy.
In 2024, over 100 metric tonnes of gold disappeared from Russia's NWF. The Russian Ministry of Finance did not include the sale transactions in its reports. Meanwhile, according to the law, the gold from the fund is solely for enhancing the living standards of the federation’s citizens.
"The lower the oil prices, the less money Russians will have to fund their war"
Ukraine, which has long criticised 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 fund 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 not seen since the end of the Soviet Union.
