Russia’s economy faces major but not catastrophic problems due to cheap oil – FT

14 April 13:19

The sharp drop in oil prices caused by Donald Trump‘s trade war is beginning to deplete Russia’s military treasury. This is stated in an article by the Financial Times, according to "Komersant Ukrainian".

Russia’s budget, about a third of which is generated by oil and gas revenues, could be 2.5% lower than expected in 2025 if oil prices remain at current levels. This will force the Kremlin to increase borrowing, cut non-military spending, or use the rest of its reserves.

As reported in the article, the average price of Urals oil, Russia’s main export grade, fell to its lowest level in almost two years after the US president announced tariffs and the unexpected decision of the OPEC coalition to increase production. As of Thursday, Urals crude was trading at around $50 per barrel, while Russia’s 2025 budget was planned at $69.70 per barrel.

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The economy is slowing down, reserves are dwindling

The article emphasizes that the falling prices are increasing pressure on the Russian economy, which is expected to slow this year after being fueled by war-related spending. Moscow has already used up some of its sovereign wealth fund to support the economy in the aftermath of Putin’s full-scale invasion of Ukraine, and the available portion of these funds is dwindling.

In a rare acknowledgement of economic uncertainty, Kremlin spokesman Dmitry Peskov expressed concern over the fall in oil prices, calling the situation

“extremely unstable, tense and emotionally charged.”

According to Russian economists, if oil prices remain at the current level, Russia could lose about a trillion rubles this year, equivalent to 2.5% of expected budget revenues. This would mean a 0.5 percentage point drop in GDP growth.

Expenditures will have to be cut

Experts note that as the full-scale Russian invasion of Ukraine has dragged on for a fourth year, the government’s ability to support the economy is diminishing. Since 2020, the liquid portion of Russia’s sovereign wealth fund has shrunk by two-thirds, and if it is used to cover the growing budget deficit, it may not be enough by the end of the year.

Given the shrinking sovereign wealth fund, Moscow may be forced to cut spending, a change from the military spending spree. Economists warn that any cuts are likely to affect non-military budget areas such as social spending.

Russia may also try to raise more debt on international markets, as its public debt is currently below 30% of GDP, which is low by international standards. However, for many foreign investors, Russian bonds remain toxic.

As a result, analysts do not expect a sudden collapse of the Russian economy, but predict serious restrictions. As the article notes,