Cheap oil and expensive wars: how the ruble and energy prices put pressure on the Kremlin
24 November 2025 20:38
According to Reuters, in November 2025, Russian budget revenues from oil and gas could drop by about 35% year-on-year, to about 520 billion rubles, or about $6.6 billion. This refers to revenues from export duties, mineral extraction tax and related payments, which traditionally form a significant part of Russia’s federal revenues, [Komersant ] reports, citing the media outlet.
Looking more broadly, in the first 11 months of 2025, total oil and gas revenues could fall by about 22% to about RUB 8 trillion. This is a significant gap with the original plans: The Russian Ministry of Finance had planned about 10.94 trillion rubles, and then had to lower the forecast to 8.65 trillion. Actual revenues, according to Reuters, may be even lower than the updated plan.
Against the backdrop of record military and defense spending, this means that the Kremlin is entering a phase of tougher budgetary choices: cut spending, borrow more, or look for additional sources of revenue.
Oil prices and the ruble: a double blow to revenue
There are two key factors behind the decline: global oil prices and the ruble-dollar exchange rate.
According to Reuters, the average price of Russian oil, which is used to calculate taxes, fell to about $57.3 per barrel, down from $68.3 a year earlier. That is, even without a change in export volumes, Russia receives less foreign exchange earnings from each barrel.
The second factor is the strengthening of the ruble. Last year, the exchange rate averaged about 91.7 rubles to the dollar, while now it is about 81.1. For the Russian budget, this is not a plus but a minus: export revenues come in in dollars or euros, while expenses are incurred in rubles. When the Russian national currency strengthens, the state receives fewer rubles in terms of exports for the same volume of exports.
Together, the fall in the dollar price of oil and the strengthening of the ruble “squeeze” the ruble cash flow, even if the physical supply of oil and gas to world markets remains roughly constant.
Why this hurts the Russian budget
Oil and gas revenues remain one of the main sources of filling the Russian budget, accounting for about a quarter of all revenues. It is at their expense that the state finances a significant portion of defense spending, social payments, and support for the regions.
When these revenues fall by a third in a month and by more than a fifth in a year, several risks arise.
First, the budget deficit may turn out to be higher than officially planned. This will force the government to either cut “non-priority” expenditures, increase domestic borrowing, or spend more actively from the National Welfare Fund.
Second, the budget is becoming more sensitive to further oil price fluctuations and sanctions. New restrictions on Russian exports, more complicated logistics, and additional discounts for Asian buyers could further hit revenues.
Third, the political space for maneuver is shrinking: the less “excess” revenue there is, the harder it is for Moscow to simultaneously finance the war, keep the elites loyal, and maintain a minimum level of social stability.
The Kremlin’s oil purse is getting thinner: what it means for Ukraine
For Ukraine, this dynamic is an important, albeit indirect, element of the economic front. The decline in oil and gas revenues limits the aggressor’s resource base. Less money in the Russian budget means a smaller safety margin for a prolonged war, more internal conflicts over the distribution of funds, and greater dependence on external energy buyers.
At the same time, the short-term effect should not be overestimated. Even 8 trillion rubles of oil and gas revenues is still a huge amount that allows the Kremlin to continue financing the army and the military-industrial complex. In addition, Moscow is trying to compensate for the drop in revenues by reducing imports, increasing tax pressure at home, and expanding cooperation with countries that have not joined the sanctions.
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For the global oil market, the current situation means increased competition between suppliers. In order to maintain export volumes, Russia is forced to sell oil at a discount to benchmarks. This puts additional pressure on prices in the low-cost blend segment, while encouraging importers (especially in Asia) to bargain harder for contract terms.
Ukraine, which is seeking to increase its own gas production and strengthening its energy integration with the EU, gets a separate window of opportunity in this configuration. The weakening of Russia’s resource base, the EU’s gradual reorientation to alternative energy sources, and the expansion of the sanctions track form a long-term trend toward a reduction in Russia’s share of the European energy sector.
As a result, Reuters calculations show that: russia’s “oil rent” is no longer a guaranteed and stable source of excess revenue. The combination of lower prices, a stronger ruble, and sanctions pressure makes Russia’s budget much more vulnerable than it was a few years ago. For Ukraine, this is not a reason for complacency, but a clear signal that economic pressure on the aggressor is working and gradually reducing its ability to wage a long and expensive war.
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