The Russian government is preparing for a year of cheap oil: analysis and implications for the budget of the Russian Federation
21 April 2025 16:10
In the wake of falling global oil prices, the Russian government is preparing for 2025 to be a year of cheap raw materials. This is reported by "Komersant Ukrainian" with reference to Russian media.
In its updated forecast of socio-economic development for 2025-2028, the Ministry of Economic Development of the Russian Federation has lowered the average Urals price to $56 per barrel in 2025. This is the lowest figure since 2020, when oil demand fell sharply due to the pandemic, and the average annual Urals price was $41.7 per barrel. Prior to that, Russian oil cost less only in 2015-2016 ($51.2 and $41.9, respectively).
The new forecast is lower not only than the budgeted price of $69.7 per barrel, but also than the so-called “cut-off price” of $60 per barrel, which is the basis for planning expenditures. Oil and gas revenues in excess of the cut-off price are directed to the National Welfare Fund (NWF), and if the actual price of oil is below $60, the missing funds are taken from the NWF. As of April 1, the fund had 3.27 trillion rubles of liquid assets, or $39.8 billion.
The decline in oil prices is attributed to the trade war unleashed by the United States: experts expect at least a slowdown in the global economy, if not a recession. The price of Brent dropped below $60, while Urals fell below $50. In the first quarter, oil and gas revenues of the Russian budget were 10% lower than last year, and in March – by 17%.
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The budget deficit is growing
According to investment bankers, every dollar by which the oil price drops costs the Russian budget approximately 160 billion rubles in lost revenues per year (about $2 billion). Raiffeisenbank analysts have calculated that if the average annual oil price drops to $55, the revenue shortfall that will have to be compensated for by selling foreign currency from the NWF will amount to 0.9 trillion rubles – $11 billion. Economists estimate that if Russian oil prices drop by $10 per barrel (for example, from $65 to $55 per barrel), the economy will lose at least 0.5 percentage points of GDP growth, and the state budget will lose about 1 trillion rubles ($12 billion) in revenues, all other things being equal.
However, not only the oil price but also the dollar exchange rate has changed in the forecast. Taking into account the abnormal strengthening of the ruble in January-April, the Ministry of Economic Development lowered its forecast for the average ruble exchange rate this year from 96.5 to 94.3 rubles/$. By the end of the year, the Ministry expects the exchange rate to reach 98.7 rubles/$. Oil and gas tax rates are set in dollars, so in ruble terms they will also decrease in this scenario. Given such exchange rate and oil price parameters, the federal budget deficit in 2025, ceteris paribus, could be 2-2.5 trillion rubles ($24-30 billion) higher than the Ministry of Finance’s plan due to insufficient oil and gas revenues, analysts estimate.
The law on the budget for this year envisages a deficit of 1.2 trillion rubles ($14.5 billion, 0.5% of GDP). Deputy Finance Minister Vladimir Kolychev said that with oil prices “closer to $60,” the deficit would be “higher,” but its increase would not exceed 1% of GDP (approximately 2 trillion rubles). In the first three months, the deficit amounted to 2.2 trillion.
This will be partially offset by other revenues. The Russian Ministry of Economic Development raised its inflation forecast from 4.5% to 7.6% and did not lower its economic growth forecast of 2.5% this year. Higher nominal GDP creates preconditions for stronger non-oil and gas budget revenues in nominal terms, local analysts say.
The Russian Ministry of Economic Development explains the unchanged GDP growth forecast by a good start to the year:
“We believe this estimate is quite realistic… The Ministry is looking at the trend of the first quarter – the economy is slowing down, but we do not expect a sharp collapse. To reach 1.5% growth by 2025, there must be a technical recession in some quarter – we do not expect this in the baseline scenario.”
The additional non-oil and gas revenues are likely to be spent – the budget rule allows the Ministry of Finance to do so. The shortfall in oil and gas revenues is especially noticeable given the significant reduction in the federal non-domestic debt and the inflexibility of defense spending.
In the coming years, according to the Ministry of Economic Development, oil prices will gradually recover, but will not rise much: $61 per barrel of Urals next year, $63 in 2027, and $65 in 2028.
Russia is already hurting
It is well known that Russia is critically dependent on its energy exports. First and foremost, it is dependent on oil exports. In 2024, the federal budget revenues from oil sales amounted to 9.19 trillion rubles (approximately $89.4 billion). Total budget revenues for this period amounted to 36.71 trillion rubles. Thus, the share of oil revenues in the total structure of Russian budget revenues in 2024 was approximately 25%
This indicates that, despite international sanctions and attempts to diversify revenue sources, oil remains a key source of financing for the Russian budget.
Russian Urals oil is traditionally sold at a lower price than Brent and WTI, and it is also subject to additional factors that raw materials from other countries do not experience, namely Western sanctions. However, during all three years of the full-scale war with Ukraine, Russia has been successfully selling its oil – its main buyers today are China and India.
The federal budget of the Russian Federation for 2025 included an oil price of $70. Meanwhile, due to the collapse in the global oil market caused by Donald Trump ‘s trade war and OPEC’s decision to further increase production, the price of Russian Urals oil, according to the Ministry of Finance, was $60 per barrel on April 17.
So far, market analysts’ forecasts do not promise Russia any serious problems related to the price of oil, as it still has a very large backlash for sales. According to economic expert Oleg Pendzin, even a price of $50 per barrel is still acceptable for Russia.
“Currently, the direct cost of Russian oil production is about $37-38 per barrel. This is the direct cost. The critical figure for Russia is the sales price of $45,”
– the economist explained exclusively for .
So the more likely way to hurt Russia over oil is still to increase sanctions, including secondary sanctions against its buyers. The point of this step is to make it physically impossible for Russia to sell large volumes of oil and thus receive funds to continue its aggressive war of aggression.
However, back during his election campaign, after making statements about ending the war in 24 hours or 100 days, Donald Trump made a very realistic statement. He said that in order for Russia to lose the ability to fight, it would be enough to simply collapse oil prices. And he seems to be going to do that if Russia does not make concessions. Whether Trump realizes it or not, this is exactly what is happening now.
The Russian economy is already slowing down significantly at a price of $60 per barrel of oil, the industry is stagnating, and recession looks like a very real prospect.
And if the current downward trend in prices continues, the $45 per barrel figure no longer looks fantastic.
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