Pressure on Kremlin revenues. China wants even bigger discounts on Russian oil
27 February 16:19
Russia intends to maintain stable Urals oil exports in March by increasing supplies to China, as key buyer India is reducing purchases of Russian oil after signing a trade agreement with the US. China is demanding even bigger discounts, according to Reuters. Therefore, Russia has only two options: increase discounts for China or reduce production. Both will put additional pressure on the Kremlin’s revenues,
As economist Andriy Novak explained to Kommersant, Russia’s current desire to sell more of its oil products and gas to China is entirely logical. Russia has no other choice. There is simply no other major buyer.
“Russia used to have three major buyers. The largest was the European Union market. Europe as a whole, which Russia has now almost completely lost. And from January 1, 2027, the EU will completely stop purchasing Russian liquefied gas. And from September 1, it will even stop purchasing pipeline gas. Europe used to be the largest market for Russia. Now Russia has almost completely lost it. And from next year, it will lose it completely, 100%.”
The next two largest markets for Russian energy exports were China and India, the expert explains.
“And as we can see, India is actually reducing its oil purchases by 200-300 thousand barrels per day. Precisely at the insistence and as a condition of India’s trade agreement with the United States, Russia’s last hope for a major buyer now lies with China.”
As Novak explains, on the one hand, China is waiting for Russia to weaken as much as possible militarily in the war with Ukraine. On the other hand, China is waiting for Russia to weaken as much as possible economically. And of course, since China is now Russia’s last hope for a major buyer, China is now dictating the terms.
“That is, it is the last major buyer of Russian energy resources for now. And therefore, Russia will in fact be forced to agree to any discount that China demands. Because it simply has no other choice, there are no other major buyers,” Novak says.
According to him, we can now even disregard the fluctuations in world oil prices that we are currently seeing.
“There was a certain jump in prices due to the so-called Iranian war. Such fluctuations will continue as long as there is uncertainty about the so-called Iranian war. But now, for Russia, world oil prices are no longer even a benchmark, because it can sell exclusively on individual, very dumped terms to its buyers, and even more so to such a large buyer as China.”
Andriy Novak explains that the current conditions are as unfavorable as possible for Russia.
“Therefore, China will now squeeze Russia as much as possible and seek maximum economic benefits for itself. This means that Russia can only sell China not only energy resources, but also metals, timber, and precious metals at very low, dumped prices. Therefore, China is currently dictating everything in the Russia-China relationship. Russia is forced to agree to virtually any conditions set by China.”
In addition, some market participants warn that China’s demand for Russian oil may be approaching its peak. April could be a decisive month for supplies. Small oil refineries in China will stock up, demand may fall, and Russia will be forced to cut production. So, in any scenario, the Kremlin will lose its income.
The average price of Urals, Russia’s main export brand of oil, fell to $39.18 per barrel at the end of December 2025, down 41% from the beginning of the year.
The actual price of Russian oil is currently almost $20 lower than the level set in Russia’s 2026 budget, which was based on a price of $59 per barrel. This gap creates a huge hole in the state treasury’s revenues: according to economists’ estimates, the shortfall in oil and gas revenues could amount to between 1.1 and 1.4 trillion rubles. As a result, the Russian budget deficit risks growing to 2.7% of GDP, which will force the aggressor government to spend the remaining funds of the National Welfare Fund more actively.
Current price indicators have effectively returned Russia’s oil revenues to the level of Putin’s first presidential term in 2004.
