In June this year, the Russian budget's revenues from oil and gas decreased by more than a third compared to June last year. Revenues amounted to 494.8 billion rubles - the weakest result since January 2023. Then, however, after a short-term decline, revenues began to recover, while now there are no prerequisites for such a development.
In early 2023, revenues fell due to the introduction of a ceiling on Russian oil prices and the embargo of the G-7 countries. As a result, the price of a barrel of Russian oil grade "Urals", (which Bulgaria also uses), fell below $ 50, but gradually Russia managed to partially adapt to the restrictions. The Russian "shadow fleet" played an important role in this, and revenues then started to rise again.
The decline in oil revenues in 2025 is due to global trends. It is not only Russian oil that is becoming cheaper - the prices of all types of oil are falling. Even the war in the Middle East is not able to greatly alarm the markets and stop this trend.
The growth in oil production is outpacing the growth in demand
The issue is that there is more oil than the market can absorb. In June, the International Energy Agency (IEA) predicted that in 2025, oil supply will grow by 1.8 million barrels per day and will reach 104.9 million. At the same time, consumption will increase by only 720,000 barrels per day - to 103.8 million.
Supply is growing so vigorously because OPEC+ countries are increasing production. This is in sharp contrast to their previous behavior, when they deliberately reduced production to create a deficit and push up prices. This strategy did not work, because in this way OPEC only ceded part of its market share to the United States and other competitors. Now they are acting differently - they are increasing supply to reduce prices and make production in new American fields unprofitable.
In May, June and July, OPEC+ countries added 411,000 barrels per day, and at their meeting last weekend they agreed to another increase in production in August - by 548,000 barrels per day. Since the IEA forecast does not take into account this new increase, the increased supply will exceed demand even more.
What the Russian government is counting on
According to a Reuters survey of 40 leading analysts and economists, the average price of a barrel of “Brent“ in 2025 could be around $68. Since the price was just above $70 in the first five months of the year, in the second half of the year it would have to fall to $65 for the forecast to come true.
Initially, the Russian budget for 2025 was calculated based on an average price of “Brent“ of $81.7 per barrel. In the spring, the Russian government lowered its forecast to $68. But the circumstances now are such that even that may not be realized.
Economist Sergei Aleksashenko’s calculations show that if current prices hold, the government is likely to meet – and perhaps even slightly exceed – its revenue plan. However, this is not the government’s original plan, which envisaged oil and gas revenues of 10 trillion rubles, but the revised plan of 8.3 trillion rubles. At the same time, planned spending has been increased by 800 billion rubles, which will increase Russia’s budget deficit to about 3.8 trillion rubles (1.7% of GDP).
What does cheaper oil mean for the Russian economy?
The situation in Russia does not yet look hopeless, analysts at the Bank of Finland’s Emerging Economies Institute (BOFIT) say in a new review. The 3.8 trillion ruble deficit could be financed by increasing the state debt - or by another tax hike. But the options for countermeasures are becoming increasingly limited.
As of June 1, the National Welfare Fund (NWF) - the Russian government's "savings bank" that is supposed to cover declining oil and gas revenues - had liquid assets worth just 2.8 trillion rubles - less than the expected budget deficit. However, in June, the liquid portion grew by 1.3 trillion rubles - after the additional oil and gas revenues collected last year were included in the NWF. But the picture is not changing radically - in fact, the state is starting to live in a "paycheck to paycheck" mode. Any sharp external shock - for example, a new drop in oil prices or increased sanctions pressure on Russia - could turn into a full-fledged crisis. If the war against Ukraine continues, and it is becoming more expensive with each passing year, it will not be possible to do without cuts in civilian budget items.
Author: Oleg Khokhlov