Russia’s oil price in roubles has fallen to a two-year low below the 4,000 rouble per barrel mark and some 40% lower than planned in the federal budget, data showed, piling pressure on the Kremlin, already saddled with a burgeoning budget deficit.
For Russia, the world’s second largest exporter, oil and gas have been both a strength and a weakness since the Soviets discovered one of the world’s largest hydrocarbon basins in Western Siberia in the decades after World War Two.
A sustained fall in the oil price far below the level planned in its budget would hamper Russia’s ability to continue to fight in Ukraine, though tax rises or cuts to spending in the short term could help cushion the impact of lower oil prices.
Driven by expectations that production will exceed consumption, global oil prices have lost over 10% in six straight sessions and dipped over 20% since April when U.S. President Donald Trump’s tariff shocks prompted increased bets on a slowdown in the global economy.
According to Reuters calculations, the average price of Russia’s mix of Urals and ESPO blends dipped on May 2 to $48.92 per barrel, or 3,987 roubles, which is more than 40% below the 6,726 roubles the government had originally planned for this year.
That’s the lowest since May 2023, according to Reuters data. It is also still well below the recently downgraded government forecast of 5,281 roubles per barrel for the Russian oil blend, used for taxation.
The weakening of the oil price in roubles has also been driven in part by a strengthening of the Russian currency on the back of expectations of easing Western sanctions amid talks with the U.S. to settle the war in Ukraine.
Oil prices have also dropped following the decision of the Organization of the Petroleum Exporting Countries (OPEC) and its allies led by Russia, a group known as OPEC+, to speed up oil output hikes.
The fall in the prices of energy, which account for a third of Russia’s federal budget proceeds, prompted the government last week to hike the 2025 budget deficit estimate to 1.7% of gross domestic product from 0.5% for 2025.
The move came after it reduced the energy revenue forecast by 24% due to expectations of a prolonged period of low oil prices.
Russia already hiked state spending on national defence by a quarter in 2025 to 6.3% of gross domestic product, the highest level since the Cold War, as the country continues its war in Ukraine, now in its fourth year.
Many analysts believe that the government will have no other choice but to hike taxes, reduce some sensitive social spending, and go on a borrowing spree if it wants to balance future budgets without cutting defence spending.
The average Russian oil price in roubles has continued to slide in recent months from 5,079 roubles in March and 4,562 roubles in April per barrel, according to Reuters data.
OIL PRICES
Trump said on Monday that Moscow and Kyiv want to settle the war in Ukraine and that Russian President Vladimir Putin was more inclined towards peace after the recent fall in the price of oil.
“I think Russia with the price of oil right now, oil has gone down, we are in a good position to settle, they want to settle. Ukraine wants to settle,” Trump told reporters in the Oval Office.
Kremlin spokesman Dmitry Peskov said “Oil prices cannot be a factor that can influence Russia’s attitude towards its national interests”.
“Russia’s national interests are above all else, above any oil prices,” he added.
Russia, Peskov said, was working with OPEC+ to ensure prices remained at an optimal level.
“Of course, the international oil price is a very important factor for budget formation in our country and for the Russian economy as a whole,” Peskov said.
“It remains relevant, and here, of course, Russia, as you know, has been working in the OPEC+ format for a long time to maintain prices at an optimal level. Excessively high prices and very low prices, of course, adversely affect the global economy as a whole, so this work continues here.”
Source: Reuters