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A recent decline in oil prices, driven by Donald Trump’s trade war, has begun impoverishing the chest of Vladimir Putin’s war.
Moscow Budget – about one -third of which comes from oil and gas – can be up to 2.5 percent lower than expected in 2025 if raw prices stay at current levels. This would force the Kremlin to increase borrowing, shorten non -military expenses or withdraw the remaining reserves.
The average pricing of the raw Urals, the main rate of Russia’s export, has fallen to the lowest level of nearly two years, following the US president’s tariff announcements and an unexpected action by the OPEC+ coalition to increase production.
Urals has been trading about $ 50 per barrel since Thursday, according to the Argus Price Reporting Agency. Russia planned its budget for 2025 based on Urals at $ 69.70 per barrel.
The decline in the price increases pressure on the Russian economy, which is expected to slow down this year after being fueled by war -related expenses. Moscow has already used some of its sovereign funding funds to support the economy after the consequences of Putin’s full -scale occupation in Ukraine, and the accessible part of those funds is decreasing.
In a rare recognition of economic insecurity, Russian officials have expressed concern about the decline in oil prices.
“This indicator is very important for us in terms of budget revenues. The situation is extremely unstable, tense and emotionally charged,” Kremlin spokesman Dmitry Pekov told reporters earlier this week.
The change also shows how Trump’s tariff warfare is indirectly damaging the Russian economy, despite the US president’s recent overtaking and the promise to rebuild economic ties as part of negotiations to end the war in Ukraine. Oil is still below this week, despite Wednesday’s announcement of a 90-day break for the comprehensive tariff program.
Russian Central Bank Chief Elvira Nabiullina announced on Tuesday, on the eve of the trump 90-day pause announcement that “if trade wars continue, they usually lead to global economic slowdown and perhaps lower demand for our energy exports.”
If oil prices keep close to current levels, Russia may lose about a ruble trillion this year, equivalent of 2.5 percent of the expected budget revenue, according to the chief of economist in Moscow-based T-Investments Sofia Donets. This will mean increased GDP by falling by 0.5 percentage points, she said.
However, it would take several months for the lowest oil prices to be fed in budget revenues, according to Janis Kluge, a Russian expert at the German Institute for International and Security Internationals.
Russia’s economy is already operating with full capacity, with increasing-promoted by war-related government spending-expected to slow down. Official forecasts suggest an extension of 1-2.5 percent in 2025, out of about 4 percent over the last two years.
This makes it impossible for the state to be able to compensate for the decline in oil revenue with funds from non-energy sources.
While Putin’s full -scale occupation in Ukraine has been dragged in its fourth year, the government’s ability to support the economy has decreased.
Since 2020, the liquid part of the Russian sovereign property fund-known as the National Welfare Fund-has fallen by two-thirds. If used to cover a budget enlargement deficit, it may not last far from the end of the year, according to Benjamin Hilgenstock, head of research and macroeconomic strategy at the Kyiv School Institute.
“If the regime can do nothing about it except painful cuts in non -war costs is another matter,” Hilgenstock said.
About $ 340 billion of central bank reserves also remain frozen under Western sanctions, sharply limiting the maneuvering room.
With the lower well -being fund, Moscow can be forced to cut costs, which would be a shift from its increase in war. Economists warn that any cuts will probably fall into non -military budget areas, such as social spending.
If the oil price stabilizes at a very low level, Russia is likely to have to tax export companies more to make up for some of the revenue declines, according to Oleg Kuzmin, the main economist in Renaissance Capital. “After regulating taxes and debt financing, Russia will have to consider lowering costs – which also remains an option, but beyond” Plan A “or” Plan B “, he added.
Moscow can also try to raise more debt in international markets, as the burden of its public debt currently stands below 30 percent of GDP, a low level according to international standards. But for many foreign investors Russian bonds remain toxic.
At home, banks were loan -focused for the private sector and had shown little interest in financing deficits, said Hilgenstock, who was expecting serious restrictions on the Russian economy, but not an unexpected collapse.
“It’s not all great for the budget, but not catastrophic,” he said.
