U.S. sanctions deepen Russia's economic woes: oil revenue shortfall exceeds expectations by $2 trillion
In a significant economic blow, U.S. sanctions have driven a massive hole in Russia's critical oil revenue streams. Moscow had forecasted its budget with oil prices at $70 per barrel, yet prices have plummeted below $60.
Previously, Russians feared the impact of new U.S. sanctions, but the reality has proved to be far more daunting.
On Tuesday, the Russian government officially conceded that reaching a budget shortfall due to these new sanctions could sum up to 2 trillion rubles. This equates to about 1% of the nation's GDP, an unsettling setback for Moscow, which had not anticipated such a development. Essential revenues that the Kremlin had been counting on have vanished, threatening to push the budget deficit beyond manageable limits, reports Russian news outlet The Moscow Times.
Biden’s sanctions have deeply impacted Russia's oil revenues, striking a vital sector for the country. With plans originally built on oil prices hovering at $70 per barrel, Russia now struggles as prices dwindle around, and even below, $60. This downturn comes after OPEC+ boosted production, and the Biden administration’s stringent sanctions have forced Russia to apply larger discounts.
The price of Russian Urals oil at the Baltic port fell to $57.97, and to $58.32 in Novorossiysk - the lowest since September. Sanctions on companies like "Surgutneftegaz," "Gazprom Neft," and over 180 shadow fleet tankers have cost Russia 10-20% of its oil export currency earnings, equating to a $10-20 billion revenue dip.
Major refineries such as the Omsk and Moscow refineries, and strategic gas projects like the "Baltic LNG" and two "Gazprom" LNG plants were hit hard.
The Kremlin is scrambling for funding options, yet outside aid remains elusive. The Russian authorities hoped oil revenue might patch up budget gaps, but reality bit hard. In January, the Russian government obtained 783 billion rubles from oil and gas, 17% more than the previous year, yet it remains critically insufficient. Furthermore, oil tax revenue has hovered at a minimum two months running.
Not long ago, the Kremlin boasted of an economic "breakthrough," but now ministers acknowledge the looming budget deficit is crossing dangerous thresholds. The Finance Ministry candidly admits that "additional funding sources" simply do not exist.
Russia appears ensnared in its economic missteps. In 2023, Russian officials glowingly reported rising oil and gas revenues, leaving out that even with a growth of 26% over 2022, collections fell short of the projected 11.5 trillion rubles. Projections for 2025 were even lower—10.94 trillion—yet it now appears gathering even this amount unlikely.
While propaganda paints a resilient economic picture, reality tells another story: The Kremlin increasingly loses its grip over its economic circumstances. Russians are experiencing rising costs, a weakening ruble, and a growing budget deficit. Now, it seems the worst is yet to come.