Russia feels the blow of Western sanctions as energy revenues plummet to two-year low

Revenues from energy have fallen to their lowest level in more than two years in Russia as Russia continues to come under pressure under Western sanctions for its aggression against Ukraine, and Moscow’s federal budget revenues are declining each year. is seen.

“Oil and gas revenues reached 426 billion rubles ($6.02 billion), down 46% compared to January 2022, mainly due to lower Ural oil prices and lower natural gas exports. It is due to,” February 6 press release This was announced by the Russian Ministry of Finance. This is Russia’s lowest monthly budget income from oil and gas since August 2020.

The average Ural crude oil price in January 2023 fell from $85.64 to $49.48 per barrel. press release This was down about 42% and contributed to the decline in Russia revenue.

“In view of the declining representativeness of the Ural oil price quote as an objective price index of Russian oil export prices, an approach is currently being developed to switch to an alternative price index for tax purposes.” said in a Feb. 6 release.

Falling oil revenues are having a negative impact on Russia’s budget. Preliminary estimates put federal budget revenues at 1,356 billion rubles ($19.15 billion) in January 2023, 35% less than in January 2022.

Non-oil and gas revenues also fell by 28% to 931 billion rubles ($13.15 billion), which the ministry blamed on lower domestic VAT and income tax revenues.

Meanwhile, federal budget spending increased by 59% in January 2023. This is due to the rapid execution of contracts and pre-financing of certain contract expenditures.

western sanctions

Since Russia invaded Ukraine last February, the country has faced severe sanctions from the West. The European Union has blocked seaborne crude oil imports from Russia. This accounted for 90% of crude oil sales to Russian blocs.

In addition, EU Member States have reduced the share of Russian gas imports from 40% before the war to 15%. On February 5, the EU embargo on refined oil from Russia, including jet fuel and diesel, came into effect.

“We must continue to deprive Russia of the means to wage war against Ukraine. The EU ban on Russian petroleum products will come into force on Sunday,” said EU Commission President Ursula von der Leyen. said. Tweet February 3rd.

“The G7 has set price caps on these products, ensuring stable global energy markets while reducing Russian revenues.”

G7 countries have imposed a $60 per barrel price cap on Russian Ural crude. As of February 6, Ural crude is trading at $52.62 a barrel, about $30 below Brent crude at $80.99 a barrel. Previously, both Urals and Brent traded at similar prices.

budget shortage

Russia expects a budget deficit of 2% of GDP in 2023. If the deficit is larger than expected, Moscow will have to take steps to address the situation, including borrowing more, tax increases, spending cuts and sales. of foreign currency.

Analysts at the Moscow Credit Bank expect the budget deficit to reach 3.8% of GDP this year. In January, Russia’s deficit had reached 60% of its 2023 overall deficit target.

The two main sources of revenue Moscow uses to finance its budget deficit are domestic borrowing and accumulated national energy revenues. In the last quarter of 2022, Russia increased domestic borrowing.

In January, 38.5 billion rubles ($540 million) worth of renminbi and gold was spent to finance the budget deficit. Some experts predict an increase in forex turnover in the coming months.

“Russia will almost triple the amount of foreign currency it plans to sell by early March as energy revenues plummet. The main asset that can be used to make a sale from the asset fund is the RMB.” said In a tweet on February 4th.