Krievijas budžets ciest no naftas un gāzes ieņēmumu krituma un kara izmaksām
Russia’s economic lifeline, once robustly fueled by oil and gas revenues, is showing critical signs of strain. A confluence of factors – declining energy prices, reduced export volumes, and the escalating costs of the war in Ukraine – are squeezing the Kremlin’s finances and forcing it to draw down its sovereign wealth fund at an alarming rate. This isn’t just a financial issue for Russia; it has global implications for energy markets, geopolitical stability, and the long-term trajectory of the conflict in Ukraine.
The Shrinking Energy Wallet
Recent data from Russia’s Finance Ministry reveals a stark reality: oil and gas tax revenues plummeted by 24% in 2023, reaching approximately $108 billion USD – the largest drop in a decade. December 2023 saw revenues from oil and gas exports halved compared to the previous year, hitting a low not seen since August 2020, according to Reuters. This decline directly impacts Russia’s ability to fund its military operations and maintain domestic stability.
The Depletion of the National Wealth Fund
Faced with dwindling energy income, the Putin administration has been aggressively tapping into Russia’s National Wealth Fund (NWF). Over half of the fund’s assets and nearly three-quarters of its gold reserves have been spent in the last few years to cover budget deficits, finance state-owned banks, and fund large-scale projects. “For the third year in a row, the Russian government has been forced to sell off NWF gold reserves to cover the costs of the war and other federal budget expenses,” reports The Moscow Times. In January alone, the government covered a $3 billion USD shortfall by liquidating NWF assets.
The NWF’s gold reserves have shrunk by 71% between 2022 and 2024, falling from 554.9 tons in May 2022 to 160.2 tons as of January 1, 2024. While the fund saw a slight increase in reserves in late 2023, it remains almost 60% lower than pre-war levels. The Finance Ministry had initially planned to cease drawing from the NWF in 2026, hoping to preserve remaining reserves built up during periods of high oil prices. However, this plan has been derailed by the current crisis.
The Impact of Sanctions and Price Caps
Former US President Trump’s sanctions, coupled with the G7 price cap on Russian oil, have significantly impacted Russia’s revenue stream. The average price of Russia’s flagship crude oil, Urals, has fallen to $39 per barrel, well below the $59 per barrel budgeted for. Since November, the price of Urals has dropped by 13%, and by over 40% since the beginning of 2024. VTB Bank analysts predict that if oil prices and the ruble remain at current levels, another $32 billion USD will be drained from the NWF by the end of the year – roughly 60% of the remaining funds.
From January 16th to February 5th, the Russian Finance Ministry increased its daily sales of gold and Chinese yuan from the fund to $163 million USD, totaling $2.5 billion USD. This represents a record-breaking level of activity, exceeding even the peak of the pandemic.
A Bleak Outlook: Potential Fund Depletion
Analysts at the “MMI” Telegram channel, specializing in Russian and global macroeconomics, believe the situation is even more dire. They forecast potential losses of $32-38 billion USD in oil and gas revenues in 2024, potentially leading to the complete depletion of the NWF. As of early 2024, the fund held approximately $52 billion USD in liquid assets. In response, the Finance Ministry has suspended the publication of monthly data on oil and gas revenues, a move seen as an attempt to conceal the severity of the crisis.
Budgetary Strain and Policy Responses
The combination of falling oil prices, a strengthening ruble, and sanctions resulted in a $32 billion USD loss in oil and gas revenues for the federal budget in 2023. The Finance Ministry revised its budget forecast in the autumn, tripling the projected deficit. Even with the revised forecast, actual revenues fell short by $2.5 billion USD. “Judging by the current dynamics of oil prices, the situation will remain difficult this year as well,” warns Natalia Orlova, Chief Economist at Alfa Bank.
To address the shortfall, the Russian government has implemented a series of tax increases, including a rise in VAT from 20% to 22%, corporate income tax from 20% to 25%, and various duties and excise taxes. A progressive income tax scale was also introduced, with an aim to generate an additional $46 billion USD in revenue – a goal that ultimately went unmet. Revenue only increased by 1.6%, or $7.4 billion USD, and has begun to decline in real terms when adjusted for inflation.
Economist Viktor Tunev notes that Russia’s overall budget revenues, including regional budgets and social security contributions, have remained virtually stagnant for the past three years. “We raise taxes every year, but they don’t bring anything into the budget. Revenues are constantly decreasing both in real terms and as a percentage of GDP.”
The Future of Russia’s Economy
The current crisis is forcing Russia to confront a fundamental shift in its economic model. The reliance on energy exports, once a source of immense wealth, is proving increasingly unsustainable in a world actively seeking to diversify its energy sources and impose sanctions on Russia. The long-term consequences could include a decline in living standards, increased social unrest, and a weakening of Russia’s geopolitical influence.
The Rise of the “Shadow Economy”
“At the beginning of 2024, Russia has completely transformed into a ‘shadow economy state’,” comments the “Незыгарь” Telegram channel. “Previously, Russian officials of all ranks hid assets and offshore accounts abroad, today the state hides oil under foreign flags. The re-marking of sanctioned dual-use goods and ‘gray import’ schemes have become a separate branch of the economy.”
However, even these shadow schemes are facing increasing pressure. As American journalist Seymour Hersh points out, Russia’s energy empire is being dismantled, having lost its European market and facing increasing restrictions on its exports. The future looks bleak, with the potential for further economic decline and instability.