The Kremlin vowed on Monday to take all necessary measures to shield Russia, the world’s second-largest crude exporter, from the economic turbulence triggered by global oil market volatility and recession fears.
Brent crude futures dropped by $1.61, or 2.5%, to $63.97 per barrel. Over the past four trading sessions, oil prices have fallen 15% due to growing concerns about the global economy after U.S. President Donald Trump introduced sweeping tariffs and OPEC+ announced an unexpected output increase. The oil price decline presents a significant challenge for Russia, which is already grappling with high military expenditures for its ongoing campaign in Ukraine, marking its most costly military operation since the Soviet-Afghan war.
Kremlin spokesperson Dmitry Peskov stated that Russia is closely monitoring oil prices as they are crucial for funding the national budget. “We are monitoring the situation very closely. It is currently marked by extreme turbulence, tension, and emotional volatility,” Peskov told reporters. He assured that Russia’s economic authorities are prepared to take all necessary steps to minimize the impact of the global economic storm on the Russian economy.
Russia’s Urals crude blend, which is priced based on shipments from Primorsk, Ust-Luga, and Novorossiisk ports, recently fell to approximately $53 per barrel. This is well below the $69.7 per barrel price used to plan Russia’s 2025 budget. Oil and gas exports contribute roughly one-third of the country’s federal budget revenues, funding significant increases in defense spending, which is up by 25% this year—the highest levels since the Cold War.
It remains unclear whether the drop in oil prices will influence ongoing negotiations for a ceasefire in Ukraine. The Kremlin emphasized that President Vladimir Putin still supports the idea of a ceasefire, but has yet to receive responses to questions raised regarding a truce proposal made by the Trump administration.
Although Trump’s new tariffs exempted oil, gas, and refined products from the list of affected imports, Russia remains highly dependent on its oil and gas exports. Since the Soviet Union’s discovery of massive oil fields in Siberia, these energy resources have been both a strength and vulnerability for Russia. When oil prices are high, Siberian reserves boost the economy and state spending. However, when prices fall, the economy faces severe risks, as seen during the collapse of the Soviet Union in 1991.
In early April, Russia’s central bank warned of the dangers of a prolonged price collapse similar to the one experienced in the 1980s. “Lower oil prices, due to slowing global demand and the strengthening ruble, may pose risks to budget revenue,” the central bank said in a statement. It added that this could complicate the government’s plan to maintain a zero structural primary deficit this year.
Russia’s 2025 budget assumes an oil price based on a ruble exchange rate of 96.5 rubles per U.S. dollar, though the ruble has strengthened this year. Currently, the ruble is trading at 86.30 against the dollar. The Russian government uses a combination of Urals and more expensive ESPO Blend crudes to calculate its average oil price for taxation purposes.
According to Reuters calculations, the Russian oil price has dropped to approximately 4,476 rubles per barrel, the lowest since June 2023, down from the 6,726 rubles per barrel projected in the federal budget.
For the oil market, the severity of the current economic “storm” will depend on several factors: the impact of the global trade war on economic growth, future decisions by OPEC+, and the possibility of a U.S. military strike on Iran.
Related Topics:
- Iraq Reaffirms OPEC+ Commitment Before Resuming Kurdistan Oil Exports
- Russia Says OPEC+ Has Not Talked About Postponing Its Oil Supply Increase
- How Will OPEC React to Iran’s Request for Action Against U.S. Sanctions?