Oil and gas exports have sustained Russia's finances during its war in Ukraine, but as the fourth anniversary of the full-scale invasion approaches, those cash flows have suddenly shrunk to their lowest levels in years. The result is new sanctions from the United States and the European Union, U.S. President Donald Trump's tariff crackdown on India and a crackdown on a fleet of tankers that evade sanctions and transport Russian oil, the AP reports.
The drop in revenue has forced President Vladimir Putin to borrow from Russian banks and raise taxes, keeping state finances stable for now. But the measures have only added to the pressure on a wartime economy that is now burdened by slowing growth and inflation.
Sanctions on companies
In January, Russia's state revenues from taxation of the oil and gas industry fell to 393 billion rubles ($5,1 billion). This is significantly less than 587 billion ($7,6 billion) in December and 1,12 trillion ($14,5 billion) in January 2025.
According to Janis Kluge, an expert on the Russian economy at the German Institute for International and Security Affairs, this is the lowest level since the Covid-19 pandemic. In order to force the Kremlin to stop the fighting in Ukraine, the Trump administration imposed sanctions on two of Russia's largest oil companies, Rosneft and Lukoil, on November 21.
This means that anyone who buys or transports their oil risks being excluded from the US banking system, a serious threat to any multinational business. On top of that, on January 21st the European Union began banning fuel made from Russian crude, meaning it can no longer be refined elsewhere and shipped to Europe in the form of gasoline or diesel.
Price limit
European Commission President Ursula von der Leyen proposed a complete ban on maritime services for Russian oil on Friday, stressing that sanctions provide leverage to pressure Russia.
The latest sanctions go beyond the price caps on Russian oil imposed by the Group of Seven Democracies (G7) during the administration of former US President Joe Biden. The $60-a-barrel cap, enforced through insurance companies and shipping companies based in G7 countries, was aimed at reducing Russian profits rather than banning imports, due to fears of rising energy prices.
The restriction temporarily reduced the country's oil revenues, especially after an EU ban on most Russian oil transported by sea forced Russia to redirect sales to China and India. But Russia has built up a "shadow fleet" of old tankers that operate outside the scope of the restrictions, and revenues have risen again.
Pressure on India
Trump agreed on February 3 to lower tariffs from 25 percent to 18 percent, saying Indian Prime Minister Narendra Modi had agreed to halt imports of Russian crude, and on Friday he also lifted an additional 25 percent tariff imposed for continued imports of Russian oil.
Modi did not comment. Foreign Ministry spokesman Randir Jaiswal said India's strategy was "diversification of energy sources in accordance with objective market conditions." Kremlin spokesman Dmitry Peskov said Moscow was monitoring the statements and remained committed to an "advanced strategic partnership" with New Delhi.
In any case, Russian oil shipments to India have fallen in recent weeks, from two million barrels per day in October to 1,3 million in December, according to data from the Kiev School of Economics and the US Energy Information Administration (EIA).
Data firm Kpler says it is “unlikely that India will completely wean itself off” cheap Russian energy anytime soon. Ukraine’s allies are increasingly sanctioning individual tankers from the “shadow fleet” to deter buyers from taking their oil, bringing the number of such ships sanctioned in the US, UK and EU to 640.
US forces have seized vessels linked to sanctioned Venezuelan oil, including one sailing under the Russian flag, while France briefly intercepted a vessel suspected of belonging to the “shadow fleet.” Ukrainian attacks have hit Russian refineries, pipelines, export terminals and tankers.
Sale at a discount
Buyers are now seeking higher discounts on Russian oil to offset the risk of violating US sanctions and the difficulty of finding payment methods that bypass banks unwilling to participate in such transactions, index.hr reports.
The discount widened to around $25 a barrel in December, as Urals, Russia's main export blend, fell below $38 a barrel, compared with around $62,50 a barrel for international benchmark Brent crude. Since Russia's oil production taxes are based on the price of oil, this directly reduces government revenues.
“It’s a domino effect,” said Mark Esposito, senior crude oil shipping analyst at S&P Global Energy. The inclusion of diesel and gasoline has created “a really dynamic sanctions package, a one-two punch, that affects not only the flow of crude oil but also the flow of refined products from those barrels. The universal message is: if it’s coming from Russian crude, it’s out,” he said.
Buyers' unwillingness to take delivery has led to an unusually large amount, about 125 million barrels, piling up in tankers at sea. This has increased costs due to the shortage of available ships, with daily charter rates for very large tankers reaching $125.000, "and that is directly related to the consequences of the sanctions," Esposito said.
Growth slowdown
In addition, economic growth has stalled as the stimulus to war spending reaches its limits and labor shortages limit the potential for business expansion. Lower growth also means fewer tax revenues. Gross domestic product grew by just 0,1 percent in the third quarter.
Forecasts for this year range between 0,6 and 0,9 percent, down from more than four percent in 2023 and 2024. "I think the Kremlin is worried about the overall budget balance, because that coincides with the economic downturn," Kluge said. "And at the same time, the costs of the war are not decreasing."
The Kremlin's response
The Kremlin has turned to higher taxes and borrowing to fill the gap left by falling oil revenues and slower economic growth. The Kremlin-controlled parliament, the Duma, raised the VAT rate that consumers pay at the till to 22 percent from 20 percent, and increased duties on imported cars, cigarettes and alcohol.
The government is borrowing more from obedient domestic banks. The National Wealth Fund still has reserves with which to "patch" budget holes. So, for now, the Kremlin has money. But raising taxes could further slow growth, and borrowing carries the risk of worsening inflation, which has been lowered to 5,6 percent with central bank interest rates at 16 percent, after a peak of 21 percent.
"Give it six months or a year and it could also affect their thinking about the war," Kluge said. "I don't think they'll seek a peace agreement because of this, but they might want to reduce the intensity of the fighting, focus on certain areas of the front and slow down the war. That would be the answer if it becomes too expensive," he said.
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