Economy
Cheap Oil Is Not So Scary for the Putin Economy
April 29, 2025
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Sergei Shelin
Journalist, independent analyst
Journalist Sergei Shelin warns that Russia’s economic problems are gradually growing, though they do not threaten a meltdown in the near term – the regime’s economic managers are prepared for falling oil prices and know how to shift the burden onto ordinary Russians.
The original article in Russian was published by the Moscow Times and is being republished here with the author’s permission.
Predictions of the imminent collapse of the Russian economy – because of plunging oil prices and the need to use the country’s last reserves to fill the resulting fiscal gap – are back in the spotlight. After all, the National Wealth Fund (NWF) is almost empty.
From one pocket to the other
Indeed, the price of a barrel of Brent crude has fallen a good $20 in just one year, going from $85-90 last April to $65-70 now. This is a serious, though not devastating, drop.
Strictly speaking, we do not know the actual proceeds generated from the sale of an average barrel of Russian oil. It’s classified. But the amount has clearly gone down. The price of a barrel of Urals, to which taxation is tied, has recently been hovering around $60.
Predictions of the imminent collapse of the Russian economy – because of plunging oil prices and the need to use the country’s last reserves to fill the resulting fiscal gap – are back in the spotlight. After all, the National Wealth Fund (NWF) is almost empty.
From one pocket to the other
Indeed, the price of a barrel of Brent crude has fallen a good $20 in just one year, going from $85-90 last April to $65-70 now. This is a serious, though not devastating, drop.
Strictly speaking, we do not know the actual proceeds generated from the sale of an average barrel of Russian oil. It’s classified. But the amount has clearly gone down. The price of a barrel of Urals, to which taxation is tied, has recently been hovering around $60.
Finance Minister Anton Siluanov (left) and Central Bank Governor Elvira Nabiullina at the 2024 St Petersburg Economic Forum. Source: VK
Meanwhile, this year’s budget is based on a Urals price of $69.70 per barrel. Thus, the government needs to compensate for the shortfall in tax receipts by selling hard currency or gold from the NWF in the market. The liquid part of the NWF, i.e., gold and hard currency, amounted to RUB 3.3 trillion in ruble equivalent at the beginning of April. This is actually small in relative terms, at only 1.5% of Russia’s GDP.
These reserves should well be enough to plug the emerging hole in the budget this year, as we shall see below. But even if we imagine the worst – that the hole turns out to be larger than RUB 3.3 trillion – the government would perform a simple accounting procedure, transferring some of the sovereign reserves from the Central Bank (CBR) to the Finance Ministry.
The liquid part of the NWF is included in Russia’s international reserves. The total amount of these reserves in dollar equivalent is now $656 billion and is growing. Half of these reserves are frozen in the West, but Putin still controls more than $300 billion.
Of this, the NWF, which is managed by the Finance Ministry under Anton Siluanov, holds about $40 billion in dollar equivalent, while the remaining and much larger part of Russia’s international reserves is managed by the CBR under Governor Elvira Nabiullina.
These reserves should well be enough to plug the emerging hole in the budget this year, as we shall see below. But even if we imagine the worst – that the hole turns out to be larger than RUB 3.3 trillion – the government would perform a simple accounting procedure, transferring some of the sovereign reserves from the Central Bank (CBR) to the Finance Ministry.
The liquid part of the NWF is included in Russia’s international reserves. The total amount of these reserves in dollar equivalent is now $656 billion and is growing. Half of these reserves are frozen in the West, but Putin still controls more than $300 billion.
Of this, the NWF, which is managed by the Finance Ministry under Anton Siluanov, holds about $40 billion in dollar equivalent, while the remaining and much larger part of Russia’s international reserves is managed by the CBR under Governor Elvira Nabiullina.
“Putin could easily lean on the CBR to replenish the NWF if the fund really ‘ran dry’. This would just be taking money from one of Putin’s pockets and putting it the other.”
Oil price from January 6, 2020 to mid-April 2025, $ per barrel. Source: Statista
Economy bureaucrats update their forecasts
Let’s move on to more serious issues. Does the Putin regime really live on oil?
Not quite. At the peak of Russia’s oil dependence, in the early 2010s, energy provided about 50% of all federal fiscal revenues. But since then, its weight has decreased. In 2024, oil and gas revenues amounted to RUB 11.1 trillion, 30.1% of the overall RUB 36.7 trillion that flowed into state coffers.
In 2025, the government expects to collect a little less, at RUB 10.9 trillion. At the beginning of the year, oil and gas revenues were slightly lagging: they came to RUB 2.64 trillion in January-March, representing 29% of total quarterly fiscal revenues (RUB 9.05 trillion). Moving forward, however, falling oil prices will squeeze revenues more and more.
Yet the main issue with the budget in the first quarter was on the spending side. Expenditures jumped 24.5% year over year, driving an abnormally large first-quarter deficit of RUB 2.17 trillion (more than 4% of quarterly GDP). This shows that it is the ongoing war – not cheap oil – that is really shaking up state finances.
Economy bureaucrats tell the president that they are ready to make any conditions work and carry out any order. The Ministry of Economic Development recently revised its macroeconomic forecasts for 2025 to prove that cheap oil is not so scary.
It slashed its estimated average annual price of Urals from $69.70 per barrel, issued last September, to $56.00 per barrel, and export earnings from $445 billion to just $411 billion; meanwhile, it now predicts the long-promised stamping-out of inflation will not happen this year.
There are no hints of a reduction in military production or cuts in defense spending in the forecasts. Everything will be as the president wants, only Russians will pay a higher-than-expected inflation tax to compensate for the oil and gas revenue shortfall.
The ruble paradox
In essence, the updated forecasts of the Ministry of Economic Development are in line with the so-called risk scenario of its bureaucratic opponent, the CBR. This scenario, issued last year, describes what could happen to the Russian economy in the event of a global recession, a US-China trade war and everything else that is now materializing.
Of course, the CBR also promises Putin that it can deal with the situation and that it will not get in the way of any militaristic initiative. But the CBR is more wary of the impact of the current trends: In the first year of the crisis laid out in the CBR risk scenario, oil falls more than the Ministry of Economic Development has it, oil and gas export earnings plunge to $278 billion and inflation shoots up even higher.
But, by and large, Putin’s economic managers think alike: they promise to make ends meet solely at the expense of ordinary Russians, without touching military spending. They are likely capable of this. But there are two circumstances that make their job harder.
First, Russia would enter a crisis with an economy that has been slowing down for at least a year. Official statistics are doctored, but even government experts see that only sectors connected to the military side of the economy are growing, while the production of goods and services on the civilian side is stagnating or contracting.
“Stagnation has crystallized in the Russian economy. In a clear form, it has affected household consumption (there is a decline in sales of nonfood items), private investment (especially private investment in production capacity) and the export of goods,” according to the Center for Macroeconomic Analysis and Short-term Forecasting, a government-affiliated think tank.
The second circumstance is that Russia would not be Russia if something paradoxical were not mixed in with the standard signs of a nascent crisis.
Let’s move on to more serious issues. Does the Putin regime really live on oil?
Not quite. At the peak of Russia’s oil dependence, in the early 2010s, energy provided about 50% of all federal fiscal revenues. But since then, its weight has decreased. In 2024, oil and gas revenues amounted to RUB 11.1 trillion, 30.1% of the overall RUB 36.7 trillion that flowed into state coffers.
In 2025, the government expects to collect a little less, at RUB 10.9 trillion. At the beginning of the year, oil and gas revenues were slightly lagging: they came to RUB 2.64 trillion in January-March, representing 29% of total quarterly fiscal revenues (RUB 9.05 trillion). Moving forward, however, falling oil prices will squeeze revenues more and more.
Yet the main issue with the budget in the first quarter was on the spending side. Expenditures jumped 24.5% year over year, driving an abnormally large first-quarter deficit of RUB 2.17 trillion (more than 4% of quarterly GDP). This shows that it is the ongoing war – not cheap oil – that is really shaking up state finances.
Economy bureaucrats tell the president that they are ready to make any conditions work and carry out any order. The Ministry of Economic Development recently revised its macroeconomic forecasts for 2025 to prove that cheap oil is not so scary.
It slashed its estimated average annual price of Urals from $69.70 per barrel, issued last September, to $56.00 per barrel, and export earnings from $445 billion to just $411 billion; meanwhile, it now predicts the long-promised stamping-out of inflation will not happen this year.
There are no hints of a reduction in military production or cuts in defense spending in the forecasts. Everything will be as the president wants, only Russians will pay a higher-than-expected inflation tax to compensate for the oil and gas revenue shortfall.
The ruble paradox
In essence, the updated forecasts of the Ministry of Economic Development are in line with the so-called risk scenario of its bureaucratic opponent, the CBR. This scenario, issued last year, describes what could happen to the Russian economy in the event of a global recession, a US-China trade war and everything else that is now materializing.
Of course, the CBR also promises Putin that it can deal with the situation and that it will not get in the way of any militaristic initiative. But the CBR is more wary of the impact of the current trends: In the first year of the crisis laid out in the CBR risk scenario, oil falls more than the Ministry of Economic Development has it, oil and gas export earnings plunge to $278 billion and inflation shoots up even higher.
But, by and large, Putin’s economic managers think alike: they promise to make ends meet solely at the expense of ordinary Russians, without touching military spending. They are likely capable of this. But there are two circumstances that make their job harder.
First, Russia would enter a crisis with an economy that has been slowing down for at least a year. Official statistics are doctored, but even government experts see that only sectors connected to the military side of the economy are growing, while the production of goods and services on the civilian side is stagnating or contracting.
“Stagnation has crystallized in the Russian economy. In a clear form, it has affected household consumption (there is a decline in sales of nonfood items), private investment (especially private investment in production capacity) and the export of goods,” according to the Center for Macroeconomic Analysis and Short-term Forecasting, a government-affiliated think tank.
The second circumstance is that Russia would not be Russia if something paradoxical were not mixed in with the standard signs of a nascent crisis.
“Contrary to economic logic, the fall in the price of Russia’s main export has coincided with a strengthening of the national currency.”
An economy built for permanent crisis
The USD/RUB exchange rate has gone from 113 at the beginning of the year to 81-85 in April. This ruble strengthening is so odd that Putin’s economic managers have decided not to ponder it yet. The updated Ministry of Economic Development forecasts include an average annual USD/RUB of 94.5, meaning an average USD/RUB of 96.0 for the rest of 2025.
“With such parameters of the exchange rate and oil price, the federal budget deficit in 2025, all other things being equal, could be RUB2.0-2.5 trillion wider than planned by the Finance Ministry, due to lagging oil and gas revenues,” the Telegram channel Tverdyye tsifry calculates.
Add this deficit to the one already planned (RUB 1.2 trillion) and you get RUB 3.2-3.7 trillion. This is close to the deficits recorded in each of the previous three years of the war (RUB 3.2-3.5 trillion).
For the pressure on the Russian budget not to get even worse, three conditions need to be met. First: oil prices cannot fall any lower (they could). Second: military spending needs to be kept under control (but that discipline is starting to slip). And the third and main thing: the ruble needs to depreciate quickly and strongly (otherwise, oil and gas revenues will come in much lower than budgeted).
With no guarantee that these conditions will be met, it will not be a surprise if the 2025 deficit proves to be the biggest ever and balloons to RUB 4 trillion, RUB 5 trillion or even RUB 6 trillion.
But even this does not portend economic collapse. The Putin economy is robust. It is meant to weather crisis after crisis and should rather calmly withstand the falling oil prices.
That said, a new surge in inflation is inevitable. If the ruble is stubborn and does not weaken, this will translate into a widening budget deficit. That will be covered by an increase in the money supply, which is what tapping the NWF means. If the ruble obeys the laws of economics and depreciates, imports – i.e., almost all nonfood items – will jump in price immediately.
Things will not get easier for the average Russian this year. But Russia is only one part of what looks to be a brewing global crisis. And it is not the weakest link.
The USD/RUB exchange rate has gone from 113 at the beginning of the year to 81-85 in April. This ruble strengthening is so odd that Putin’s economic managers have decided not to ponder it yet. The updated Ministry of Economic Development forecasts include an average annual USD/RUB of 94.5, meaning an average USD/RUB of 96.0 for the rest of 2025.
“With such parameters of the exchange rate and oil price, the federal budget deficit in 2025, all other things being equal, could be RUB2.0-2.5 trillion wider than planned by the Finance Ministry, due to lagging oil and gas revenues,” the Telegram channel Tverdyye tsifry calculates.
Add this deficit to the one already planned (RUB 1.2 trillion) and you get RUB 3.2-3.7 trillion. This is close to the deficits recorded in each of the previous three years of the war (RUB 3.2-3.5 trillion).
For the pressure on the Russian budget not to get even worse, three conditions need to be met. First: oil prices cannot fall any lower (they could). Second: military spending needs to be kept under control (but that discipline is starting to slip). And the third and main thing: the ruble needs to depreciate quickly and strongly (otherwise, oil and gas revenues will come in much lower than budgeted).
With no guarantee that these conditions will be met, it will not be a surprise if the 2025 deficit proves to be the biggest ever and balloons to RUB 4 trillion, RUB 5 trillion or even RUB 6 trillion.
But even this does not portend economic collapse. The Putin economy is robust. It is meant to weather crisis after crisis and should rather calmly withstand the falling oil prices.
That said, a new surge in inflation is inevitable. If the ruble is stubborn and does not weaken, this will translate into a widening budget deficit. That will be covered by an increase in the money supply, which is what tapping the NWF means. If the ruble obeys the laws of economics and depreciates, imports – i.e., almost all nonfood items – will jump in price immediately.
Things will not get easier for the average Russian this year. But Russia is only one part of what looks to be a brewing global crisis. And it is not the weakest link.
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