Russia’s Oil Revenue, the Lifeblood of Its War Machine, Is Plummeting
Russia’s oil and gas revenues, which have long served as the primary financial backbone for its military operations in Ukraine, experienced a sharp decline in 2025 and face even steeper challenges in 2026. These earnings, essential for funding the Kremlin’s war efforts, have fallen to multi-year lows due to a combination of lower global oil prices, widening discounts on Russian crude caused by Western sanctions, and a stronger ruble that reduces ruble-denominated income from dollar-based exports.
According to Russia’s Finance Ministry, federal budget revenues from oil and gas in 2025 totaled approximately 8.48 trillion rubles (around $108–111 billion, depending on exchange rates). This represented a roughly 24% drop from 2024’s 11.13 trillion rubles, marking the lowest level since 2020 and a five-year low. Oil-specific revenues fell more than 22%, while the overall share of energy sector income in the federal budget sank to under 23%—a record low not seen in at least two decades, with non-energy sources now accounting for over 77% of revenues.
Several factors drove this downturn. Global oil prices weakened significantly in 2025, with Brent crude averaging around $69 per barrel before further declines. Russian Urals crude, the country’s main export blend, traded at increasingly deep discounts to Brent—averaging around $24 per barrel wider in 2025, up from $15 in prior years—due to intensified Western sanctions, including U.S. measures targeting major exporters like Rosneft and Lukoil. In December 2025, Urals prices dipped below $40 per barrel (with indicative tax prices at about $39.18), the lowest since the early COVID-19 period.
The impact extended into early 2026. Calculations from Reuters indicated that oil and gas budget revenues could fall by 46% in January 2026 compared to January 2025, potentially dropping to around 420 billion rubles (approximately $5.4 billion)—the lowest monthly figure since mid-2020. Russia’s 2026 budget assumes an average Urals price of $59 per barrel (slightly above the 2025 plan), but forecasts such as the U.S. Energy Information Administration’s projection of $56 for Brent suggest ongoing risks of shortfalls. Recent market data shows Urals recovering somewhat to around $59 by late January 2026, but volatility persists amid global oversupply concerns.
These revenue declines have exacerbated Russia’s fiscal strains. The 2025 budget deficit reached about $72 billion, the highest nominal level since 2009, equivalent to roughly 2.6% of GDP—five times the original plan. To sustain high military spending (estimated at over $170 billion annually), the Kremlin has relied on tax hikes, deficit financing, drawdowns from the National Wealth Fund, spending reallocations, and cuts to non-essential areas. Officials have acknowledged that energy revenues will likely fall further as a budget share in 2026, with early-year front-loading of expenditures amplifying deficits.
While the plummeting revenues place significant pressure on Russia’s “war machine,” the economy has avoided outright collapse through revenue diversification, domestic tax increases, and adaptations like subsidies for refiners. Experts note that Moscow may continue to prioritize military funding even amid these constraints, though sustained low prices could force tougher choices, including deeper reliance on reserves or additional economic measures. The situation remains dynamic, influenced by global oil markets, enforcement of sanctions, and any developments in Ukraine-related geopolitics or peace talks.
About The Author
