Russia’s Budget Strain Deepens as Oil Revenues Collapse
Russia closed last year with its public finances under visible pressure, as weaker energy income forced the government to tighten spending controls to prevent a sharper fiscal slide.
Finance Ministry data show that government outlays dropped sharply in December compared with the same period a year earlier, signaling a deliberate pullback after years of rapid expansion.
Key Takeaways
- Russia contained its deficit mainly through spending restraint, not revenue strength.
- Falling oil and gas income has become the dominant risk to the budget outlook.
- With reserves depleted and borrowing costs high, fiscal flexibility is shrinking.
Over the full year, spending still increased, but at a far slower pace than before. That restraint helped keep the budget gap close to the revised target, even as the original deficit plan was abandoned earlier in the year.
The slowdown in spending, however, did little to offset the scale of the revenue shock hitting the state.
Oil shock drives the deficit
The main drag came from oil and gas income, which fell to its weakest level in several years. Lower global crude prices, wider discounts on Russian exports due to sanctions, and an unexpectedly strong ruble all combined to reduce budget inflows. The pressure intensified late in the year after new US measures against major producers, including Rosneft and Lukoil, triggering a steep drop in December energy revenues.
Unlike previous deficit years, the gap was not fueled by runaway spending, but by a sudden and broad-based fall in income.
Beyond energy, tax receipts from other sectors also undershot expectations. Economic growth slowed sharply, likely ending the year well below official forecasts and far weaker than the previous year’s pace. That left Moscow with fewer options to offset the collapse in oil-related proceeds.
Fewer buffers, higher costs
Russia’s fiscal position now looks more fragile than during past crises. Reserve assets have been heavily drawn down, leaving a much smaller cushion than during the pandemic period. At the same time, borrowing has become significantly more expensive, with high interest rates and limited market access after foreign investors exited the country.
With oil markets still under pressure and the risk of tighter sanctions raised by comments from Donald Trump, revenue prospects remain uncertain. Finance Minister Anton Siluanov has acknowledged that long-term reliance on oil and gas income is no longer realistic.
Looking ahead, the government is preparing for difficult trade-offs. Defense spending is set to decline next year for the first time in years, yet deficits are expected to persist, financed mainly through costly domestic borrowing.
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