Russia’s finances hit by cheaper oil and Ukraine war costs

Russia’s budget surplus has all but disappeared over the summer, according to data released by the Russian Finance Ministry this week. At the end of June, the surplus stood at 1,370 billion rubles ($23 billion); by the end of August, it had fallen to just $137 billion ($2.3 billion).

Revenues are under pressure. Oil has traditionally been a larger component of Russia’s budget than natural gas, and prices for Brent crude – the European benchmark – have fallen about 25% since their peak in early June.

It is a great success, even before an EU embargo on Russian oil imports by sea, and a planned G7 Price Cap comes into force in December. And while natural gas prices in Europe remain extraordinarily high, gas deliveries from Russia to the European Union and the United Kingdom have fallen 49% since the start of the year, Gazprom said last week. .

Spending has also risen sharply, both on the military and on measures to shield the economy from the impact of stinging Western sanctions, according to Janis Kluge, senior associate at the German Institute for International and Security Affairs. .

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He says real-time data from the Russian government indicates the budget is now in deficit, adding that the hole in the Kremlin’s finances could widen as military spending increases.

“Military spending was originally expected to be 3.5 trillion rubles this year, but that level was probably already exceeded in September,” Kluge told CNN in emailed comments.

Russia’s business daily Vedomosti reported on Wednesday, citing sources close to the government, that the Finance Ministry had told government agencies they should cut spending by 10% in 2023. Defense spending, however, is expected to rise, Vedomosti said. citing a source close to said the Ministry of Defense.

Speaking on Monday, Russian President Vladimir Putin denied the economy was in troubleclaiming that the West’s “economic blitzkrieg” tactic had failed and that Russia “confidently faces external pressures”.
Putin met Chinese leader Xi Jinping on Thursday at a summit in Uzbekistan. Trade between the two countries has exploded over the past six months as Russia sought new markets for its energy and Chinese exporters took advantage of the exodus of Western brands.