Oil and Gas Budget Revenues Collapse; Internal Borrowing Soars to Finance Deficit

KSE Institute has published the June edition of its Russia ChartBook: “Oil and Gas Budget Revenues Collapse; Internal Borrowing Soars to Finance Deficit.” Russia’s mounting fiscal challenges present an opportunity for Ukraine’s allies to intensify sanctions and financial pressure, further restricting the Kremlin’s ability to fund its war.

In May 2025, persistently low oil prices pushed Russia’s oil export earnings down to $12.6 billion and O&G budget revenues to 513 billion rubles — both the lowest levels since early 2023. The average export price for Russian crude dropped to $51 per barrel, around $5 below the revised budget assumption. A temporary price spike following the recent escalation between Israel and Iran provided short-lived relief, but prices are expected to return to lower levels.

The budget revision highlights growing fiscal stress. Russia revised its 2025 budget ahead of schedule, projecting that oil and gas revenues will fall by 24% and the overall deficit will more than triple — from 1.2 trillion to 3.8 trillion rubles. Over the first five months of the year, the deficit reached 3.4 trillion rubles (89% of the revised annual target), driven by a 14% drop in oil and gas revenues, 12% growth in non-oil revenues, and a 21% increase in expenditures. Under such conditions, meeting full-year budget targets will be difficult.

Russia’s macroeconomic buffers remain under pressure. The liquid portion of the NWF has declined by 71% since early 2022, now standing at 2.8 trillion rubles — well below the projected 2025 deficit. As a result, the Ministry of Finance is increasingly relying on domestic debt, issuing 1.7 trillion rubles in OFZ bonds from January to May, a 52% increase compared to the same period in 2024. Domestic banks are now the sole buyers of this debt.

Inflation remained high in May at 9.9% y-o-y, only slightly down from April. Despite a 20% policy rate, the Central Bank has failed to contain price growth — pressured by labor shortages, war-driven fiscal stimulus, and rising private credit. Mounting economic costs forced the CBR to cut rates for the first time since 2022.

The pace of economic growth is slowing. Real GDP grew by only 1.4% in the first quarter of 2025, down from 4.5% in Q4 2024. With serious constraints in labor and capital, and borrowing costs on the rise, GDP growth is expected to slow significantly this year and beyond. This is increasing pressure on the budget, and companies are already cutting back on substantial wage increases.