Russian oil and gas revenue slashed by half in blow to Putin’s war on Ukraine
Breanne Deppisch
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Russian oil and gas earnings were roughly halved in the first six months of 2023, according to new Finance Ministry data, as lower crude prices and limited European gas deliveries continued to cut into Moscow’s primary source of revenue.
From January through June of this year, Russian oil and gas revenues fell by a combined 47% compared to the same period in 2022 — down to just $37.4 billion for the first half of the year, according to new data published Wednesday by Russia’s Finance Ministry.
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Oil and gas revenues fell by slightly more than 26% in June compared to the previous year, according to the Finance Ministry data, which was less than in May, which saw a 36% drop year-on-year.
The new numbers underscore the degree to which Western sanctions and other restrictive measures, such as the Group of Seven-backed oil price cap, have cut into Russia’s war chest in the more than one year since its invasion of Ukraine.
The lower fossil fuel revenues and war spending have also caused Russia’s budget deficit to balloon far beyond full-year forecasts. As of May, Russia’s federal deficit stood at $42 billion, or roughly 17% higher than it had forecast for all of 2023.
The first six months of 2023 were pivotal for Russia’s economy as many international sanctions and other restrictive measures came into force — including the oil price cap aimed at restricting Moscow’s war energy while also keeping its barrels on the market.
The numbers appear to be a win for G7 leaders, who pushed the cap’s implementation: Prices for Russia’s flagship Urals grade crude have averaged around $52 per barrel in the six-month period from January to June, Russia’s Finance Ministry said in a statement last week, a sharp decrease from 2022 averages in the same period, which stood at $84 per barrel.
Still, it’s unclear how, or to what extent, Russia is shipping oil outside the reach of the price cap, which stands at $60 per barrel for Russian crude.
Last month, the National Bureau of Economic Research urged coalition members to lower the Russian oil price cap to $45 per barrel, which it argued would dent Russia’s war revenue and keep it from amassing more illegal tankers.
“Depending on its success, the price cap on Russian oil could become a blueprint for future sanctions, as well as international economic and trade policy more generally,” the group of economists wrote.
But they argued that amassing a larger “shadow fleet,” as the illegal tankers are known, would allow Russia to ship more oil outside the reach of Western shipping services and thus undercut the cap’s efficacy completely. Estimates as to the size of Russia’s shadow fleet have varied wildly, with some putting the number as high as 600 ships and others as low as 100.
Treasury Department officials have pushed back on the suggestion, arguing that the cap has been successful in achieving its twin goals. But it is unclear if Russia will cut production in the months ahead.
Russia said Monday that it would reduce its oil exports by 500,000 barrels per day in August, joining Saudi Arabia, which announced an extension of its own 1 million bpd supply cut, in taking a combined 1.5% of global supply off the market.
It is unclear whether Russia’s cuts will extend beyond August, and a spokesperson for Russian Deputy Prime Minister Alexander Novak declined to say whether Russia plans to decrease production alongside the exports.
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But Russia has limited oil storage capacity, meaning any longer-term cuts could force it to slow production alongside the supply reductions.
The Russian Finance Ministry has projected its oil and gas revenue to average at around a 23% decline year-on-year in 2023 and has forecast its budget deficit to shrink to just $39 billion, or 2% of GDP, amid expectations that its energy earnings will recover.