Russia’s Budget Deficit Jumps Amid Plunging Oil Revenues

Yves here. Russia’s budget woes in part result from its adherence to Jean-Baptiste Colbert’s principle:

The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.

Since the Russian economy contracted only slightly more than 2% in 2022 and even the IMF projects marginal growth for 2023, this fall in tax revenue is strictly a function of how Russia chooses to tax, since federal receipt have fallen far more than any GDP contraction.

Russia has opted to tax oil and gas companies heavily, making them the long-standing main source of federal revenues in Russia.

Russia also taxes individual incomes and businesses, but rates are low by US standards. Russia is fiscally orthodox and seeks to run a balanced budget. Note that per the Financial Times, receipts from other sources in aggregate fell too:

The drop in oil and gas revenue was accompanied by a 28 per cent fall in other revenue to Rbs931bn, the finance ministry said, ascribing this to a decline in VAT and corporate tax takings

Russia did borrow in 2022 but the government claimed it did not have difficulty in raising funds.

It is not clear whether this January result will lead Russia to rethink its budget approach. Some of the decline is likely due to stockpiling in advance of rate caps and other restrictions being imposed (the oil price cap went into effect January 5 and the cap on petroleum products, on February 5). But the shortfall may be sustained, particularly if Chinese growth is in fits and starts.

Russia has suddenly gone from a weak currency country to a strong one. Even then, Russia is racking up current account surpluses, due both sanctions-produced restrictions on imports versus the prices of many of its exports remaining elevated. So Russia unlike many countries with large budget deficits, Russia is not constrained by a weak currency or lack of foreign exchange reserves. It has the room to net spend more than it seems inclined to (Putin seems allergic to budget deficits of more than 2% to 3%). Note additionally, despite the posture of the hard money times, government spending that increases productive capacity (such as for infrastructure) pays for itself in terms of GDP growth (ex potentially timing issues with when the spending takes place v. when the new resources come on line). None other that Larry Summers pointed out that the GDP impact could be as high as 3 times the spending. particularly since a lot of that spending is going to increase productive capacity, as in arms-making and import substitution. Putin has pointed out that the states collectively run a surplus. So we’ll see what if anything Russia does next. Patriotic savings bonds, anyone?

By Charles Kennedy. Originally published at OilPrice

  • Russia’s budget was $24.7 billion (1.76 trillion rubles) into deficit in January.
  • Total budget revenues slumped by 35% last month compared to the same month of 2022.
  • The low price of Russia’s flagship grade is reducing Russian revenues from oil due to the steep discount at which Urals trades relative to the international benchmark Brent Crude.

Russia’s budget was $24.7 billion (1.76 trillion rubles) into deficit in January, compared to a surplus for January 2022, as state revenues from oil and gas plunged by 46.4% due to the low price of Urals and lower natural gas exports, the Russian Finance Ministry said in preliminary estimates.

Total budget revenues slumped by 35% last month compared to the same month of 2022, while overall budget expenditures jumped by 58.7% year-on-year in January, the ministry’s data showed.

Russia’s non-oil and gas revenues also dropped, by 28.1% year over year, according to preliminary estimates.

The revenue slump last month came from the key export revenues for the Russian state—oil and gas.

The low price of Russia’s flagship grade is reducing Russian revenues from oil due to the steep discount at which Urals trades relative to the international benchmark Brent Crude.

The average price of Urals in January, at $49.48 per barrel, was 1.7 times lower than in January 2022, when it averaged $85.64 per barrel, the Finance Ministry said last week.

The price of Urals has slumped to a discount of nearly $40 per barrel to the price of Brent Crude, which reduces Russia’s budget revenues from oil export taxes. Since the start of the EU embargo on crude oil imports from Russia and the G7 price cap, the per-barrel crude export duty for the Russian state has shrunk due to the plunge in the price of Urals.

Russia is considering taxing its oil firms based on the price of Brent – instead of Urals – to limit the fallout on the Russian budget revenues due to the widening discount of Urals to Brent, Russian daily Kommersant reported last week, quoting sources.

In the budget estimate for January this week, the Finance Ministry confirmed parts of this report, saying that “considering the fact that the relevance of the price of Urals in calculating export prices has diminished, various other approaches are currently being studied to switch to alternative price indicators for tax purposes.”

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  1. Stephen

    I saw an article elsewhere which showed that their budget deficit percentage of GDP for 2022 was less than the US, UK or even Germany.

    Have also seen that UK deficits fluctuate oddly too, based on all sorts of timing issues that even vary by month and year.

    For a country fighting a war that it sees as an existential threat this does not seem a bad economic result. Britain bankrupted herself when she last fought such a war. As you suggest, clear that the government has lots of fiscal scope.

    With oil and gas I guess the key issue is selling price minus marginal production cost. In theory, all of that delta is surplus or “rent” and could be extracted as tax in the short term without reducing volume incentives.

    If this gets talked up by western media then it will demonstrate conclusively that straws need to be grasped at to maintain narratives.

    1. Thuto

      Re: western msm talking this up, the marching orders are probably already out for “journalists” in the fact free zones otherwise known as western media to not only run with this, but to carpet bomb every available media nook and cranny with it. My countdown timer is already set for when the first story will appear pronouncing this deficit unimpeachable evidence that imminent collapse of the Russian economy is all but certain. Worshippers of the new monotheistic religion called Ukraine will laud its deity Zelensky for bringing Putin’s economy to its knees and the moment will be declared ripe for decisive action in the form of more sanctions and heavier weapons to inflict a coup de grace.

  2. Natoistan

    In fact simple explanation, they puted all their military expenses for 2023 on january…no panic.

  3. Polar Socialist

    According to Argumenti I Fakti news-site Finance Ministry also explained that the deficit is partially so big because government moved a lot of procurement to January (so later it will even out) and some taxes, while collected in January were transferred in February and are not included the January numbers.

    Finance Ministry also said it covered some of the deficit from the National Wealth Fund (selling 0.0008% of it). And yes, they also sold a lot of Obligatsyi Federal’novo Zaima (OFZ), Federal Loan Obligations, too.

    In the same article academic Konstantin Andrianov, associate professor of Economics and Finance, points out that a lot of the “extra” spending is actually reconstructing “new territories” so it’s an investment on economical recovery and thus on future federal budgets. He also says that NWF exists precisely as a buffer for times like this.

    1. Stephen

      When I worked as a management accountant pretty much all early year budget versus actual spending / revenue differences were explained away as “Phasing”! This feels similar and seems the correct top level answer.

      1. Jokerstein

        Anyone who has worked with a non-profit whose major fundraiser is late in the year knows all about this.

  4. PlutoniumKun

    It would be interesting to see if there is any data available on what the break-even price is for Russian oil and gas. I suspect sanctions have significantly raised costs, which were always high in comparison to Middle Eastern oil (but lower than most other exporters). This is the key variable in identifying whether this is just a short term blip or if Russian government finances are in genuine trouble without a rise in prices. I suspect that they still have a lot of capacity to run deficits without a significant problem.

    In the longer term, only one variable matters – productivity per person. Military emergencies can raise productivity due to focused investment, but can also damage it in the long term as manpower is directed to defence instead of consumption/infrastructure or if investment is misapplied. It could be that incorporating the new Oblasts to Russia could be a huge benefit or it could just soak up manpower leading to higher costs throughout the economy, lowering productivity.

    One unknown is weapons exports, always a key component of the Russian economy. Rising defence expenditure worldwide and the daily adverts we’ve seen for Russian military tech could lead to boom times (especially as its low cost competitor, Ukraine is…. out of the game) or it may be that Russia lacks the domestic capacity to supply both an export market and domestic needs. The imports of Iranian weapons suggests that the latter may be the case, at least in some sectors.

    Either way, I’m not sure these figures mean much in the big picture. However, one unfortunate side effect of any bad news for the Russian economy is that when you put it side by side with the relatively good news for Europe on the energy side (no winter crisis and dropping prices), then this strengthens the hands of the neocons and their fellow travellers. I’ve noticed a rise in triumphalist tone from them recently, even as Bakhmut falls. Ultimately, they don’t care what happens in Ukraine so long as Russia bleeds more than Europe, and in their perception, thats what is happening.

    1. Stephen

      I think you are right.

      With respect to the narrative I remember a very insightful comment that David made. This was to the effect that whatever happens, it will be spun as victory. Russia’s initial goals will just be adjusted to suit the story and say that they were frustrated.

      The Neo Cons are a step beyond this. They are so imbued with their narrative that they actually see every data point as showing victory. They believe what they are peddling. If the Russian budget were in surplus they would find a way to see victory in it. For example: “Russian industry is so bad that it cannot use the government money fast enough to produce arms, our sanctions mean Putin cannot use his tax revenue to buy foreign arms”. I exaggerate slightly but directionally this feels where we are.

      Frankly, the Neo Cons who are steering this ship have no personal choice but to double down. Unless the President chooses to behave differently then nothing will alter. That is unless Russian actions make it so stark that even the most obtuse and indoctrinated observer cannot deny the evidence of their own eyes. Even then I am not convinced. The fairy tale of the “King’s New Clothes” comes to mind.

    2. Polar Socialist

      what the break-even price is for Russian oil and gas

      According to IMF, for oil it’s $10-15/barrel. The actual production cost is ~$3.40/barrel, but after that it gets somewhat complicated since the Russian oil taxation is progressive ($15/barrel no taxes, but 49% when the price hits $60/barrel).

      Also 80% of the running costs are in rubles, and ruble tends to fluctuate in sync with oil price, which also make it hard to calculate the “true” costs. Furthermore, when price drops below $40, it tends to slow the reservoir management and other long term investments.

      So the actual break-even price is somewhere between $15 and $30, depending. Including the taxes, which are the issue here.

      1. PlutoniumKun

        Even official Russian sources put it higher than that at $32 per barrel with taxes, if my Google translate is working correctly (yes I know its based on Aramco figures, but it seems to have been confirmed by the Ministry).

        Figures vary widely – the independent figures I’ve seen before the crisis were around $40-50 a barrel, but they included the cost of opening up off-shore fields which rarely come in less than $50. A lot depends on how you cost in past sunk costs.

        As always with oil and gas, the crucial problem is that production costs are always on an upwards curve once production reaches maturity – often the curve upwards is very steep once the sweet spots have been exploited. Russia will need to keep investing very heavily to keep production levels steady over time.

        1. tevhatch

          Lots of reasons to use accounting to inflate costs when your profits are the primary tax base, I think Ireland is an expert at creating accounting tricks to avoid taxes.

        2. Stephen

          Exactly. In the short run, marginal cost is the crucial issue.

          Taxes up to the delta between price (assuming Russia is a price taker) and marginal cost will not reduce short run incentives to keep the existing oil flowing.

          In the long run, incentives to open up new fields / sources need to be taken into account too and that will be trickier. Especially if easy to extract reserves have been exploited.

          Suspect that a lot of digging through internal data would be needed to estimate the cost structure properly in order to figure out the real “surplus” that can be extracted and taxed.

  5. Geoffrey

    Won’t China, in some roundabout way(s), backstop the Russian economy? As John Helmer paints it, Germany is fulsomely (under Baerbock et al) accepting an offer has no choice but to accept from the Anglos, re-arm and once again bleed yourself dry and lead the EU in a war to destroy Russia, for the Anglos benefit. So its Germany against Russia as proxy’s for the real game of US against China? I doubt it will come to that as Russia is increasingly pointing the finger directly at US (see again Helmer on Russia forthcoming revised nuclear doctrine); as is China (balloon incident as again interpreted by Helmer). So long as the Chinese economy doesn’t tank, the Russian economy should have nothing to fear, tho it will try and do as much as possible to survive economically itself, so as to avoid being too subservient to China later on..

    1. Natasha

      Russia has also Iran, Turkey and African and South American nations supporting it through their purchases of medical/industrial/military/security needs. And on that topic it continue to surprise me how few people know that Russia manufactures medical tech equipment.

      1. tevhatch

        Don’t forget the food (but maybe you included that in the security needs?). As long as Russia is the big provider of basic foodstuffs, it will never run out of friends. Egypt and many other nations would look like the EU if not for access to Russian foodstuffs on favorable currency exchange.

  6. Lex

    The Russian state has also increased social spending quite a lot this year. Pensions and welfare payments went up. The minimum wage went up as did the living wage. It also started providing pensions and similar to residents of the four new regions. Reorienting supply lines of oil must be massively expensive too.

    As Polar Socialist points out there is a nest egg that can be spent on balancing things out of need be. I guess it shouldn’t be surprising that this situation arose given war and sanctions. And these would be the times when even a debt averse nation like Russia under Putin would decide that debt is reasonable. But it also likely speaks to Russia not being keen on the war going on too long.

    In the information war theater, this is about all US media can hang its hat on for serious Russian problems. And so it will.

  7. The Rev Kev

    This war must be costing a fortune for the Russians but when you are fighting an existential war, you bite the bullet and spend the money as you have to. Fortunately for the Russians, they are a commodities-based country and there is a solid demand for what they have to sell, whether it be oil, titanium, gas or whatever and prices have increased. But there is another factor which will come into play. Russia has gained something like 10 million new citizens and the best thing about that is that they are bringing their lands with them which includes rich wheat-growing regions, neon manufacturing, mines as well as a highly industrialized region. These people will help the Russians with their demography and will provide labour in the Russian workforce in the years to come.

    1. TimmyB

      I am unaware of any country in history that ran a budget surplus during war. Russia being no different isn’t surprising.

    2. Phenix

      These people will help the Russians with their demography and will provide labour in the Russian workforce in the years to come.

      Ukraine has a similar demographic problem. Adding Russian Ukrainians to Russia does not change Russia’s demographic fate. Russia is winning this war but every lost Russia soldier is a catastrophe for Russia.

      The US clearly does not care is every Ukrainian male dies. That is the benefit of a proxy war.

  8. Louis Fyne

    Progressive politics irony alert: if there is any nation that can prove (or disprove) the effectiveness of MMT (modern monetary theory), it is Russia.

    near autarky, low extant government debt, domestic establishment that has the political power to act independently of the local oligarchs.

    1. eg

      Yeah, the Russian deficit in ruble terms is a meaningless residuum. What matters is real resource (including labour) availability and utility, a fact which always resurfaces (from under the deep and hoary obfuscations of the neoclassical orthodoxy) in war economies.

      Get back to me when Russian behaviour demonstrates a lack of fossil fuels, metals, food, ordinance and/ or soldiers …

    2. Susan the other

      Yes it is very. Thinking about Khruschev’s “We will bury you” comment, with a big smile on his face. He elaborated that their procurement was direct, a state mandated thing, whereas ours was indirect because it was private – which in reality hardly slowed us down but only because the privateers were making a killing. Over a 70 year period we seem to have paid for it with too much productivity and a trashed environment. But the big caveat is that the Soviets/Russians trashed their environment just as bad if not worse. “Productivity” winds up being a very dirty word for all sides.

  9. Brooklin Bridge

    The mention of price caps keeps popping up,

    Since the start of the EU embargo on crude oil imports from Russia and the G7 price cap, the per-barrel crude export duty for the Russian state has shrunk due to the plunge in the price of Urals.

    but I thought Russia was refusing to sell oil to any nation (or block of nations) that tried to impose a cap on oil in any of its forms? Thus greater sales to India and China, for instance. Is Russia accepting price caps anyway? Or, are so called price caps indirectly depressing the price Russian oil producers can get even from non price cap buyers? Or, is there something else that keeps the term alive?

    1. Lee Too

      Yes, I have the same question. In general, economics is a blind spot for me, but my impression was that the oil price cap proposal was receiving a fair amount of outright ridicule.

      1. Polar Socialist

        For what it is worth, the Rosneft CEO Igor Sechin just announces in India, that Rosneft will give up on Ural crude futures (exchanged in London) since no crude is going to Europe anymore. So it doesn’t make any sense that the price would be defined there, since there’s no reference for it.

        His idea is that soon the Ural crude price is decided by the actual deliveries and paid prices, no futures trading. He thinks this will hurt some European institutions that have been making money with those (or are even holding them).

        I’m too dumb to understand half of it, and have no idea how it would work.

  10. djrichard

    Dick Cheney was a source of at least one item of “good news”, that “the deficit doesn’t matter”. Is anybody ferrying this good news to Russia? Not to be too glib, but Dick was/is right.

    1. juno mas

      I believe Dick was speaking during a Unipolar, World Reserve Currency interregnum. The current US debt (30+ Trillion) will likely cause problems in a multi-polar world.

      1. djrichard

        I don’t see how that’s the case. If China et. al. are going to run a trade surplus with the US, they need a home for their surplus dollars.

        Let’s say that China runs a trade surplus with the US and it’s denominated in some other currency instead. Such that US buys the other currency on the market with US dollars. Eventually those US dollars need to be recycled back to the US, one way or another.

    1. ChrisPacific

      I’m not sure how much it adds, beyond filling in some of the details around how it worked if the US was responsible. I think it’s always been clear that the US was the party with the biggest motive (the indiscreet remarks by Biden, Nuland et. al. simply demonstrate that) and that the BALTOPS exercise was the most obvious moment of opportunity. I hadn’t known about the mine hunting exercises being added, and I did have trouble finding references to it from prior to June 2022, which supports the idea that it was a change of plan. The idea of Norway being involved is interesting, as declaring open season on undersea gas pipelines has obvious consequences for them.

      The main issue is that it tells us little we couldn’t have guessed already (what’s presented is already pretty close to the most likely scenario) and it’s all from an unnamed source with no hard evidence. The White House will just deny it (and already has) and with no firm evidence to prove they are lying, people will simply choose who they want to believe. Russia probably knows the truth, if the US services are as leaky as portrayed in the article, but they have the same problem regarding evidence and credibility.

      1. Felix_47

        I thought the way it was detonated was imaginative. I had no idea but it required some sophistication to detonate it when Biden wanted it detonated. Also the way they structured the operation to avoid Congressional oversight was interesting and new to me. And Hersh points out it was an act of war. So our wartime president has declared war on Russia without Congress. Given our potential industrial base Russia cannot afford an all out war that is dragged out and I do not think Putin is suicidal so nukes probably won’t happen. Biden appears very confident and assured that he will prevail and I doubt he or any of his associates have realistically considered any potential bad outcomes for the US. And he has the solid backing of both houses of Congress on both sides of the aisle (with a few exceptions that have been demonized and trivialized). I guess all we can do is follow it and watch hundreds of thousands of soldiers killed on both sides. To think this was all triggered by Hillary losing. Hell hath no fury like a woman scorned.

      2. LawnDart

        The article moves us from “who” to “how,” from who committed the crime to how they did it.

        I believe that Hersh has revealed the framework of the operation and has connected-the-dots in such a way as to tip the balance from suspicion, conjecture, and speculation to reasonable suspicion, with cause.

        Credibility would be determined by further investigation, and Hersh has laid the ground or provided a preliminary outline for this.

        I don’t think this story will go away quickly, or that the skeleton of Nordstream can be tucked into a closet and forgotten: unlike Osama, we know for certain where the remains are.

        1. ChrisPacific

          The question is who will perform the investigation. The media and the White House are already pretty good at ignoring Hersh (his story about the bin Laden operation didn’t really make many waves, for example).

          I agree it’s a credible hypothesis and makes a number of assertions that could be followed up on, and there may be certain parties interested in doing that (if I was a Norwegian anti-war politician, for example, I’d have questions).

          The countries that have investigated the attack – I believe Germany, Denmark and Sweden – may know this as well. They’ve all been conspicuously silent on any findings so far for ‘reasons of national security’ which is starting to attract attention. I hope you’re right and we’ll see further investigation or evidence come out and not just get disappeared. I suspect we may have to rely on parties outside the US to do it though.

        2. LawnDart


          There is no other journalist, dead or alive, that can match the work and legacy of Sy Hersh — e.g., Watergate, CIA Assassinations, the Glomar Explorer, My Lai Massacre, Abu Ghraib, Syrian False Flag Chemical Weapon, Killing Bin Laden and now, the U.S. attack on the Nord Stream Pipeline…

  11. Karen’s hubby

    Russias budget was $24.6 billions….
    How on earth can they fight a war with that kind of money?
    That’s what we spend on feasibility studies here.
    Wasn’t our aid to Ukrainians smith north of $40billons so far?

    1. Oh

      At first glance it looks like the budget is $24.6 billion but the sentence is:

      Russia’s budget was $24.7 billion (1.76 trillion rubles) into deficit in January

  12. chuck roast

    Pardon me , but I take issue with this:
    “None other that Larry Summers pointed out that the GDP impact could be as high as 3 times the spending. particularly since a lot of that spending is going to increase productive capacity, as in arms-making and import substitution.”

    Military Keynesianism is military Keynesianism. With the exception of providing a lot of people with paychecks, crafting bombs and tanks are not productive investments. I’m guessing that this is Larryspeak.

    1. tevhatch

      Bombs and tanks bring in very cheap resources stolen from 3rd world countries, or at least they use too. Ike complained about the beast he helped feed.

  13. Revenant

    I’ve no criticism of Yves’s post but the original article is innumerate-cum-illiterate.

    Who in the world writes a sentence like this “The average price of Urals in January, at $49.48 per barrel, was 1.7 times lower than in January 2022, when it averaged $85.64 per barrel, the Finance Ministry said last week.”? No smaller number can be 1.7x a larger number. It could be 10/17ths x the larger number (i.e. the reciprocal of 1.7).

    The Seymour Hersh link is brilliant. Let’s hope it gets picked up more widely. In it, Norway is not covering itself in glory but it is cute that they get to supply the gas to replace Russia. Its description of Stoltenburg as the glove that fits the American hand is too coy: the rubber that fits the American prick.

    1. Alex Cox

      Hersch’s story is interesting, but like a MSM report its sources are all anonymous. So who knows if any of it is true?

      1. tevhatch

        “So who knows if any of it is true?”

        To be sure, even the pipeline could have been a deep fake, much less an explosion. ;-)

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