Russia budgets for lower oil prices for longer

Russia is bracing for lower oil revenues as prices fall, along with a more relaxed fiscal regime, Bloomberg reported, citing a draft three-year budget.

According to the document, Russia’s oil revenues would fall by 14% over the next three years, provided international oil prices remain weak.

For 2025, the document predicts oil revenues of about $120 billion, or 10.94 billion rubles, which would be a 3.3 percent drop from this year. That modest decline would then extend into 2026 and 2027, when oil revenues would drop to $110 billion, according to government forecasts.

Russian oil price projections for budgetary purposes tend to be bearish to minimize the element of surprise in the event of negative price developments, reducing their impact on spending. The approach has worked well in the past, sparing the country from the need for austerity measures when prices have moved in an unfavorable direction.

Under this approach, Russia’s 2024 budget assumes an average Brent price of $70 per barrel, falling to $69.70 per barrel in 2025, $66 per barrel in 2026 and $65.5 per barrel in 2027 .

Natural gas prices are also seen falling over the next four years, from $279.90 per 1,000 m3 this year to $240.20 per $1,000 in 2027.

Related: Oil prices rise on supply uncertainty, demand optimism and geopolitical risk

Russia has already seen a substantial drop in oil revenues this year due to weaker prices. Since June, the value of Russian crude imports has fallen 30 percent, according to Bloomberg estimates, despite higher volumes shipped abroad. Indeed, during that time, Russia’s flagship Urali blend fell below the G7 price limit of $60. It has since recovered, however, and is now trading at over $67 a barrel.

In the medium term, the draft budget suggests that transition efforts would undermine demand for crude oil, even though the evidence currently points to the contrary, with the biggest reason behind keeping prices low being traders’ concerns about oil demand from China. By the way, this demand may still surprise: oil imports in August increased considerably, both from Russia and from another big supplier: Iraq. Imports from Saudi Arabia fell, likely due to higher prices.

However, Bloomberg’s BNEF recently predicted that oil demand for transportation fuels will peak in three years due to the wider adoption of electric vehicles which BNEF says has already removed about 1.8 million bpd from global demand for oil. However, EV sales are falling everywhere except China, which is proof that predictions don’t always come true. In Europe, a key market, sales of electric vehicles fell 44% last month.

All of this means that while Russia is budgeting for lower oil prices in anticipation of a worst-case scenario, prices could actually rise over the next couple of years, especially if OPEC+ keeps its output capped. For now, theoretical plans are to start reducing some of the cuts later this year, but if Brent crude prices remain below $80 a barrel, the cartel could reconsider, as it already did once earlier this month .

If Russian budget forecasts prove anything, it’s that sanctions have failed to decimate the country’s oil revenues, despite great efforts to do so. A drop of $10 billion over three years isn’t a small drop, but it’s not exactly half or more of said revenue. It’s actually less than 10% of 2024 revenue.

This suggests that despite predictions of peak oil demand, perceptions of an advanced transition and expectations of a further drop in oil prices, demand for the world’s most traded commodity, even under sanctions, remains strong enough to generate billions of dollars in revenue.

By Irina Slav for Oilprice.com

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