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The economic landscape in Russia is currently facing significant challenges, driven by a sharp decline inoil and gas revenues. These revenues are essential for the nation’s fiscal stability. Contributing factors include low global oil prices, an oversupply of crude oil, the strong ruble, and the impact of international sanctions. As a result, the contribution of these sectors to the federal budget reached a historic low in 2026, marking a notable shift away from commodity dependence for the first time in over two decades.
In response to these economic pressures, the Russian government is seeking alternative revenue streams to mitigate the budget deficit. Measures include raising taxes on households and businesses. This financial strategy is particularly crucial given the ongoing military conflict in Ukraine, which requires significant funding.
Reasons behind the decrease in oil and gas revenues
A report from theRussian Finance Ministryhighlights a substantial drop in income from oil and gas exports, which fell by23.8 percentcompared to the previous year. This decline amounts to approximately8.48 trillion rubles($111.2 billion), down from11.13 trillion rubles($146 billion) in 2026. This downturn indicates a broader trend of decreasing reliance on natural resources, with oil and gas revenues constituting less than23 percentof the federal budget by year-end 2026.
The last occurrence of such a low percentage was in 2020, during the global pandemic that severely impacted oil demand. Currently, suppressed prices, partly due to a strong ruble, further complicate Russia’s financial situation. For instance, in, Russia’sUrals crudeprice dropped below$40per barrel, exacerbated by an oversaturated international market that overshadows any potential disruptions in exports.
Government response and budget adjustments
Russian Finance MinisterAnton Siluanovhas indicated that the share of budgetary income from oil and gas is likely to decline further by the end of 2026. His deputy,Vladimir Kolychev, has voiced concerns regarding current trends and the need to increase spending at the beginning of the year, which could lead to a significant budget deficit.
The full impact of this deficit remains to be seen. The government plans to distribute budgetary spending throughout the year and adjust tax structures, such as raising thevalue-added tax(VAT) to22 percent. This change is expected to generate revenue starting in the second quarter of the year, contingent upon collections from prior quarters.
Future implications for the Russian economy
TheU.S. Energy Information Administration(EIA) forecasts an average price of$56per barrel for Brent crude in 2026, down from$69in the previous year. The Russian government budget assumes a slightly higher price for Urals crude, which may expose it to further revenue shortfalls. Kolychev warned that oil and gas revenues might indeed fall below projections, prompting reliance on theNational Wealth Fundto bridge budgetary gaps.
However, the outlook for non-oil-and-gas revenue appears more promising, with expectations for accelerated growth in these sectors. This increase is critical for supporting military spending, leading authorities to raise the VAT.
Broader economic context
Despite these challenges, non-commodity income has shown resilience, rising by12.6 percentcompared to 2026. Nevertheless, The federal budget exceeded spending targets by nearly7 percent, resulting in a deficit of5.6 trillion rubles($73.4 billion).
Looking ahead, the government expects the budget to remain in deficit but anticipates a reduction to1.6 percentof GDP in 2026, down from2.6 percentin 2025. Achieving this objective relies on improved tax collection and avoiding unplanned expenditures.
In response to these economic pressures, the Russian government is seeking alternative revenue streams to mitigate the budget deficit. Measures include raising taxes on households and businesses. This financial strategy is particularly crucial given the ongoing military conflict in Ukraine, which requires significant funding.0