Oil price cap causes high budget deficit in Russia

Russia’s budget shows a high deficit: the oil price cap imposed by the West is blamed for this. Even if Russia exported more oil than it had in a long time, the proceeds fell significantly.

Figures from the Russian Ministry of Finance released last week were sobering. Russia’s state budget shows a significant deficit for the first half of this year. It amounts to the equivalent of 26 billion euros. In the corresponding period of the previous year, there was still a whopping plus of the equivalent of 14.7 billion euros.

The tax revenue from the oil and gas business, which is so important for the Russian budget, fell by 47 percent in the first half of the year. The Russian Ministry of Finance blamed the low prices for crude oil, among other things.

Three countries with increased imports

The independent Russian economist Vladislav Inozemtsev, who now lives in the US, is convinced that Western sanctions are responsible for the fact that less money is flowing into the Kremlin’s coffers. In an interview with ARD-Hörfunk He said: “The only reason is that Russia has been forced to diversify its exports because of the sanctions in Europe and the price cap on Russian crude oil.”

Deliveries went primarily to India, China and Turkey, some of which had significantly increased their imports. According to Inozemtsev, Russia was not able to benefit from this. “India’s imports have increased by a factor of 19, China’s imports by as much as 45 percent, and Turkey’s imports have also increased.”

These three countries demanded big discounts – which is why oil revenues fell.

Focus on oil price cap

According to experts, the oil price cap of $60 per barrel of crude oil that was imposed by western industrialized nations and exported by sea had a particularly noticeable effect. Even on Russian state television, the connection is seen in this way.

“The price of Russian oil brand Urals fell in December after EU countries and the G7 introduced price caps for Russian fuel. According to the Ministry of Finance, the average price in June last year was one and a half times compared to June this year higher.”

With the Asian market becoming increasingly important for Russia’s oil producers, the importance of the Urals price index is decreasing. For a long time, the most important Russian variety, Urals, was the reference value for export prices of Russian crude oil to Europe.

New Russian landmark?

Now there are apparently considerations to introduce a new Russian benchmark based on the price of oil that is routed through the Eastern Siberia Pacific Pipeline. Vyacheslav Mishchenko, an expert from the Russian Energy Ministry, said earlier this month that the conditions for this in the internal market must first be created.

“Then we’ll go to the next level, possibly that of the Eurasian Economic Union. The next level is of course big foreign partners like China, India and other countries,” Mishchenko said.

High export values ​​- revenue still decreased

The calculation behind this is to achieve higher prices. Back in the spring, figures made people sit up and take notice, according to which Russia was exporting more oil than it had in a long time. The monthly report by the International Energy Agency (IEA) said that Russia exported an average of 8.1 million barrels of oil per day to other countries in March. This is the highest export value since April 2020.

At the same time, however, the proceeds from the sale of oil fell significantly – according to the IEA, Russia had to accept a slump in its income of around 43 percent year-on-year. In May, Russia’s oil exports even declined.

Alexander Dyukov, head of Gazpromneft, the oil division of the Russian energy giant Gazprom, is building on the medium and long-term opportunities far away from the European market. He also sees the necessity and need for oil beyond the horizon of 2030: “And what we’re observing is of course the shift in demand and consumption towards the south and east. Of course we have to do everything we can to to develop supplies of petroleum and oil products.”

Some EU countries continue to source Russian oil

Despite the reorientation to the east, the European Union still plays a certain role as a buyer of Russian oil, even if countries like Germany no longer get oil from Russia.

Last year, supplies to the EU fell from four million barrels a day to 600,000 barrels a day. And they are likely to have fallen further this year. But there are still buyers, as Russian economist Inozemtsev emphasizes.

Hungary, Slovakia and also a little bit of the Czech Republic and Bulgaria – these countries still buy Russian oil. Not as much as last year, but they still buy it.

Competing with Middle Eastern countries

Inozemtsev does not believe that Russia could increase its exports and revenues from the oil business this year. The peak has already been reached, and Russia is now in greater competition with oil-producing countries from the Middle East.

In March, Russia announced a reduction in its oil production of 500,000 barrels per day and now intends to reduce it again by the same amount in August. According to the Russian Ministry of Energy, this measure should be maintained until the end of the year in order to bring the market back into balance. In other words, to reduce supply and thus increase oil prices.