budget - Expect lower oil output and Urals oil prices will cause severe shortfalls in energy revenues

Notable spending cuts will have to be made as war spending is raised and prioritized

Businesses will likely have to manage upcoming higher taxes, as spiraling defense costs and weaker energy export revenues create sizable budget gaps. In addition, another round of mobilization would further damage the labor market, creating employment issues across industries. Meanwhile, forecasts for persistent ruble depreciation will drive up import costs for businesses while further weighing on end demand.


  • The West’s embargo on shipped Russian crude oil and price cap on its sale globally was implemented on December 5, creating a notable drop in export revenues in December and into January.
  • The ruble fell from its rate of ~60 to the US$ through much of 2022 to ~70 by late December, where it remains today.
  • Piped Russian refined oil products come under sanction and price caps on February 5.
  • The Russian budget is based upon oil production of ~10 mb/day, Urals oil price of US$ 70/bbl., and a USD:RUB rate of 68.

Our View

Now with the oil sanctions in place (and Russia having cut gas exports to Europe), the economic fallout of sanctions is at its peak. Since early December, energy export revenues have declined notably and will fail to rise, albeit falling from record-high levels in 2022. The ruble finally began to weaken as a result and will remain under pressure across the year as exports fall and imports continue to mildly recover. Ultimately, the budget is unrealistic: energy export revenues are severely overestimated, while spending is underestimated.

On the revenue side, the budget plans for RUB 8.9 trillion (of RUB 26 trillion total in total revenues) from energy exports; however, planned oil output and the Urals oil price are both very ambitious—particularly with Urals oil trading at US$ 50–60/bbl. since early December—and energy revenues will likely be RUB ~1.5 trillion below this level. Also, anticipated lower VAT, corporate, and personal income tax receipts (especially with more civilians mobilized) are likely to underperform as well.

Regarding expenditures, the budget sees a 34% YOY and 48% YOY rise in defense and security spending, respectively, amounting to RUB 10+ trillion in total, which does not include another round of mobilization (perhaps RUB ~1 trillion), nor does it include expected social spending hikes in H2 prior to the 2024 election. Reminiscent of the Soviet era, defense/security spending will account for at least 40% of all spending.

As a result, the deficit will face a shortfall of up to RUB 2 trillion in revenues matched with RUB ~1 trillion more in spending than planned, creating a deficit closer to 4–5% of GDP (well beyond the 2% in the budget). However, there is no potential for a budget crisis. Moscow can easily tap into its National Welfare Fund and domestic bond market to plug the budget gaps. Still, adjustments will have to be made, likely leading to higher taxes on businesses and spending cuts in all areas to varying extents to support the accelerating costs of the war and internal security.

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