Russia’s sanctions-hit economy has been left reeling by falling fossil fuel revenues and a slump in profitability in the country’s oil refineries.
Figures released by Russia’s state statistics agency Rosstat showed nearly a halving of profits from oil and gas, which are essential to the government balancing the books.
The figures come as Russia’s finance ministry reported an increase in its budget deficit and amid warnings about the impact of a new round of European Union sanctions on Moscow.
Newsweek has contacted Russia’s finance ministry for comment.
Why It Matters
Russia’s economy has been impacted by a fall in global oil prices, the strengthening of the ruble and tougher sanctions imposed because of Vladimir Putin‘s full-scale invasion of Ukraine.
Fossil fuels are at the heart of Russia’s economy and fund Putin’s plans for record military spending. Increasing sanctions appear to be having an impact on the key revenue generator, which could be used as leverage to stop Russian aggression.
What To Know
Rosstat reported that profits from Russian oil and gas companies in the first quarter of 2025 fell to 789.5 billion rubles ($10 billion) compared with 1.445 trillion rubles ($18 billion) for the same period in 2024, The Moscow Times reported.
The outlet added that the profitability of oil refineries making petroleum products had slumped in figures that come hard on the heels of data from Russia’s Finance Ministry. It reported the country’s oil revenues had fallen by 35 percent to 512.7 billion rubles (about $6.55 billion) in May compared with the same month the previous year.
Amid a global slump in the price of Russia’s key export, the country’s Urals grade has dropped from $66 a barrel at the start of the year to $52 by the end of May.
As Russia faces a slump in oil revenues, its finance ministry said on Tuesday that Russia’s budget deficit had increased by 168 billion rubles ($2.18 billion) in May.
This is five times higher than for the same period in 2024 and nearly equal to the entire deficit planned for the full year—3.8 trillion rubles ($49.4 billion), or 1.7 percent of GDP. It also brings the total deficit for the first five months of 2025 to 3.4 trillion rubles ($44.2 billion), or 1.5 percent of GDP.
Vasily Astrov, from the Vienna Institute for Economic Affairs, told Newsweek on Wednesday that monthly budget figures should not be over-interpreted because of the extreme volatility of spending.
Before the war, Russian government spending was evenly spread throughout the year but since 2023 has been front-loaded early in the year for military expenditures.
Astrov said that last year, because of this front-loading in the first few months, many predicted a catastrophic budget deficit for the full year, which did not materialize.
But it is extremely likely that the deficit for the full year 2025 will exceed the official 1.7 percent target and could end up as high as 3 percent of GDP, Astrov added.
However, Russia’s dependence on energy revenues has declined substantially over the past few years—from 40 percent before the war to around 30 percent last year, and will be even smaller this year, Astrov added.
Dwindling oil and gas profits are eating into Russia’s National Wealth Fund which could be exhausted by 2026 if current economic trends persist, the Russian Presidential Academy of National Economy and Public Administration (RANEPA) and the Gaidar Institute have warned.
As of June, the fund held 2.8 trillion rubles ($36.4 billion) in liquid assets, its lowest level since 2019, a decline from the prewar peak of $113.5 billion because of growing budget deficits, infrastructure investments and state bailouts.
What People Are Saying
Tymofiy Mylovanov of the Kyiv School of Economics on X: “Russia’s oil exports fell 29 percent in the final week of May.. the sharpest weekly drop in since full scale invasion. EU sanctions are biting hard, disrupting loadings, payments, and insurance.”
European Commission President Ursula von der Leyen on Tuesday: “Oil exports still represent one-third of Russia’s government revenues. We need to cut this source of revenues,”
Vasily Astrov, senior economist at the Vienna Institute for International Economic Studies told Newsweek: “It is extremely likely that (Russia’s) deficit for the full year 2025 will exceed the official 1.7 percent target…and will end up somewhere between 2-3 percent of GDP.”
What Happens Next
On Tuesday, the European Union proposed its 18th round of sanctions against Moscow to pressure it into accepting a 30-day unconditional ceasefire in Ukraine, which could add to turbulence in Russia’s economy.
The measures include targeting banks and vessels of Russia’s sanctions-busting shadow fleet of vessels that transport oil. The reduction of a price cap for seaborne Russian oil from $60 to $45 per barrel could also cause further pain for the country’s budget, analysts have predicted.
However, the package requires the backing of all EU members and could be thwarted by vetoes from Slovakia and Hungary, which are considered Moscow’s closest allies in the EU.
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