Russia’s Oil Income Falls as Sanctions Hurt the Economy
Russia is earning much less money from oil and gas as new sanctions take effect. Oil and gas exports have supported Russia’s economy during its war with Ukraine. But now, almost four years after the full invasion began, this income has dropped to levels not seen in years.
Because of this fall in oil revenue and slower economic growth, the Kremlin is raising taxes and borrowing more money to cover its budget gap.
In January, Russia earned 393 billion rubles (€4.27 billion) from oil and gas taxes. This was down from 587 billion rubles in December and much lower than 1.12 trillion rubles in January 2025. Experts say this is the lowest level since the COVID-19 pandemic.
Stronger Sanctions from the US and EU
The drop in revenue is mainly due to new sanctions from the United States and the European Union.
On 21 November, US President Donald Trump’s administration placed sanctions on two of Russia’s biggest oil companies, Rosneft and Lukoil. Companies that buy or transport oil from these firms risk being cut off from the US banking system. This is a serious threat for global businesses.
On 21 January, the EU also banned fuels made from Russian crude oil. This means Russian oil cannot be refined in another country and then sold to Europe as gasoline or diesel.
European Commission President Ursula von der Leyen has also proposed a full ban on shipping services for Russian oil. This would stop EU companies from providing insurance, shipping, or port services to ships carrying Russian crude.
These steps go further than the earlier $60 per barrel price cap introduced by the Group of Seven (G7) countries. That cap was meant to reduce Russia’s profits without fully banning its oil exports. At first, it lowered Russia’s income. However, Russia created a “shadow fleet” of older tankers that operate outside Western control, and revenues later recovered.
Pressure on India
The US has also pressured India to reduce its purchases of Russian oil. On 3 February, Trump lowered tariffs on Indian goods after saying that Prime Minister Narendra Modi agreed to stop importing Russian crude. However, India has not officially confirmed this.
Indian officials say they are simply diversifying their energy supplies. Even so, Russian oil shipments to India have fallen from 2 million barrels per day in October to 1.3 million in December. Experts believe India is unlikely to completely stop buying discounted Russian oil soon.
Western countries have also sanctioned hundreds of shadow tankers. The US, UK, and EU have targeted about 640 vessels. Some ships linked to sanctioned oil have been seized, and Ukraine has attacked Russian oil facilities and infrastructure.
Russian Oil Sold at Big Discounts
Because of sanctions and financial risks, buyers now demand bigger discounts on Russian oil. In December, Russian Urals crude was selling about $25 per barrel cheaper than global benchmark Brent crude.
Since Russia’s oil taxes depend on oil prices, lower prices mean lower government revenue.
At the same time, around 125 million barrels of oil have piled up in tankers at sea because of delivery delays. Shipping costs have increased sharply, with large oil tanker rates reaching $125,000 per day.
Slower Economic Growth
Russia’s overall economy is also slowing down. Growth has weakened as war spending reaches its limits and labor shortages restrict business expansion.
Russia’s GDP grew only 0.1% in the third quarter. Growth forecasts for this year are between 0.6% and 0.9%, much lower than the more than 4% growth seen in 2023 and 2024.
Government Raises Taxes and Borrows
To deal with falling revenues, the Russian government has increased taxes. Value-added tax (VAT) on consumer goods has risen from 20% to 22%. Taxes on car imports, cigarettes, and alcohol have also increased.
The government is borrowing more from domestic banks. Russia still has reserves in its national wealth fund to cover budget gaps for now.
However, higher taxes could slow the economy further. More borrowing may also increase inflation. Inflation has fallen to 5.6% after the central bank raised interest rates as high as 21% before lowering them to 16%.
Experts say that if financial pressure continues for several months, it could affect the Kremlin’s strategy. While it may not lead to peace talks, Russia could reduce the intensity of the war if it becomes too expensive to continue at the same level.
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