Oil And Gas Revenues Of The Russian Budget Collapsed By Half

Low oil prices and a strong ruble continue to eat up the raw material rents of the Russian budget.

In February, oil and gas companies transferred Br423.3 billion to the federal treasury - 44% less than a year earlier, according to the data of the Ministry of Finance. The government has recorded a two-fold collapse in raw materials revenues for the second month in a row, and the accumulated total for the two months was 47% lower than last year's - Br826 billion against Br1.56 trillion, reports The Moscow Times.

The collections of the key mineral extraction tax (MET) in February were even less than in January - Br437.7 billion against Br440.3 billion, although the average price of Russian Urals oil rose slightly - from $41 to $45 per barrel. Apparently, this is the result of production cuts, says economist Sergey Aleksashenko: as early as late last year, oil companies began cutting production because of problems with sales to India.

As a result: the federal budget deficit in February could be about 1.5 trillion rubles, and in two months - 3.2 trillion rubles, which is close to the plan for the entire year (3.8 trillion rubles), analysts at Alfa Bank estimate.

"All the hopes of the Russian Finance Ministry are turned toward Tehran," writes Aleksashenko. Because of the war, the price of Brent crude has soared 30% in a week to over $90 a barrel, while Russia's Urals brand is already worth almost $70. If Iran can continue to resist and the blocking of the Strait of Hormuz will continue for at least three months, the Russian budget will be able to "make a good profit" on it, Alexashenko points out.

In March, oil and gas revenues may increase to 800-900 billion rubles at an average Urals price of $50-60, Alfa Bank forecasts. However, the overall budget situation may not radically improve, as the government is again actively spending: in two months, expenditures reached 19% of the annual plan, while revenues amounted to only 15%.

"The fact that Russian oil prices have risen strongly as a result of the strikes on Iran and the closure of the Strait of Hormuz will not affect March revenues in any way - it will be reflected in April revenues," Alexashenko points out. This month, according to his estimates, the budget will receive an additional 45-50 billion rubles, and for the first quarter - 1.5 trillion rubles, which is 42% lower than last year's levels.

Because of the war in Iran, the United States has already allowed Indian refineries to resume purchases of millions of barrels of Russian oil, which was "stuck" on tankers at sea after Rosneft and Lukoil - two companies that provide more than half of the Kremlin's production and oil exports - fell under blocking American sanctions. The Russian Urals grade, which until a few months ago was selling at record discounts in Indian ports, is now, by contrast, more expensive than the Brent grade.

"(Vladimir) Putin and his advisers have probably decided that the war in Iran serves Russian interests in the short term," argues Robert Person, a senior fellow at the Foreign Policy Research Institute in Philadelphia. In addition to rising oil prices, the Kremlin benefits from diverting attention from the war in Ukraine, which it does not want to end, as well as the risk of the U.S. getting bogged down in another "Middle East quagmire," Person said.

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