Cheap Oil And Sanctions Forced Putin To Negotiate
- 31.01.2026, 17:29
Russia's budget revenues have collapsed, while war costs are rising.
Russia's oil industry is going through bad times, so the chances of making enough money for a war with Ukraine are getting slimmer and slimmer.
Russia's oil revenues, which are a key source of funding for the war against Ukraine, are shrinking sharply. This has led to a widening budget deficit, higher taxes and a buildup of Russian government debt. In addition, Russia has agreed to direct peace talks with Ukraine for the first time in months, according to The New York Times.
The article notes that Russia's oil industry has been hit by two factors at once. First, oil prices have fallen since April after the Organization of the Petroleum Exporting Countries (OPEC) decided to gradually increase production. Secondly, Western sanctions did their job.
As a result, according to the Ministry of Finance, Russia's oil and gas revenues fell by almost a quarter last year. Due to this, the Kremlin was even forced to raise taxes. Therefore, the material says, the Russian people will have to bear an even greater burden of the war, the cost of which exceeds about 170 billion dollars a year.
After the sanctions imposed in October by US President Donald Trump against two major Russian oil companies - Rosneft and Lukoil - their ability to sell crude oil has been significantly affected. In addition, Russia has faced increased enforcement of restrictions against the "shadow fleet" it uses to transport oil.
According to Carnegie Center energy expert Sergey Vakulenko, because of the current global oversupply, buyers now have more alternatives to Russian oil. This allows them to either refuse to buy at all or demand significantly higher discounts to offset the risks of dealing with goods under sanctions.
"If it were not for this noticeable drop in oil prices, all these measures would be much less effective," he said.
As for the drop in oil prices, according to the Economy Ministry, the average price in December was $39 a barrel compared to more than $57 in August.
Adding to Moscow's problems is the fact that Ukraine has been hitting Russian-affiliated tankers in the Black Sea and the Mediterranean with drones. In addition, the Ukrainian military has been attacking Russian oil refineries. This has caused fuel crises in several regions and forced the government to temporarily ban the export of oil products.
As the publication noted, this is not the first time Putin has had to deal with falling oil prices. But in the past, the Russian state had more options. It could cut spending or let the currency weaken to fill the budget. But spending on the war, which accounts for about 30 percent of Russia's annual budget, makes cutting spending extremely difficult.
And meanwhile, the national currency, the ruble, remains strong. Buoyed by import restrictions and high interest rates, it is up about 45% against the US dollar in 2025. A strong ruble means the government gets less money for every barrel of crude oil sold, the article said.
with no other options available, the Kremlin has no choice but to increase government debt and raise taxes on citizens and businesses. The Russian government has also increased the tax burden on small businesses such as bakeries and stores, sparking rare outrage among their owners.
Russia's budget deficit in 2025 has reached $72 billion, nominally the highest level since 2009. Economist Vladislav Nadorshin said he expects it to rise further this year.
"The situation is getting more complicated, and obviously the pace of this complication is naturally worrying," he said.