Russia’s oil and gas revenues have fallen sharply: Moscow is getting off the “comfortable Western needle”

The oil and gas revenues of the federal treasury almost halved over the year – by 47%, to about 3.4 trillion rubles. This is evidenced by the budget execution assessment data published on the website of the Ministry of Finance. The general indicators of the state treasury turned out to be 12% lower than last year. Why the reorientation of oil and gas flows to the East could not compensate for the loss of the European market for raw materials companies, is Russia getting off the “oil needle” and whether to expect a reduction in the “social program” in the state due to a lack of money in the federal budget – in the material “MK”.

The loss of revenue from the oil and gas sector is not the only problem for the Russian treasury. At the same time, its expenses increased to almost 15 trillion rubles in six months. As a result, the federal budget deficit today is about 2.6 trillion rubles.

The Ministry of Finance explains the decline in oil and gas revenues with a “high base” (that is, abnormally large indicators) of last year, as well as a decrease in the cost of Russian Urals oil on the world market. An additional negative effect was the fall in the cost and reduction in the volume of exports of natural gas. On the eve of the Ministry of Finance said that oil and gas revenues rolled back to a minimum since February this year. It is curious that this happened despite regular statements from high tribunes about the reorientation of export deliveries “to the East”, about the long-running “Power of Siberia” and the growth of non-oil and gas budget revenues. Recall that Russian President Vladimir Putin, speaking at SPIEF 2023, announced an increase in state treasury revenues that are not related to oil and gas escorts by 9.1%. According to him, this has become an important indicator that the real sector of the Russian economy, “its manufacturing enterprises, trade and services are developing and gaining momentum.” The head of state also noted that Russia is “getting off the oil needle”, and the powers that be have been dreaming about this for the last twenty years.

The reality turned out to be more complicated than official reports. For example, it turned out that few of the trading partners for the sake of relations with Russia are ready to violate sanctions, or rather, to confront those who imposed them. “The price ceiling imposed by Western countries on Russian oil in the amount of $60 per barrel is actively observed by all states where the Russian Federation delivers,” says Artur Meinhard, head of the Analytical Department for Global Markets at Fontvielle Investment Company. – The Asian partners of the Russian Federation are no exception. In addition, these $60 per barrel include logistics costs, insurance, etc., which ultimately reduces the total cost of a barrel of oil to $50-$55.” It does not make sense for the Chinese and Indian side (the main buyers of oil) to switch from Arab oil to Russian unless they receive a “buyer’s discount”. Despite this, this order of things cannot be called completely bad. Russia was able to reorient European supplies to the Asian market, obtaining long-term solvent buyers, in fact, squeezing the Arab countries off the pedestal of the main energy suppliers to Asia, without starting trade wars for the buyer. Despite the growth of non-oil and gas budget revenues, they will not be able to compensate for the missing state treasury funds so quickly. It should be understood that it will not be possible to completely restructure state treasury revenues in the direction of non-resource revenues in just a year or two, since a qualitative departure from the “oil needle” is a very long process and structurally expensive, the analyst noted.

And this is still a positive assessment, since in more pessimistic circles they believe that our country has simply switched from one addiction to another, less comfortable one. “Russia, undoubtedly, is “getting off the oil needle,” but at the same time it is tearing up the place where it sat on the needle,” continues the conversation, the head of the analytical department of the BKF bank, Maxim Osadchy. Indeed, oil and gas revenues for the 1st half of 2023 almost halved. If it were not for such a dramatic reduction in oil and gas revenues – by 3.5 trillion rubles, then there would not have been a huge budget deficit (2.6 trillion rubles in the first half of 2023). The reason for this reduction is the sanctions. So far, the gas pipeline has not been “turned” from West to East, because the costs of such a turn are many tens of billions of dollars. Things are not as bad with oil as with gas, but the sanctions ceiling on the price of Russian oil ($60 per barrel) and significantly increased transportation costs (for example, India has become one of the main buyers of Russian oil, where oil has to be delivered by tankers) also contribute to reduction in revenues from oil exports. “It can even be argued that Russia is not so much “getting off the oil needle” as it is transplanting from a comfortable western needle to a less convenient “needle” east,” Osadchy emphasized.

The forecasts of experts were also divided about the consequences of the lack of funds in the state treasury. In the academic environment, they believe that it will not be possible to do without cutting spending items. So, according to the Associate Professor of the Department of World Financial Markets and Fintech of the Russian University of Economics. G.V. Plekhanov Denis Perepelitsa, a significant budget deficit, of course, does not add optimism to the Ministry of Finance, which is forced to look for ways to reduce it by, among other things, sequestering certain articles of the state treasury. “Obviously, there are not enough funds for all budget programs and a certain optimization of social spending can occur,” the scientist notes.

Another group of analysts recalls that less than three quarters are left before the new presidential elections in our country – they are scheduled for March 17, 2024. Considering all the events of the last year and a half, the authorities, most likely, will not want to cause public discontent and will resort to additional means of replenishing the state treasury at their disposal. According to Osadchy, there are several main ways to finance the budget deficit, and the Ministry of Finance uses all of them. First, the “printing press” is actively turned on. This is understood as the sale by the department of Anton Siluanov of the currency of the Central Bank of the Russian Federation that he has. The Bank of Russia is under sanctions and cannot send this currency anywhere, therefore it simply issues rubles, yen, dollars and euros against the pounds, yen, dollar and euro received from the Ministry of Finance. Second, taxes are rising. Thirdly, borrowings in the domestic market are increasing due to the placement of federal loan bonds (OFZ). Fortunately, the level of Russia’s public debt is one of the lowest in the world – 14.9% of GDP. Fourthly, the “box” has been printed – the National Wealth Fund (NWF). Its size at the beginning of June was 12.3 trillion rubles.

The devaluation of the ruble also contributes to the growth of budget revenues. Recall that over the past two weeks, the dollar has strengthened from 87 rubles on June 26 to about 92 rubles by July 7, and at the moment this week the US currency managed to reach the level of 94 rubles. The euro for the same period has gone from 95 to 100 rubles.

To cover the budget deficit, the authorities may also insist on the payment of dividends by state-owned companies to the budget or sell part of state assets. The topic of privatization has recently been constantly heard from high tribunes, and it is no coincidence, experts point out.