A setback for Russia’s ‘flagship’ industry: the oil business collapses
Western sanctions, Ukraine’s attacks, and a global supply surge have slashed Russia’s oil revenues, fueling record deficits and inflation.
Russia is facing a major economic shock as its oil revenues, the backbone of its military budget, plummet. Western sanctions, Ukrainian strikes on refineries and tankers, and a global oil surplus combined to cut the country’s oil and gas income by nearly 25 percent last year, according to the Russian Finance Ministry.
To offset the losses, the Kremlin has raised taxes, including on small businesses, and borrowed heavily, pushing the country to a record $72 billion budget deficit in 2025, the New York Times reported. Inflation remains high, living costs are rising, and ordinary Russians are bearing the brunt of a war that now costs more than $170 billion annually.
“This is manageable, but uncomfortable for everyone,” said Yevgeny Nadorshin, a Moscow-based economist advising banks and corporations. For decades, President Vladimir Putin has relied on a strong, stable oil-based economy to maintain popularity, but that stability is now under strain.
Russian oil trade under pressure
Two major factors are weighing on Russia’s oil market. First, the Organization of the Petroleum Exporting Countries boosted global production, pushing prices down since April. Second, sanctions against Rosneft and Lukoil, the country’s largest oil companies, have intensified. The U.S. and France have also intercepted Russian tankers using false flags, further complicating exports.
The average price of Russian crude fell to $39 per barrel in December, down from $57 in August. Ukraine’s attacks on tankers and refineries since November have forced Moscow to temporarily halt some product exports. “Russia must run out of money for this war to start coming to an end,” President Volodymyr Zelensky said.
Unlike past oil price drops, Moscow now has fewer options. War costs consume nearly 30 percent of the annual budget, and a strong ruble reduces revenue per barrel sold.
Economic pressures mount amid fragile peace talks
The combination of rising deficits, higher taxes, and persistent inflation signals the start of a new, challenging economic chapter for Russia. This comes just as peace talks with Ukraine appear to be making progress in Abu Dhabi.
Get your game on! Whether you’re into NFL touchdowns, NBA buzzer-beaters, world-class soccer goals, or MLB home runs, our app has it all.
Dive into live coverage, expert insights, breaking news, exclusive videos, and more – plus, stay updated on the latest in current affairs and entertainment. Download now for all-access coverage, right at your fingertips – anytime, anywhere.