Russia’s federal oil and gas revenues are expected to decline by 35% year-on-year in November to RUB520bn (€5.7bn), according to Reuters calculations published on November 24, citing Ministry of Finance data. The drop marks one of the lowest monthly figures in recent months for the Kremlin’s most critical source of income.

The decrease is attributed to two main factors: a drop in global oil prices and the strengthening ruble, which reduces the domestic value of dollar-denominated energy exports. Russia’s Urals crude blend, the country’s main export grade, averaged around $68 per barrel in November, significantly lower than the $75 average in October, according to market data tracked by Reuters.

Prices of oil are falling after OPEC+ decided to increase production, which is likely to create a glut of oil in 2026 as at the same time global growth slows, depressing demand for fuel.

The ruble has also recovered in recent weeks by RUB10 to trade at RUB81 as of the time of writing, from over RUB90 earlier this year. The strengthening is due to currency controls imposed by the Russian government, including a mandate for major exporters to convert a significant portion of their foreign currency earnings into rubles. As a result, the stronger currency is now eroding the budgetary benefits of energy exports, as a quirk of the national accounts is oil price estimates in the budget are denominated in dollars, but the budget spending is denominated in rubles: the Russian government is a loser when the currency strengthens as it reduces the number of rubles available for spending.

According to Reuters, November’s RUB520bn figure would represent one of the weakest monthly oil and gas revenue totals since early 2023. This continues a broader trend of volatility in Russia’s fiscal earnings amid international sanctions and fluctuating global commodity markets.

Oil and gas revenues currently account for just over 25% of budget revenues and are a major contributor to military spending, which is currently running at around 8% of GDP, or $160bn expected in 2025. However, the most important contributor to revenues is VAT, which currently accounts for just over 37% of the total. As part of the 2026 budget, from January 1, VAT rates will be hiked by 200bp to 22% to compensate for the fall in oil prices.

The Ministry of Finance has previously stated that it expects to also cover part of the shortfall using funds from the National Wealth Fund, but as that fund dwindles it is looking for alternative means of funding. Last week, MinFin increased its issue of the Russian Finance Ministry’s OFZ treasury bills and it has also begun to sell some of the monetary gold held in its reserves, according to reports.

Falling oil prices hit the budget

The fall in oil prices is starting to impact the budget, as the budget deficit grows. Currently, the deficit is around 2.8% of GDP, but as a fifth of all spending happens in December, that is expected to increase to as much as 3.4% of GDP by the end of the year – the biggest deficit since the first year of the war in Ukraine. Prior to that the last time the deficit was over 3.4% was during the Global Financial crisis when the deficit hit 6% of GDP in 2009.

As military spending continues to be increased, the deficit has been growing all year. The budget has been in deficit all year – except briefly in August (RUB660bn) and September (RUB331bn). It was heavily in deficit in the first quarter on the order of RUB700bn a month, and less so in the second quarter of less than RUB300bn. (chart)

However, the deficit jumped in October to RUB1.4 trillion ($15bn) and is expected to widen further in November and be even bigger in December when a large amount of spending happens. After the disastrous deficits at the start of 2024, MinFin says it has taken measures to spread the spending out over the year to reduce the traditional New Year’s spending splurge, but the cumulative deficit this year is already RUB4.9 trillion ($52.4bn), or 2.8% of GDP – around double the level of all three previous years of the war. (chart)