Putin's War Taxes Are Crippling Russia's Oil Industry
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The tax burden on Russia's oil industry is severe and making production of the country's critical export unprofitable, a Russian energy minster has said.
Anton Rubtsov made the comments on Tuesday as Russia faces dwindling revenues from its oil exports, which are key to financing Vladimir Putin's war effort in Ukraine.
Newsweek has contacted the Russian energy ministry for comment.
This illustrative image from 2015 shows an oil terminal in Novorossiysk, Russia.
This illustrative image from 2015 shows an oil terminal in Novorossiysk, Russia.Why It Matters
The price of Russia's flagship Urals crude grade has plunged alongside all major oil benchmarks.
Reuters reported Russia's oil and gas revenue had fallen by a third in May from a year earlier to 0.52 trillion rubles ($6.48 billion), which is the lowest level since July 2023 amid weaker oil prices and a strengthening of the Russian currency.
The comment from a Russian energy minister about the taxation the oil industry faces signals further the complications Moscow has in extracting revenues from its key resources.
What To Know
In 2023, Russian oil producers faced big tax increases to replace lost revenues resulting from Western sanctions imposed following Russia's invasion of Ukraine.
The sanctions included a G7 and EU-led measure to impose a $60 price cap on seaborne oil, although Moscow has created a "shadow fleet" that has circumvented this move.
The Kremlin's shift saw a move away from taxes on oil linked to the market rate of Urals blend toward an indicator pegged to Brent, the international crude benchmark.
But Rubtsov, director of the oil and gas department in Russia's Ministry of Energy, has sounded the alarm over the tax burden faced by his country's oil industry.
He told an industry conference in Moscow the taxation makes oil production unprofitable and that if prices continued to fall, low production efficiency will deter long-term investment and lead to a stagnation in production.
He said maintaining Russia's oil production at 540 million tons per year until 2050 will require doubling investment in the sector.
In the face of rising costs, "it is necessary to reduce the tax burden," said Rubtsov, according to state news agencies.
David Goldman, head of trading at Novion Global, told Newsweek on Tuesday that Moscow's energy revenues have been slashed because of sanctions and mixed signals from the government on tax highlight an unstable fiscal outlook.
He said that reducing the overall tax burden on Russia's oil producers might boost production in the long term but risks widening the budget gap in the short term.
The government is caught between the need to stimulate investment in a vital sector and fund a growing deficit without further depleting financial reserves, he added.
Goldman noted that although Rubtsov and other officials warn of an unsustainable tax burden threatening future investment and output, Russia's government has shown a selective willingness to ease pressure on some firms, such as gas giant Gazprom, which is set to receive over 30 percent in tax relief in 2025.
What People Are Saying
Anton Rubtsov, director of the oil and gas department in Russia's Ministry of Energy: "The tax burden is so substantial that today many options to maintain production are simply unprofitable."
David Goldman, head of trading at Novion Global: "The situation in Russia's oil industry is far from clear-cut. While Anton Rubtsov and other officials warn of an unsustainable tax burden threatening future investment and output, the government has shown a selective willingness to ease pressure on key firms."
What Happens Next
Russia's "shadow fleet" of oil tankers was one focus for the EU's 17th package of sanctions imposed last week and an 18th package of sanctions is being planned.
Meanwhile, anticipation is building over whether the Trump administration will include oil in the sanctions that the U.S. president has threatened if Putin does not agree to peace talks.
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