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Newsweek
23-04-2025
- Business
- Newsweek
Russian Economy Dealt Blow With Slumping Oil Prices
Based on facts, either observed and verified firsthand by the reporter, or reported and verified from knowledgeable sources. Newsweek AI is in beta. Translations may contain inaccuracies—please refer to the original content. Russia's government has predicted the price of its oil will plummet to its lowest level in half a decade, posing a challenge to the country's sanction-hit economy. Russia's Economic Development Ministry downgraded its 2025 forecast for Urals crude, Russia's major oil export brand, to $56 a barrel. This would be its lowest level since 2020 when the COVID pandemic sparked a collapse in global demand for the country's major export. Experts have told Newsweek that oil offers U.S. President Donald Trump leverage in pressuring Vladimir Putin as the Russian president delays agreeing to any peace deal to end the war he started against Ukraine. Meanwhile, lower prices of the energy export come as a report from the London School of Economics' foreign policy think tank, LSE IDEAS, said that Ukraine's economic resilience may outlast the Russian oil-funded war machine. Newsweek reached out to the Russian Ministry of Economic Development for comment. Why It Matters Oil prices are crashing due to global economic concerns and increased OPEC+ production. Oil exports are a key driver of Russia's economy, making it the focus of Western-led sanctions, which have aimed to choke funds for Moscow's war machine. However, Russia has circumvented a $60 price cap on a barrel of seaborne crude with a shadow fleet of vessels whose ownership is reorganized to hide links to Moscow. As major purchasers of Russian oil, such as India and China, become more reluctant to risk secondary sanctions in buying the commodity, a slump in its price poses a further problem for Russia's revenues. The grounds of a fuel tank farm of Russia's oil pipeline giant Transneft as seen on December 13, 2023. The grounds of a fuel tank farm of Russia's oil pipeline giant Transneft as seen on December 13, To Know Russia's Economic Development Ministry has reduced its 2025 forecast for the average price of Urals crude to $56 per barrel, which is well below the estimated $69 price that Russia's budget is based on and the lowest since the pandemic caused a collapse in demand. It is also less than the $60-a-barrel tipping point, above which profits from oil exports are added to Russia's sovereign wealth fund via taxes. Revenues below this cut-off are covered by drawing from the fund, which as of April 1, held 3.27 trillion rubles ($39.8 billion) in liquid assets. Berlin-based energy analyst Thomas O'Donnell told Newsweek that plunging Urals crude prices would put serious constraints on the Russian budget, but they won't stop the war. However, with Trump reportedly angered at the slow progress of peace talks in Ukraine, targeting Russia's key export further could be a way to exert pressure on Putin. This could be done by sanctioning the oil exported from the western-facing ports in Ust-Luga, Primorsk, on the Baltic Sea, as well as Novorossiysk on the Black Sea. The Ukrainians could also be allowed to use drones and missiles to target parts of the ports that support oil exports, O'Donnell said, because with market conditions of a great surplus of oil and low demand, pressure would build on Putin. "If these ports were closed, half to three-quarters of all of Russia's seaborne oil exports could be conceivably stopped," O'Donnell said, "this could cut perhaps 15 percent of Russia's budget income." Russian President Vladimir Putin at the All-Russia's Municipal Forum in Moscow on April 21, 2025. Russian President Vladimir Putin at the All-Russia's Municipal Forum in Moscow on April 21, 2025. Getty Images Oil as a Bargaining Chip David Goldman, head of trading at Novion Global, told Newsweek that in just over a week in April, Russia's oil revenue dropped by almost 30 percent. Whether Trump intended it or not, his push for lower oil prices may well be the best bargaining tool he has when dealing with Putin, he added. Meanwhile, a report released Tuesday by LSE IDEAS, the London School of Economics' foreign policy think tank, said that Russia is betting its war effort on volatile oil rents, and its fragile financial system is coming under considerable strain. Even in the face of the Trump administration's apparent pivot toward Moscow, Ukraine and its European allies still hold more cards than many, including Trump, actually believe, said Luke Cooper, the author of the report and director of PeaceRep's Ukraine program at LSE IDEAS. Locked out of international bond markets due to sanctions, a further downturn in oil market prices could lead to an acute balance of payments problem for the Russian regime, his report concluded. Also, with Ukraine's sources of external financing secured until 2027, Russia, by contrast, is in a potentially weaker position, as it is highly exposed to price volatility in the global oil market, Cooper added. As global demand for oil trends downward, there is an opportunity to increase pressure on Russia, Cooper told Newsweek. However, the Trump administration is prioritizing the reestablishment of an economic and political relationship with Moscow. "The problem is that the Trump administration doesn't appear to want to maximize pressure on Putin," Cooper said. What People Are Saying Luke Cooper, director of PeaceRep's Ukraine program at LSE IDEAS, told Newsweek: "It has long been recognized that oil is both a source of strength and global demand for oil trends downwards, there is a clear opportunity to maximize pressure on Russia." Energy analyst Thomas O'Donnell told Newsweek: "If Trump wants to really do something, he should simply stop the flow of oil totally from Russia's three westward facing ports—that would be a huge crisis." What Happens Next Russia's Economic Development Ministry forecasts only a modest recovery in oil prices in the next three years, with Urals expected to average $61 per barrel in 2026, rising to $63 in 2027, and $65 in 2028. However, O'Donnell said that even if the oil price in the 50 dollar area hurts the Russian ability to conduct the war, unless the price of oil gets below $25 a barrel, it does not pose a serious emergency for Russia, which amplifies the need for the U.S. to use Russian exports as a tool against Putin.
Yahoo
10-04-2025
- Business
- Yahoo
Russian economy grows at slowest pace in 2 years—a plunge in oil prices could make things much worse
Russia's economy faced a sharp slowdown in February, stoking fears of an economic glut in the country just as a brewing global trade war is expected to hit prices for its oil and gas exports. The Kremlin's Economic Development Ministry (EDM) reported that GDP grew by 0.8% in February compared with the year prior, a steep reduction from growth of 3% in January and the slowest recorded growth since March 2023, Interfax reported last week. The figures were confirmed by Reuters on Tuesday following an official statistics release. Industrial output rose by just 0.2% against 2.2% growth in January, while retail sales rose by 2.2% against 5.2% the month prior. Upon release of the statistics last week, the EDM blamed the sharp slowdown on a calendar-based anomaly: February 2024 was a Leap Year. "The one additional working day could be reflected in the statistics by a fluctuation of several percentage points. If this factor were excluded, the economic growth rate in February would be comparable to that in January," the ministry said. However, this viewpoint has been challenged by economists, who see other issues weighing down Russian finances. 'The softening of growth figures demonstrates monetary tightening, sanctions, supply side constraints, and higher price pressures remain restrictive,' said Volkan Sezgin, a senior EMEA economist at Continuum Economics. Raiffeisenbank had a similar reading on the figures, writing in a research note reported by Reuters: "The deterioration in a significant part of the industrial sectors is becoming persistent. Signs of a slowdown are taking hold." Russia's economy is flashing red across several indicators. Labor shortages have helped drive wage increases, leading inflation to rise above 10%. The country's labor force has been constrained by military call-ups, combined with demographic challenges caused by low birth rates. In response, the Russian central bank has hiked interest rates to 21% in a bid to slow down price rises. The Central Bank indicated in March that the economy was beginning to show signs of cooling as it continues battling to bring inflation below 10%. A deteriorating global economic context, though, means Russia is at risk of seeing its economy cool down more than policymakers would like. Russia was excluded from Trump's theatrical April 2 'Liberation Day' unveiling of tariffs targeting the U.S.'s friends and foes, with the White House explaining that existing sanctions already "preclude any meaningful trade" from taking place between the two nations. The downstream effects of those tariffs, though, have hit one of Russia's key exports. Oil prices fell to a four-year low on Wednesday, below $60 a barrel, in the wake of fresh tariffs by the Trump administration on China, with investors projecting falling demand and shipments as the world trading order goes into flux. Russia generates around 30% of its revenues for its state budget from oil and gas sales. Despite sanctions, oil and gas revenues have continued to grow, hitting $108 billion last year. The Kremlin budgeted for an average barrel price of $70 when drawing up its 2025 budget, of which around a third was devoted to military spending. There is an acknowledgment among policymakers that any drop in oil prices could have grave consequences for Russia's economy. "If such tariff wars, and we are seeing an escalation of tariff wars, continue, it usually leads to a decline in global trade, the global economy, and possibly even the demand for our energy resources," Elvira Nabiullina, the governor of Russia's central bank said, Reuters reported via Tass. Were a ceasefire with Ukraine to be agreed, Continuum Economics projects a sharp slowdown in Russian GDP growth, owing to a resultant reduction in defense spending. This story was originally featured on
