Sanctions, the drop in gas and oil prices, the decrease in demand for Russian resources caused by Moscow’s invasion of Ukraine – all this will have a severe impact on the finances available to the Kremlin this year, writes Politico.
Oil and gas exports accounted for 45% of the Kremlin’s budget last year. Initial data show that, despite the sanctions, Russia gained 155 billion euros in 2022 from the export of energy resources.
Russian Finance Minister Anton Siluanov announced that in 2022, Russia’s budget deficit was 2,3% of the gross domestic product. In the 2023 budget, the Kremlin has planned that revenues from gas and oil exports will decrease by 23%. Alexandra Prokopenko, an independent expert and former official of the Central Bank of Moscow, called these calculations very optimistic.
The declines in energy trade revenues come as Russia seeks to increase its defense budget, a combination that threatens to seriously weaken its economy. Prokopenko said:
«It’s pretty clear that this year will be quite tough for the Russian budget. Russia lost its premium market both for oil and mostly for gas.»
Natural gas exports accounted for 10-15% of the government’s revenues, but they have fallen sharply, as reported by Gazprom in early January, by as much as 46%.
Georg Zachmann, a senior researcher at the Bruegel think tank, said that this is the moment when Russia will begin to feel the effects of the sanctions, and there are signs that Moscow is looking for ways to retreat.
Russia’s lucrative oil business has also taken a hit. Janis Kluge, a senior fellow at the German Institute for International and Security Affairs, said that the EU’s almost total ban on importing Russian oil by sea is one of the most influential measures adopted so far.
The Kremlin responded with a statement that from the 1st of February, it will ban the export of crude oil to countries that participate in the price ceiling policy established by the G7 and will reduce oil production to 700,000 barrels per day, or 7% of the usual daily volume.
Prokopenko called Putin’s response completely «toothless» and added that Moscow does not have enough tools to respond properly.
Kluge said that the decision of central banks to increase interest rates for loans makes the situation even worse for Russia. Slower economies, on the other hand, need fewer resources.
True, Kluge pointed out, this will not affect Putin’s war strategy. The Kremlin plans to increase the defense and military budget by 50% this year, which means that other sectors will suffer significantly. Kluge believes that the Kremlin is exploiting Russia’s future to finance war today, and this will not be without consequences.
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