The decline in Russian oil export revenues is driven by lower global oil prices, not enhanced sanctions enforcement. While the discount on Russian oil remained stable, the reduced revenues reflect less favourable external conditions.

External environment provides macroeconomic stability. Russia’s current account returned to a surplus in August, reaching $40.5bn for the first eight months of 2024, ~40% higher than the same period in 2023. The 2024 surplus is projected at $60bn, up from $51bn in 2023, but it is expected to decline in 2025-26 due to falling global oil prices.

Russia is facing no substantial fiscal constraints. In the first eight months of 2024, Russia's federal budget deficit fell to RUB0.3 trillion. A 56% rise in oil and gas revenues and 27% growth in other revenues offset a 23% spending increase, leaving the deficit at 16% of the 2024 plan.

The Central Bank of Russia (CBR) is continuing to struggle with inflation. Inflation hit 9.1% year on year in August, far above the 4% target, despite a 11.5pp rate hike by the CBR since mid-2023. Key drivers: tight labour market (2.4% unemployment), rising wages, high war spending and increased private sector lending.

As a result, the economic risks are growing. Russia’s $300bn in frozen reserves and low National Welfare Fund (NWF) liquid assets limit its policy options. With only gold and yuan left, large-scale conversion is limited, posing a challenge if tighter monetary policy slows the economy.

The vessel designation campaign’s limited nature has allowed Russia to replace lost transport capacities. While the discount remained stable, declining global prices lead to a $5/barrel lower export price in August. 

Russian oil export volumes have been remarkably steady over the last 2.5 years despite sanctions. Thus, the price cap has succeeded at keeping Russian oil on the market and prevent supply issues. 

In January-August, oil export earnings averaged $16.9bn vs. $17.3bn in H2 2023 and $14.1bn in H1 2023. Budget revenues from oil were also roughly unchanged compared to H2 2023 but ~75% higher than in H1 2023. Russia’s ability to fund its government and, thus, its war in Ukraine appears largely unconstrained by oil sanctions. 

Russia’s shadow fleet of 430+ tankers allows it to evade the price cap for a large share of its oil exports. In August 2024, close to 90% of seaborne crude oil was transported without involvement of G7/EU services. For this portion, Russia is currently able to realize an average price that lies $10/barrel above the cap. 

A total 74 shadow fleet tankers have been sanctioned by the United States, European Union and United Kingdom. Around 70% of vessels have been removed from commercial operations as entities in third countries fear involvement. 

Oil and gas exports are projected to fall to $231bn in 2024 and further to $208bn in 2025 (vs. $235bn in 2023). As a result, the current account surplus is set to increase to $60bn this year before declining to $47bn in 2025. In terms of its external accounts, this leaves Russia in a relatively comfortable position and will limit ruble depreciation. 

 

Read the full report here.

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The Kyiv School of Economics (KSE) is a bne IntelliNews media partner and a leading source of economic analysis and information on Ukraine. This content originally appeared on the KSE website.