The Institute of International Finance (IIF) has forecast a decrease in Russia’s fiscal breakeven oil price (the amount to balance the external current account) to $77 per barrel by 2025, supported by a recovery in oil and gas revenues. At the same time, the external breakeven oil price (the amount to balance budget spending for extraction), currently at $41 per barrel, is the second lowest among major hydrocarbon exporters.

Russia’s oil production has remained stable despite Western sanctions, with Urals crude prices projected to narrow their discount to Brent, falling from $19 in 2023 to $11 in 2024 – close to its lowest level since the war began.

This, alongside a deceleration in government spending, is expected to reduce Russia’s fiscal deficit from 2.3% of GDP in 2023 to 1.1% in 2024, potentially balancing the budget by 2025, according to Garbis Iradian, IIF’s chief economist for the MENA and Central Asia regions.

Additionally, gas exports to China through the Power of Siberia pipeline are set to increase from 24bn cubic metres in 2023 to 35 bcm by 2025, further bolstering revenues.

Saudi Arabia and Gulf States maintain higher breakeven prices

Saudi Arabia is expected to see its fiscal breakeven oil price decline to $85 per barrel by 2025, as the kingdom unwinds its voluntary production cuts and increases oil output from 9.4mn barrels per day in 2024 to 10.1mn bpd in 2025. The move is anticipated to lower its external breakeven price to $81 per barrel by the same year. Despite these high breakeven prices, Saudi Arabia remains well-positioned to adapt due to its ample financial reserves and low debt levels.

Other Gulf states are expected to maintain relatively low breakeven prices. The UAE’s fiscal breakeven price will remain among the lowest, at $57 per barrel, with the country continuing to surpass OPEC+ production targets. Qatar, benefiting from expanding LNG production, is projected to keep its external and fiscal breakeven prices around $50 per barrel, while Kuwait’s fiscal breakeven price is set to rise to $78 per barrel due to increased government spending and declining oil export volumes.

Vulnerabilities in Algeria and Iraq

In contrast, Algeria and Iraq are expected to face rising fiscal breakeven prices, reaching $109 per barrel and $99 per barrel respectively by 2025. Both countries are vulnerable to lower oil prices due to substantial increases in government spending, particularly on wages. These high breakeven prices highlight their exposure to potential declines in oil revenues, posing risks to fiscal stability.