Kremlin eyes oil budget revision amid military cost surge
The Kremlin is considering revising the budget rule and lowering the forecast for oil prices from $60 to $50 per barrel, Bloomberg reports. This is in response to declining commodity prices and the rising costs of financing the war in Ukraine.
When drafting this year's budget, Russia assumed an oil price of $60 per barrel. According to Bloomberg sources, the Kremlin is contemplating reducing this forecast to $50 per barrel. Discussions on this matter are at an early stage, and any potential decisions might necessitate reducing expenditures.
If commodity prices exceed the budgeted amount, the surplus is allocated to the National Wealth Fund. Bloomberg explains that this fund acts as a safeguard: if prices drop, the government uses its resources to offset lower revenues.
Revenue from fuel exports comprises 30 percent of Russia's budget.
Fund depleted due to war
The agency notes that the National Wealth Fund has been significantly depleted due to the Kremlin's financing of military operations in Ukraine. At the start of 2022, it contained 8.4 trillion rubles, but it now stands at 3.3 trillion rubles (40.5 billion dollars).
During Saturday's meeting, OPEC+ countries decided to increase oil supplies by 411,000 barrels per day in June, marking the second consecutive month of growth. Saudi Arabia, the leader of the oil cartel, warned group members who exceed established production limits that they may face further supply increases.
OPEC+, which includes the Organization of the Petroleum Exporting Countries and allies, such as Russia, continues to maintain production restrictions at nearly 5 million barrels per day. Many of these cuts are expected to remain in place until the end of 2026. The next full ministerial meeting of the group is scheduled for May 28.
Ajay Parmar, director of oil markets analytics at ICIS, noted that the increase in oil supplies from OPEC+ "simply cannot be absorbed."
The expert further observed that "Demand growth is weak, particularly with the recent imposition of tariffs."
