NewsRussia's revenues soar amid war: Oil and sanctions paradox

Russia's revenues soar amid war: Oil and sanctions paradox

Vladimir Putin

Images source: © forum | Artem Priakhin

8:32 AM EDT, April 10, 2024

Russian budget revenues are rising despite two years of war and escalating costs. "This indicates greater potential, as well as increased resources for continuing the war," points out Iwona Wiśniewska from the Centre for Eastern Studies in Poland.

The Russian Ministry of Finance has officially reported a significant increase in revenues. In the first quarter of this year, they amounted to 8.7 trillion rubles, compared to 5.6 trillion rubles in the same period last year, marking a 53.5% rise.

Despite ongoing sanctions and war, this upward trend in revenues is alarming for Ukraine and Europe. It signifies expanded capabilities and heightened military funding.

Oil drives everything

Oil and gas sales remain the backbone of Russia's revenue, with significant markets in India and China offsetting the loss of Western sales. "The revenue from oil and gas sales surged by 80% compared to the first quarter of last year," explains Wiśniewska. During this period, Russia experienced a price hike from approximately $50 to $70 per barrel of oil. Despite increased costs due to sanctions, Russia still profits, especially at the expense of its own citizens.

March was particularly lucrative for the Russian budget, thanks to additional income tax from oil companies and a rise in non-oil and gas revenues, such as VAT - though inflation also influences this.

Official inflation is around 7%, but the real cost increase for basic goods is closer to 20%. This means Russian revenues and expenditures are climbing, leading to a potential budget deficit that could necessitate increased public debt.

"The Kremlin shifts costs"

To manage public finances, the Russian government plans to impose higher communal tariffs and gas prices, with talks of raising income taxes. "The Kremlin is passing the costs of war onto its citizens and businesses," states a Centre for Eastern Studies expert.

Funding for defense and military operations remains a top priority, with regional budgets bolstering their contributions to encourage recruitment.

What about sanctions?

The Russian economy withstands despite significant measures like exclusion from the SWIFT system and aviation restrictions. "Sanctions have hurt, but Russia's large economic scale and expert evasion techniques soften the blow," says Wiśniewska. The intent was to curb revenues, yet only partial success has been achieved.

The Kremlin was ready for war

Russia's preparation for the Ukrainian invasion involved substantial reserve accumulation, positioning it to withstand economic pressures despite predicted stagnation.