Today, there is interesting news from the Russian Federation. The crashing global oil prices have deepened Russia’s financial burden, making it too dependent on the interests of other countries to maintain its national budget. Saudi Arabia’s refusal to raise the price delivered a massive blow to the Russian economy.
As of early May, global oil prices have declined significantly, with the average price around $60 USD per barrel, the lowest it has been in four years. This downturn is attributed to increased production, including a surprise increase of 411,000 barrels per day in early May. At the same time, demand is weakened amidst the global economic slowdown and recession fears.
The Organization of the Petroleum Exporting Countries (OPEC) is a coalition of major oil-producing nations that coordinates oil production policies to stabilize global oil markets. The larger format of OPEC+ includes original OPEC members and additional oil-producing countries like Russia and Kazakhstan, expanding the group’s influence but making consensus more complex due to differing national interests.
Russia breaks ranks
The decision by OPEC+ to proceed with the production increase, despite existing market oversupply, has intensified concerns about a potential surplus. This move came as a surprise to many analysts, who anticipated a more cautious approach given the weak global need for oil, highlighting disagreements among members. But as some members, like Russia and Kazakhstan, are trying to make quick profits, going against agreed-upon production quotas, countries like Saudi Arabia decided that they have had enough.
Specifically, Russia, despite being heavily reliant on oil revenues, has decided to ignore such regulations and increase production. Now, the country is paying the price for this, as prices have plummeted, and Saudi Arabia increased production in retaliation so as not to miss out on profits.
In 2025, the Russian Finance Ministry projected oil and gas revenues at $129.7 billion USD, representing 5.1% of Russian GDP. However, this was based on a much higher oil price of $70. This means that, due largely to declining oil prices, this forecast has been revised downward to $101.47 billion, marking a staggering 24% decrease in expected energy revenues. This significant shortfall, amounting to over $28 billion, is primarily attributed to Urals crude oil trading at around $58 per barrel, well below the $70 benchmark used in the initial Russian budget planning.
Each $10 drop in oil prices is estimated to cost Russia approximately $17 billion annually. The resulting revenue gap is expected to widen the budget deficit, compelling the Russian government to either increase borrowing, raise taxes, or draw further from the Russian National Wealth Fund — created to serve as a financial safety net and established in 2008 — which has already seen substantial depletion due to the ongoing cost of the war and economic sanctions.
Ukraine hits, Saudi holds
Saudi Arabia, a key player in global oil markets, has signaled its readiness to tolerate lower oil prices and is unlikely to support further supply cuts to prop up the market. This stance is influenced by frustration over countries like Russia, Kazakhstan, and Iraq, grossly ignoring OPEC+ production quotas and massively overproducing oil. By maintaining or even increasing its own production, Saudi Arabia aims to preserve its market share and discourage quota violations. Additionally, the Kingdom is focused on diversifying its economy by 2030 and is more than willing to endure short-term revenue losses to achieve long-term goals.
Russia’s situation is further complicated by Ukrainian drone strikes that have disrupted up to 15% of its oil refining capacity, equating to a loss of 600,000 to 900,000 barrels per day. These attacks have forced Russia to halt gasoline exports and prioritize domestic supply, limiting its ability to compensate for lost revenues through increased production.
Overall, with depleted financial reserves and limited options to boost income, Russia faces significant economic challenges. In contrast, Saudi Arabia possesses substantial financial reserves, enabling it to withstand low oil prices for an extended period of time. The Kingdom’s strategic decision not to reduce production underscores its commitment to enforcing OPEC+ agreements and pursuing economic diversification.
Without support from a key oil market influencer, Russia’s budgetary shortcomings are likely to grow, potentially undermining its ability to sustain prolonged military engagements, conduct massive offensives, and affect the broader stability of its economy.
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