Moscow is weighing cuts of up to 10% across federal spending after oil and gas revenues collapsed to their lowest quarterly level in years, as sanctions and low prices squeezed Russia hardest in the months just before the Iran war changed the equation.
A government source told Reuters that the budget situation would likely require cuts regardless of short-term fluctuations in oil prices, The Moscow Times reported. Oil and gas fund a quarter of Russia’s federal budget—a budget that dedicates 38% to defense and security, the highest share since Soviet times.
US and Israeli strikes on Iran on 28 February sent Urals crude surging above $90 per barrel, rescuing Russia’s oil price.
US and Israeli strikes on Iran on 28 February sent Urals crude surging above $90 per barrel, rescuing Russia’s oil price from the $40 lows where it had traded for weeks. But that windfall lands in April’s accounts, not Q1’s.
Russia’s oil tax system calculates each month’s revenues based on the previous month’s prices, meaning March’s receipts—the quarter’s worst—still reflect February’s depressed market. The Finance Ministry publishes the official Q1 total on 3 April. The quarter itself cannot be revised.
Behind the numbers
Russia’s Q1 2026 oil and gas revenues are expected to total 1.34 trillion rubles ($16.2 billion)—half what the same quarter produced last year, Reuters estimated on 17 March.
The trend was already visible in January, when oil revenues fell to a five-year low, pushing a monthly deficit that nearly equaled half the planned annual shortfall on its own, Finance Ministry data showed.
Economist Dmitry Polevoy warned that if the shortfall continued, the government would eventually look beyond oil for income.
Moscow’s 2026 budget assumed oil and gas would deliver an average of 743 billion rubles ($9 billion) per month all year. Q1 delivered 447 billion rubles ($5.4 billion) per month, and the remaining nine months now need to average 843 billion rubles ($10.2 billion) each just to hit the annual target. That is nearly double what Q1 actually produced.
Economist Dmitry Polevoy warned that if the shortfall continued, the government would eventually look beyond oil for income, with “household incomes among the first in line.”
The Kremlin had already raised VAT from 20% to 22% at the start of the year precisely to compensate for falling oil income. VAT receipts jumped 25% in January—and still were not enough to close the gap.
Running on reserves
Analysts at investment firm MMI calculated the annual budget could miss its energy revenue target by at least 3 trillion rubles ($36.4 billion) at current oil prices and exchange rates. They also warned that the liquid assets of the National Wealth Fund—Russia’s emergency reserve—could be exhausted as early as this year. The fund held just over 4 trillion rubles ($48.5 billion) in liquid assets at the start of 2026, down from $113 billion before the invasion.
“That’s not something we control. We will compensate using the National Wealth Fund.”
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Deputy Finance Minister Vladimir Kolychev cautioned in January that 2026 would mirror 2025’s budget pattern “but in a more acute form.” Full-year oil revenues in 2025 had already fallen 24% to 8.48 trillion rubles ($102.8 billion), the lowest since 2020. “That’s not something we control. We will compensate using the National Wealth Fund,” Kolychev told Interfax.
What the Iran windfall cannot fix
Even if April’s oil revenues recover sharply on the back of elevated Urals prices, a second Reuters source said the budget situation would require spending cuts “regardless of short-term oil price fluctuations.”
The last three months are now a permanent line in the ledger.
As of mid-March, no decision had been made: officials were waiting to see where oil prices settled once the Iran conflict stabilized, the source added.
Q1’s books will not wait. The three months when Western sanctions, Ukrainian drone strikes on refineries, and a strong ruble drove Russia’s oil revenues to their worst quarter since the pandemic are now a permanent line in the ledger—whatever April brings.
