Russia lost half of oil tax revenues in March but Iran war has reversed trend

Russia's tax revenues from oil fell by nearly half in March compared with the previous year, but the war in the Middle East has brought Moscow an unexpected increase in income.

Source: Bloomberg

Details: Last month, Russian producers paid US$6.18 billion in oil taxes, 48% less than a year earlier, according to Bloomberg calculations. Total oil and gas revenues of the federal budget fell by nearly 43% year-on-year.

The decline is explained by the fact that March tax payments were calculated based on February prices for Urals crude, Russia's main export blend. At that time, Urals averaged less than US$45 per barrel, significantly below the US$59 per barrel assumed in Russia's 2026 budget.

The reduction in tax revenues from the oil and gas sector widened Russia's budget deficit, as economic growth is slowing and spending on the war against Ukraine continues to drain resources.

However, starting next month, the Russian budget may receive a sharp increase in oil and gas revenues after Urals prices surged in March amid the Middle East conflict. By the end of the month, Urals crude delivered to India, one of Russia's key buyers, was trading above US$120 per barrel, at a premium to benchmark Brent crude.

The war with Iran has almost completely blocked the Strait of Hormuz, a key route for energy exports from Gulf countries. Russian oil does not depend on this route, making it more attractive to buyers in Asia.

Meanwhile, in an effort to curb rising oil prices, the United States allowed a broad group of countries, including India, to purchase large volumes of Russian oil already at sea. This exception has further boosted Asian demand for Russian barrels.

Thanks to the sharp turnaround in oil prices, Moscow is no longer planning significant cuts to budget spending and may even increase defence expenditure if the war against Ukraine drags on, people familiar with the plans said.

Still, Russian leader Vladimir Putin has repeatedly urged the government and oil companies to take a cautious approach to spending, as high oil prices may prove temporary.

March oil revenues rose to their highest level in five months due to Russia's oil tax payment schedule, under which profit tax is mostly paid four times a year – in March, April, July and October.

Background:

• Vietnam, Thailand, the Philippines, Indonesia and Sri Lanka are actively ordering Russian oil, increasing the likelihood that regional demand will exceed Russia's supply.
• On 13 March, the US suspended sanctions on Russian oil already loaded onto tankers.

Support Ukrainska Pravda on Patreon!