The beginning of 2024 turned out to be very successful for the Russian budget, and its indicators look especially advantageous against the background of the two previous years, when, as it seemed, Western sanctions were seriously hitting the aggressor country.
It is significant that in the first quarter of this year, oil and gas revenues of the Russian Federation increased significantly, which means that sanctions are losing their effectiveness.
Budget Improvement
In 2024, Russia significantly improved its financial performance compared to the previous period. According to preliminary estimates by the Russian Ministry of Finance, federal budget revenues for the first quarter of this year amounted to 8.7 trillion rubles ($93 billion at the current exchange rate), which is 53.5% more than for the same period in 2023.
Since the beginning of 2024, Russian budget revenues have increased significantly. Non-oil and gas revenues amounted to 5.8 trillion rubles ($62 billion), which is 43.2% more than a year ago, and oil and gas revenues amounted to 2.9 trillion rubles ($31 billion), an increase of 79.1%!
At the same time, the budget deficit in the first quarter of 2024 decreased to 607 billion rubles ($6.5 billion) from more than 2 trillion rubles ($21 billion) a year earlier. This reduction in the deficit occurred due to the fact that in March of this year there was a colossal surplus, which amounted to 867 billion rubles ($9.3 billion) and became a record for the last two years. At the same time, in January-February the budget was implemented with a deficit of 1.47 trillion rubles ($16 billion).
Also, the main increase in budget revenues occurs in March (and it was especially noticeable in the last days of March). In particular, oil and gas revenues increased by almost 40% compared to February.
Such unexpectedly impressive figures make them somewhat doubtful, especially considering the Russian authorities’ penchant for various kinds of manipulation. And, despite the fact that there is no need to talk about outright distortion of facts, the published data are still not absolutely objective.
“Firstly, published data for the first quarter, as a rule, are not a very good basis for comparison due to the specifics of the Russian budget at the turn of the calendar year. Secondly, the published data includes the increase in tax payments that occurred in 2023, including the excess profits tax and resource payments. Thirdly, given how actively the Ministry of Finance of the Russian Federation in the first quarter of 2024 attracted resources through OFZ (federal loan bonds, an analogue of Ukrainian government bonds - “Apostrophe”), the budget had significant problems with liquidity, and the published figures are not cash execution of the budget , but what is accrued by the fiscal authorities,” said Vitaly Shapran, an economist and former member of the Council of the National Bank of Ukraine, in a commentary to the publication. “Therefore, all these “results” still need to be clarified.”
Nevertheless, we have to note with regret that Russia still has money. This means that the aggressor country has the material resources to continue the war against Ukraine.
Broken “ceiling”
As you know, shortly after the Russian invasion of Ukraine on February 24, 2022, Western countries imposed sanctions against Russia, including setting a price “ceiling” for its oil at $60 per barrel, which was intended to significantly reduce Russia’s income from oil exports.
However, despite the sanctions, the aggressor country's income from oil sales is growing. And even if we make allowance for the fact that the indicator for the first half of 2024 is to some extent manipulative, at least they do not fall. What's the matter? Something went wrong?
Maxim Oryshchak, an analyst at the Center for Exchange Technologies (CBT), recalls that the Russian Federation is one of the largest oil exporters in the world. Therefore, it is impossible to remove Russian supplies from the market without consequences.
“The oil market is too finely tuned, and even a small increase in the deficit pushes oil prices up. This will compensate for any sanctioned reduction in the volume of oil exports of the Russian Federation,” the expert said in a commentary to Apostrophe. “Moreover, high prices make it profitable to maintain your own “shadow fleet.” Complex supply schemes through other countries and so on are becoming cost-effective. It is impossible to fight this, especially when the Russian Federation is playing along with China, India, the countries of the Middle East and others. And you can’t force them not to do this either. It’s too profitable for them.”
The expert also noted that in 2023 the Russian ruble devalued by 26%, which, in fact, was beneficial for the budget: “With the same cost of oil, the Russian Federation receives an increase in budget revenues in the first quarter of 2024 (in rubles,” “Apostrophe” ) by 53.5% compared to the same period in 2023. And with government spending growing by only 20.1% in the first quarter, the Russian budget deficit is shrinking.”
According to Vitaly Shapran, Russia continues to make money primarily from oil, due to the fact that the price of the Russian URALS grade has gone well beyond $60 per barrel. This became possible thanks to the use of that same “shadow fleet”.
“Bypassing sanctions led to an expansion of the geography of oil trade and a decrease in the discount between Brent and URALS,” says the expert. – The second factor is the restriction of oil production by OPEC countries, which were counting on a crisis in China, which did not happen. At the same time, Ukrainian attacks on Russian refineries have little effect on the rise in oil prices on world markets, to put it mildly.”
It is no secret that Russian oil prices have previously exceeded the sanctions “ceiling” of $60. For example, in October 2023 it was trading above $80.
In April of this year, prices for URALS soared again, and now Russian oil is sold, for example, in India at $88 per barrel. Of course, a significant part of the income received from such a sale is “eaten up” by inflated costs for insurance and transportation. However, the specified price still provides the Russian oil industry with a good profit.
However, there is one more nuance that financial analyst Alexander Kolyandr drew attention to. According to him, the oil revenues of the Russian budget depend not so much on the prices at which the Russian Federation sells oil on the world market, but on the tax revenues provided by oil companies within the country.
“The tax regime in Russia is designed in such a way that oil taxes do not depend heavily on sales costs,” the Carnegie Foundation quotes Kolyandr. “However, this reduces the inflow of foreign currency and the income of oil companies, which could lead to a reduction in production in the future.”
Even more sanctions
But how, nevertheless, can we deprive Russia of income from oil sales? According to Maxim Oryshchak, at this stage this is only possible in the event of a collapse in oil prices.
“But it requires a serious downturn in the global economy. And in this case, incomes will fall for all countries - this is unlikely to change the balance of power,” the expert noted.
However, something can be done without waiting for a global crisis.
“Responsibility for circumventing sanctions, sanctions against insurers who insure the “shadow” tanker fleet - primarily Ingosstrakh and RNPC (Russian National Reinsurance Company). Reducing the price ceiling to 40-50 dollars and diplomatic efforts in India so that this country refuses to purchase oil above the price “ceiling” established by the G-7, Vitaly Shapran shares his recipe.
Even if, due to increased sanctions pressure, the aggressor country retains some part of its income, it will certainly decrease significantly. And if so, then its ability to finance the war will also decrease.
This raises the question of why this has not been done until now. Or, if attempts were made, why were they not sufficiently decisive?
By and large, this is a rhetorical question. After all, the fact that Russia has learned to circumvent sanctions has been known for quite some time. However, the United States has only recently begun to take steps to increase liability for owners of “shadow” tankers. It is also well known that calls to lower the price ceiling for Russian oil were made back in 2023. But the matter did not progress beyond conversations.
Thus, political will plays a key role in this matter. And most importantly, we need to remember that sanctions against the aggressor country actually work, albeit not as noticeably as we would like. And they know this very well in Russia itself, although they are trying with all their might to prove the opposite.
