The War Offers No Relief: The Russian authorities will fail to stabilise the budget in 2026, despite additional oil revenues

Too little of too much: budget revenues are growing less than they could

April became the first month in which the Russian budget finally felt the beneficial effects of the war in Iran and the closure of the Strait of Hormuz. Oil and gas revenues reached 856 billion roubles, an increase of 240 billion roubles, or 40%, compared with March. However, compared with the oil and gas revenues that the Finance Ministry had originally planned to receive in April, revenues exceeded the target by only a modest 21 billion roubles, or 2.5%.

April’s oil and gas revenues were calculated on the basis of a March Urals price of $77 per barrel, nearly 75% above the price of Russian oil immediately before the outbreak of war and 30% above the budget assumption of $59 per barrel. The more modest growth in revenues relative to oil prices reflected exchange-rate effects, with the dollar trading at 80.5 roubles rather than the 92 roubles assumed in the Finance Ministry’s plan, as well as substantial payments to oil companies under the reverse excise duty and fuel damper mechanisms used to stabilise domestic petrol prices. These payments increased sevenfold, from 55 billion to 380 billion roubles, because of the surge in oil prices.

As a result, the shortfall in actual oil and gas revenues compared to the target over the first four months narrowed only marginally. In the first quarter of 2026, which was a disaster for the Russian budget, Urals prices averaged just $39 per barrel, one-and-a-half times below the planned level of $59. Consequently, oil and gas revenues fell by 45% year-on-year and by almost 30% relative to the first-quarter plan. The strengthening of the rouble compounded the effect of lower oil prices. Altogether, the first-quarter shortfall in oil and gas revenues reached 570 billion roubles. Following April’s stronger performance, the gap narrowed by only 21 billion roubles, leaving a remaining shortfall of 550 billion roubles. Overall, oil and gas revenues over the first four months totalled 2.3 trillion roubles instead of the expected 2.85 trillion, or 20% below target. Comparing actual revenues with planned figures is crucial because expenditure commitments were calculated on the basis of those projected revenues, which the government has been financing at an accelerated pace. As these figures demonstrate, it will take considerable time to make up for the first-quarter collapse.

Russia’s ability to take full advantage of favourable market conditions and increase export revenues, on which budget performance depends, has been constrained by Ukrainian strikes on ports in the Baltic and Black Seas and on associated export-oriented refineries (→ Re:Russia: The Kremlin’s Baltic Hormuz). According to Bloomberg estimates, Russian seaborne oil exports fell by 4% in March compared with February following these attacks, before rising by 7.5% in April compared with March. As a result, export volumes of 3.6 million barrels per day exceeded February levels by only 3%, despite the suspension in March by Donald Trump of US sanctions on Russian oil. In other words, Ukrainian attacks prevented Russia from significantly increasing export volumes when the opportunity arose. Moreover, because of the damage inflicted on oil infrastructure, Russia is not only failing to capture the full benefits of the war-driven oil-market crisis but will almost certainly also be forced to reduce production, according to Reuters sources in the Russian oil industry. These expectations are shared by the government-aligned Centre for Macroeconomic Analysis and Short-Term Forecasting (CMASF), which has downgraded its April forecast for socio-economic development for the year, pointing to significant risks of a reduction in oil production and exports.

Oil and gas budget revenues and Urals oil price trends, 2025–2026

The blockade budget: a corridor of possibilities

However, the hopes of the Ministry of Finance and the Kremlin are fuelled by the ongoing blockade of the Strait of Hormuz and the stalemate in the military conflict between Iran and the US. Prices for the benchmark Brent crude remain around the $100 per barrel mark and are likely to stay at high levels for some time, even if the strait is unblocked, due to damage to the region’s oil infrastructure.

According to the US Energy Information Administration’s (EIA) April forecast, Brent prices will peak at $115 per barrel in the second quarter of 2026 before declining to $90 by the fourth quarter, as Middle Eastern oil production gradually recovers. As a result, the average annual price is projected at $96. Fitch Ratings forecasts $87 if the Strait of Hormuz blockade ends in July. Barclays, on the other hand, raised its forecast to $100 in early May and did not rule out a further increase. Thus, even if the blockade ends within the coming months, the average Brent price could still amount to around $90 per barrel, while a more prolonged disruption could push it to $100 or higher. This broadly reflects current market expectations.

Following the start of the blockade, the shortage of Middle Eastern supplies and the suspension of US sanctions on Russian oil caused the discount on Urals relative to Brent to narrow by almost one-and-a-half times, from $31 per barrel at the end of February to $23 at the end of April. In some cases, Russian oil even traded at a premium to the benchmark. However, last week, for the first time since the start of the war, the discount began to widen amid expectations of an end to the conflict to $24 per barrel, according to Argus data. Under the more optimistic scenarios of Fitch Ratings and the EIA, and assuming the discount remains at current levels, the average Urals price in 2026 would range between $63 and $72 per barrel, or 7–22% above the budget assumption of $59. If the blockade drags on, the average price could shift into the $75–80 range, around 30% above the planned level.

For the period January–April 2026, the average price of Urals stood at $64.4 per barrel, and the Russian Central Bank conservatively raised its annual forecast for Urals to roughly the same level, $65, compared with the pre-war expectation of $45. On 12 May, the Ministry of Economic Development, while downgrading its GDP forecast for 2026, maintained its estimate for the average annual price of Russian oil at $59 per barrel. In a ministry statement, the impact of the crisis in the Strait of Hormuz on the Russian economy is assessed as ‘very modest’, as was its ‘price effect’ on Russian finances. ’The actual increase in prices differs somewhat from the dire forecasts made by some international analysts at the beginning of the crisis’, an unnamed ministry representative noted. The undertone of disappointment likely reflects the fact that the discount on Russian oil has remained so substantial and has now begun widening again.

Most experts agree that the average annual Urals price will exceed the budget assumption, but differ on whether this will be sufficient to offset the effects of the strong rouble and ultimately match or exceed planned revenues. Dmitry Kasatkin, partner at Kasatkin Consulting, quoted by Vedemosti, argues that completely eliminating the oil and gas revenue shortfall through the Middle Eastern conflict will be difficult, though substantially reducing it is entirely feasible. He believes that to fully ‘make up the shortfall’, the Urals price would need to remain above $80 per barrel for an extended period, coupled with a weaker rouble. Yegor Susin, author of the TruEcon Telegram channel, likewise expects oil and gas revenues in 2026 to fall somewhat short of plan, mainly because of the stronger rouble. He forecasts Brent at $95 and Urals at $65–70 per barrel. Analyst Dmitry Polevoy told Re:Russia that, if current oil prices persist, ‘everything should be fine by year-end’. Meanwhile, according to calculations by the former deputy chairman of the Central Bank, economist Sergei Aleksashenko, ‘in the remaining eight months, an average export price of $76 per barrel will be sufficient to meet the planned oil and gas revenue targets’.

The most optimistic forecast was presented back in early April by VEB chief economist Andrei Klepach. According to a presentation reported by Nezavisimaya Gazeta, VEB’s baseline scenario assumes continued rouble appreciation under conditions of high oil prices and nevertheless projects additional oil and gas revenues of 500 billion roubles. The most favourable scenario, based on a weaker rouble, envisages revenues exceeding the plan by 1.8 trillion roubles. VEB’s calculations may have assumed a significantly narrower Urals discount to Brent. In any case, analysts’ May forecasts are noticeably more restrained: they do not foresee a fiscal windfall for the budget and are instead focused on whether planned revenue levels can be achieved this year. The resulting range of scenarios is as follows: a pessimistic scenario still implies a shortfall in oil and gas revenues despite higher oil prices, somewhere between the current 500 billion rouble gap and the budget target; a moderate scenario assumes revenues meet the plan; an optimistic scenario envisages revenues exceeding the plan by around 500 billion roubles; while a super-optimistic scenario projects an even larger overperformance.

The budget squeeze: economic slowdown versus accelerating expenditure

However, a further deterioration in economic performance will pose an additional challenge to budget revenues, as it will inevitably affect non-oil and gas income (→ Re:Russia: On The Brink of Recession). The Russian authorities have partially sought to hedge against this risk by raising the VAT rate, but it is nevertheless unlikely that non-oil and gas revenues will reach the planned level, even taking that increase into account.

Non-oil and gas revenues in the first quarter exceeded the previous year’s level by 7%, while revenues for January–April were 10% higher year-on-year, reaching 6.9 trillion roubles. This corresponds exactly to the growth rate planned for this year: the Finance Ministry expected to collect almost 31.34 trillion roubles, compared with 28.8 trillion last year. However, this dynamic is misleading. First, the apparent improvement in January–April reflects not stronger collections in April itself, but rather the low base effect from April of the previous year. In reality, April non-oil and gas revenues were 12.5% lower than in March, falling from 2.92 trillion to 2.56 trillion roubles. Although the Finance Ministry has not yet published detailed tax collection data for April, some conclusions can already be drawn regarding the trajectory of revenues linked to domestic production, both in April and over the remainder of the year.

Revenues from the increased VAT rose by 20% year-on-year in the first quarter (the tax rate was increased by 2 percentage points, or 10%, and the tax base was expanded to include smaller companies). The second major contributor to the growth in ‘domestic’ budget revenues was a sharp rise in corporate profit tax receipts, which increased by almost 30% compared with the first quarter of 2025, equivalent to an additional 218 billion roubles. However, this increase largely reflects the fact that companies make their final profit-tax settlement for the previous year during the first quarter, and the profit-tax rate had been increased from 20% to 25%. More precisely, the federal component of the tax rate was raised: previously it amounted to 3% of profits, whereas it now stands at 8%, while the regional component remains unchanged at 17%.

VAT revenue, 2025–2026, billion roubles

Consequently, the federal budget has recorded additional revenues from the higher tax rate, and corporate profit tax receipts have increased significantly, while regional budgets have continued to receive revenue from the tax at the same rate as last year. The report on regional consolidated budgets for the first quarter published by the Ministry of Finance in early May shows that corporate income tax revenue in the regions fell by 12% in January–March 2026 compared with the same period last year. This decline points to the underlying trajectory of corporate profits (unaffected by the rate increase in the federal component). Advance corporate profit tax payments amount to 25% and are generally calculated on the monthly tax base from the previous quarter. In other words, if a company’s profit at the end of 2025 amounted to 100 million, and fell to 80 million at the beginning of 2026, it would pay 6.75 million to the budgets at the end of 2025, 5 million at the beginning of 2026, with the remaining impact and proportional revenue decline carried over into early 2027. Thus, regional budgets have only partially reflected the fall in corporate profits at the start of 2026.

According to Rosstat data on the financial condition of enterprises, total profits in November–December 2025 amounted to 7.43 trillion roubles, while in January–February they stood at 5.44 trillion, a decline of 27%. Compared with January–February 2025, this represents a 31% decrease. The consolidated financial result in January–February 2026 fell by 33% compared with the same period in 2025 and by almost 40% compared with November–December 2025. Corporate profits began to decline in mid-2025, briefly improved at the end of the year, and then fell sharply at the start of 2026. From a budgetary perspective, the main impact of this downturn will be felt in early 2027, when companies settle their corporate profit tax liabilities for 2026. However, advance payments made during this year will already decline noticeably, as reflected in regional budget revenue trends. If corporate profits fall by 33–35% in 2026, then, by our estimates, roughly one-third of the fiscal impact will be reflected in advance payments between April and December, amounting to around 400 billion roubles in lost revenue.

On the one hand, higher tax rates will undoubtedly help increase non-oil and gas revenues. On the other, lower inflation and a recessionary economic environment will work against this, notes Sergey Aleksashenko. Forecasting the dynamics of the main source of non-oil and gas revenues, VAT, is particularly difficult under conditions of simultaneous changes in its base and rate, alongside a wide range of possible outcomes for inflation and either economic stagnation or contraction. In VEB’s projections presented by Andrei Klepach, non-oil and gas revenues are expected to fall short of plan by 600–700 billion roubles. Given the projected decline in corporate profits and, consequently, in profit tax receipts, this estimate appears broadly plausible.

Thus, even in a scenario where oil and gas revenues increase (with Urals prices remaining above $80 per barrel and a strong rouble) and reach planned levels, total budget revenues would still fall short of target, and would only reach the level set out in the budget law (40.3 trillion roubles) under Klepach’s most optimistic scenario. At the same time, federal budget expenditures are growing at rates close to those of previous years: as of April, they were 16% higher than a year earlier (compared with 19% growth in April 2025). Moreover, 40% of planned annual spending has already been executed in the first four months (17.6 trillion roubles out of 44.07 trillion). A year earlier, this figure was 37%, which ultimately led to two upward revisions of the budget and a 1.5 trillion rouble increase in spending compared with the original plan. Most experts doubt that expenditures can be contained within the current budget envelope. Aleksashenko, in particular, notes that in conditions of an almost imminent recession, the Finance Ministry is unlikely to reduce the fiscal impulse. The only question is the scale of the increase: whether spending rises by a similar amount to last year (to around 45.5 trillion roubles) or by more. For example, the MMI Telegram channel forecasts an increase in expenditure of 3 trillion roubles, to 47 trillion. Thus, in a moderate scenario for oil and gas revenues (reaching the planned level), the federal budget deficit for the year could amount to 5.5–7 trillion roubles. And this scenario already incorporates a substantial, though not maximal, ‘bonus’ from the Iran war and the blockade of the Strait of Hormuz.