Russia’s Oil and Gas Revenues Collapse: Budget Deficit Soars Beyond Target

Russia’s federal budget is under growing strain as revenues from oil and gas taxes fell sharply in September, marking a 25% year-on-year decline, according to figures released by the Finance Ministry on October 3. The state collected 582.5 billion rubles (.1 billion) from the sector last month, significantly less than in September 2024, as sanctions, lower energy prices, and a stronger ruble eroded export earnings.

The shortfall comes at a time when Moscow is already grappling with a widening budget deficit. By the end of August, the deficit had climbed to 4.19 trillion rubles (.4 billion), overshooting the government’s annual target. This growing gap in finances has already forced the Kremlin to scale back future military spending, with planned defense expenditures for 2026 set to be reduced by 0.6 trillion rubles (.3 billion), around 4.4% less than initially forecast.

Since the beginning of 2025, Russia’s total oil and gas revenues have contracted by 1.7 trillion rubles (.7 billion), leaving the budget with only 6.6 trillion rubles (.4 billion) from its most vital export sector. The decline has been accelerating, with the first nine months of the year seeing a 21% drop overall. In September alone, receipts from the mineral extraction tax on oil slumped by 32% compared to last year, while gas tax income fell even more steeply, by 52%. Export duties on hydrocarbons also shrank by 27%.

The squeeze on finances has triggered discussions about raising taxes to compensate for lost revenue. On September 24, the Finance Ministry submitted a draft budget proposing an increase in the value-added tax (VAT) from 20% to 22%. The measure is intended to offset the mounting costs of Russia’s war in Ukraine, which continues to drain resources at a rapid pace.

Defense spending remains one of the largest burdens on the budget. In 2025, Russia is expected to allocate 13.5 trillion rubles (4.5 billion) for defense, representing roughly 32% of all state expenditures. However, with the fiscal strain deepening, the government has been forced to rethink its future commitments.

Meanwhile, Russia’s broader economy is showing signs of stagnation. German Gref, the CEO of Sberbank, the country’s largest lender, warned on September 5 that GDP growth had slowed to nearly zero in July and August, following a pronounced decline in the April–June quarter. “The second quarter can practically be considered technical stagnation,” he said.

Economists caution that the problems run deeper than short-term fluctuations. Analysts like Oleh Pendzin argue that Moscow’s focus on covering its deficit reflects a structural weakness. “All these discussions about stagnation and inflation are actually about finding ways to cover the budget deficit,” Pendzin explained in September, noting that with Russia locked out of global financial markets, the government has no choice but to lean heavily on its domestic economy.