Oil prices are heading toward their steepest annual decline since the pandemic-driven collapse of 2020, as fears grow that a persistent supply glut is overwhelming global crude markets. The downturn is intensifying economic pressure on Russia, where Western sanctions and widening export discounts are sharply cutting energy revenues.
US benchmark West Texas Intermediate is trading at around $58 a barrel, down nearly 20% over the year, while Brent crude stands close to $61 a barrel. Prices have remained under sustained pressure as rising output from producers collides with slowing demand growth, creating a structural imbalance that has dominated markets throughout 2025.
This oversupply has largely neutralised the price impact of geopolitical tensions that would normally support oil. Events such as US strikes on Iran in June and Washington’s enforcement actions against sanctioned Venezuelan oil shipments failed to generate lasting rallies.
Warren Patterson, ING’s head of commodities strategy, said earlier this month that the most notable feature of oil markets has been their lack of volatility, despite repeated geopolitical flashpoints. He attributed this to investor fatigue over geopolitical risks and growing confidence that a supply surplus would emerge in the second half of the year.
For Russia, the slide in prices has compounded the effects of sanctions imposed after its February 2022 invasion of Ukraine. Discounts on Russian crude have widened back toward historic extremes, sharply squeezing exporter margins at a time when oil revenues are vital for the Kremlin.
According to Reuters data, Russian crude traded at discounts of $20–$30 a barrel to Brent during December, the widest differentials seen at export ports since early 2022. Goldman Sachs analysis shows Russia’s oil export revenues in rouble terms have fallen by around 50% over the year, dropping from the equivalent of 7.6% of GDP to just 3.7%.
The strain on oil income comes as Russia’s wider economy slows. GDP growth eased to 0.6% year-on-year in the third quarter, down from 1.1% in the second quarter and 1.4% in the first. The central bank now expects growth of just 0.5–1.5% in 2026 and has cut its 2025 forecast to 0.5–1%.
That marks a sharp reversal from 4.3% growth in 2024, when defence spending, subsidies and high energy revenues propped up activity. With oil revenues weakening and economic momentum fading, Moscow faces growing fiscal strain as it continues to fund military operations under the weight of international sanctions.
