Russia acknowledges ‘issues’ as earnings from energy sector decline

Finance Minister Siluanov informs Vladimir Putin that the 50% drop in revenue is attributed to ‘all these discounts.’

The Russian government has conceded there are “problems” as oil and gas revenues have plummeted to multi-year lows. This highlights the effect of Western sanctions on Russia’s primary means of financing its conflict in Ukraine.

Finance Minister Anton Siluanov recognized these difficulties during a public video conference with President Vladimir Putin on Wednesday. He cited “all these discounts” as the reason for a more than 50% decrease in energy revenues in the first quarter of this year.

Siluanov stated that “Non-energy revenues in Russia are on a trajectory for expected growth, with a slight surplus possible by the end of the year, but energy revenues present a problem.”

Russian oil is being traded at a discount compared to global benchmarks due to price caps on Russian oil and refined petroleum products implemented by the G7 in December and February.

Even though Russia has started utilizing non-western shipping channels, which are exempt from the cap, the discount is still large enough to negatively impact government finances.

Despite the imposed restrictions, Russia’s oil exports in April exceeded any month since its full-scale invasion of Ukraine last year. Almost 80% of crude exports went to China and India, as reported by the International Energy Agency.

However, Moscow’s energy revenues for the first four months of 2023 have plunged to Rbs2.2tn ($27.3bn), a low not seen since the onset of the Covid-19 pandemic, based on data from the finance ministry.

In a reaction to Siluanov, Putin maintains that the market situation remains “stable.” He noted that Russia has navigated lower prices through “voluntary reductions” in oil production, in synchronization with its OPEC+ allies.

Nevertheless, Russia’s move to decrease production by 500,000 barrels per day, declared in February, did not have an immediate effect. Prices only started climbing in April after Opec declared additional unexpected cuts.

Scholars at the Kyiv School of Economics reckon that about 75 percent of the drop in Russia’s revenues can be attributed to Western sanctions, not market prices, according to their analysis of oil sales records.

In addition, Siluanov pointed out that Russia was spending at a quicker pace than it was generating income in the first quarter of the year. Nevertheless, he described this discrepancy as “transient” and assured it would be rectified later.

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