The importance of the energy sector to the Russian economy has increased dramatically since the Kremlin’s invasion of Ukraine. As oil and natural gas revenue has skyrocketed due to macroeconomic conditions in the commodity markets, the rest of the Russian economy has contracted.
It’s not easy to assess the effect of the “special military operation” in Ukraine on the Russian economy. But one thing is clear: Russia is more dependent than ever on revenue from oil exports. This was starkly visible in April’s budget figures: oil and gas revenues increased, while everything else fell sharply. Judging by the latest data on Chinese purchases of Russian oil, this is a trend that is likely to continue – but there are limits to the rewards of Russia’s much-vaunted “pivot to the East”, wrote Russian. independent news outlet ‘The Bell’.
The Finance Ministry’s budget data (the stats for April were published on May 17) offer a window on to how the Russian economy has been affected by the fighting in Ukraine:
- Revenues from non-oil and gas sources (VAT, personal income tax, etc) in April fell 18 percent year-on-year to 1.01 trillion rubles ($17 billion)
- Oil and gas export revenue, however, continued to rise despite Western sanctions. Amid high oil prices, oil and gas revenues were 1.8 trillion rubles in April compared with 1.2 trillion the month before.
- Russia is increasingly financially dependent on revenues from energy exports. When compared with April 2021, the share of oil and gas in state revenue has doubled. The share was 63 percent in April and 48 percent for the first four months of 2022. Last year, the share was equivalent to 36 percent of Russian revenue, and in 2020 it was 28 percent.
- However, not even record oil profits could keep the budget in surplus. The budget saw its first monthly deficit of 2022 in April – 262.3 billion rubles. Finance Minister Anton Siluanov has estimated there will be a deficit of 1.6 trillion rubles this year.
The importance of the ‘China relationship’ is now paramount as the CCP becomes Russia’s main customer. Moscow’s long-term trust in Beijing is tenuous at best with historical animosity lingering just below the surface. At some point, the geopolitical winds will change, and the Kremlin may be left with no good options economically.