Impact of Decreasing Oil Prices on Russias War Financing: A Central Bank Warning

The head of Russia’s Central Bank warned on Tuesday that declining global oil prices may put pressure on the nation’s public finances, resulting in increased optimism in Ukraine that Moscow’s capacity to sustain its military operations could be hindered.

Oil prices have dropped in response to rising fears of a recession, largely driven by the aggressive tariff strategies of U.S. President Donald Trump. Approximately one-third of Russia’s annual budget is derived from energy revenues.

“Trade wars generally result in decreased global trade and… potentially lowered demand for our energy resources,” said Elvira Nabiullina, the Central Bank chief, while addressing Russian lawmakers. She acknowledged the existing risks, adding, “We always prepare for such risks.”

According to the Finance Ministry’s report on Tuesday, Russia’s oil revenue has decreased by 10% year-on-year in the first quarter, totaling $31 billion, with warnings of further reductions “due to the declining price situation.”

Ukraine, which has frequently condemned nations that continue to purchase Russian energy, expressed hope on Monday that the decrease in prices would put pressure on the Kremlin’s military budget.

“The lower the oil prices, the less funding the Russians will have available for their war efforts,” wrote Andriy Yermak, chief of staff to Ukrainian President Volodymyr Zelensky, on social media.

Market data indicates that Russia’s benchmark Urals crude is trading around $50 per barrel, which is a 15% decrease since March and the lowest level seen in 2023.

Last year, President Vladimir Putin indicated that nearly 9% of Russia’s GDP was being allocated to defense and security, a figure not observed since the late Soviet period.

Economist and investor Yevgeny Kogan noted to AFP that while defense spending might face some cuts, any effects would likely be minimal and delayed.

“There could be a slight decline, but probably not at this moment,” he commented.

Russia’s financial reserves are still robust. As of March 1, the National Welfare Fund—a reserve built from years of oil revenues—contained approximately $138 billion in assets, with around $39 billion classified as “liquid” and readily available for cash.

In response to inquiries about falling oil prices, Kremlin spokesman Dmitry Peskov stated on Monday that Russian officials are “monitoring the situation very closely to mitigate the repercussions of the economic storm.”