Everything will be fine: what is the threat of cheap oil to the Russian economy?

Since the first days of April, oil prices have rushed down — in eight days a barrel has fallen from $ 74.6 to about $ 61.6. At the moment the price dropped below $ 60. Vladislav Grinkevich writes about the reasons for the decline and future prospects for the Russian economy in the Profile magazine.

Alarmists predicted a further drop to almost $ 40 per barrel, but this did not happen, on the contrary, quotes rose slightly and stabilized at $ 65 by the middle of the month. The problem is that this price is significantly lower than that prescribed in the Russian budget for 2025. And the budget deficit in March — April amounted to 2.137 trillion rubles, or 1% of GDP.

The April collapse in oil prices is nothing more than an emotional reaction of the market to two events that coincided in time. The first is the demarche of US President Donald Trump to impose unprecedented customs duties on almost all of America's trading partners. Plus, his correspondence skirmish with Beijing, the promise to raise duties on Chinese goods to sky-high heights, as well as a symmetrical response from the Celestial Empire. The second event is the decision of the OPEC+ council of April 3, according to which the cartel member countries could increase production by 411 thousand barrels per day (b/d) from May of this year instead of the previously planned 135 thousand b/d.

Everything is obvious: a large-scale trade war is fraught with a slowdown in global economic growth, which logically leads to a reduction in oil demand, and oil-producing countries, as luck would have it, promise, on the contrary, to increase the supply of raw materials. The result is predictable.

But in a matter of days after the announcement of the new duties, Donald Trump decided to postpone their introduction for 90 days for all countries except China. The markets immediately reacted by stabilizing oil prices. Further, OPEC+ quickly adjusted its plans and invited its members to raise production by only 253 thousand bpd. After that, the cost of a barrel, albeit timidly, but crept up. According to Alexei Gromov, Chief Energy Officer of the Institute of Energy and Finance (IEF), the observed collapse in oil prices can be considered a "short-term story." While it has not reached a real trade war, there are no "fundamental grounds" for changing the balance between supply and demand, there is only concern among traders about the loud statements of politicians. Consequently, it is at least premature to predict a new reduction in oil quotations.

Further events, according to Gromov, can develop according to three scenarios. First, in the next 90 days, Washington will come to a compromise with all trading partners, including Beijing. In this case, the decline stops and oil prices stabilize in the range of $ 65-70 per barrel (for Brent). Russian Urals oil will be traded at a discount, which traditionally amounts to about $ 11-12. The possible benefit from this state of affairs is that our oil will be sold cheaper than the price ceiling, and therefore there will be no problems with its supply to other countries (restrictions on ship freight, insurance, etc.). Logistics costs will decrease, many states will want to return to trading our raw materials, which will increase competition between carriers.

The second scenario is negative. It assumes a full-scale trade war between the United States and China and, as a result, the slowdown of the Chinese and global economies. According to Beijing's official forecast, the country's GDP is expected to grow by 5% this year; the International Monetary Fund predicted growth of 4.6%. According to Gromov, a decrease in this indicator even by 1 percentage point threatens to reduce oil demand and drop prices below $ 60 per barrel. The cost of the Russian Urals brand in this case will be below $ 50 per barrel. So far, this scenario is "less likely."

Finally, there is a third scenario, "which can break both previous ones," a military conflict in the Middle East. We are talking about a possible US strike on Iran. Trump has repeatedly promised "tough actions" against this country, up to the destruction of its nuclear facilities, if no agreement is reached on Tehran's nuclear program that will suit the White House.

If it really comes to war, then the Strait of Hormuz will be blocked for some time and the supply of Middle Eastern oil will stop. Then the barrel may jump to $ 90 and above, which will open a window of opportunity for Moscow, because our country will be considered as a supplier capable of stabilizing the global market. "In the event of a military conflict with Iran, the United States may introduce a temporary exception to the price ceiling rule in order to ensure uninterrupted supplies of Russian oil and not completely break the balance between supply and demand," Alexei Gromov believes.

Oil and budget

So we have three scenarios: stabilization of oil prices at today's level; trade wars and falling prices throughout 2025, and possibly 2026; military conflict between the United States and Iran and a sharp jump in oil prices for several months. As you can see, two out of three options suggest that Russian oil prices will be significantly lower than budgeted. After all, according to the latter, a barrel of Urals should be traded this year at $ 69. But in reality, the average price of Russian oil fluctuates between $ 50-55 and, according to most forecasts, is unlikely to rise above $ 60. This means that the authorities will have to find additional funds to balance the budget.

Recall that in March — April, the budget deficit amounted to 2.137 trillion rubles, which corresponds to 1% of GDP. As explained by economist Sergey Khestanov, this indicator can be considered "quite moderate." In economics, there is no single criterion for which deficit is dangerous, which is not. As a rule, experts call the conditional threshold 3% - if the deficit is lower, then it does not have a significant impact on the economy. There are countries living with a much larger deficit. The most famous example is the USA, where the budget deficit reaches 6%. This does not lead to fatal consequences.

In addition, the Russian economic authorities have at their disposal a decent arsenal of measures to remedy the situation. The easiest and fastest way to balance the budget is to use reserves. First of all, we are talking about the National Welfare Fund (NWF). In recent years, the liquid part of the National Welfare Fund has decreased significantly, and yet on February 1, 2025, there were more than 11.9 trillion rubles in it — this is even slightly more than in January.

The second way is to reduce costs. There are categories of expenses that can be relatively painlessly shifted along the timeline. In bureaucratic terms, "move to the expenses of future periods." For example, in 2023, government spending on road repairs and construction decreased by 32%. And the cost of repairing and maintaining roads by 2030 will be about 42% less than required by standards. It is clear that there is nothing good in this, but this decision will not lead to a road collapse either. After all, many people remember what the roads looked like in the 1990s, and nothing, somehow drove.

The third is an increase in income. Here we are talking about new tax initiatives, fees, payments, etc. Last year, tax revenues increased by 20%. It is already known that in 2025 excise taxes on alcohol and tobacco products, for example, will increase more than previously planned.

The fourth way is to increase government borrowing. The measure is logical, but, as Sergey Khestanov notes, "the sale of Treasury bonds caused a sharp increase in long-term yields around the world." And high rates reduce the possibility of using this tool.

Finally, the weakening of the ruble will benefit the state treasury, because export revenues come in foreign currency, and budget expenditures are denominated in rubles. How much can the ruble weaken? The main financial document for 2025 sets the export price of Russian oil at $ 69.7 per barrel at a dollar exchange rate of 96.5 rubles. If today a barrel of Urals costs $ 55, then to balance the budget, the dollar should cost at least 120 rubles. Yes, this is a very rough calculation, but many experts are sure that this is the course we will see at the end of the year.

Of course, the cheapening of the ruble is bad news for consumers, because the cost of imports and inflation in our country are directly related to the exchange rate of the national currency. But in recent history there have been stronger movements of the exchange rate: in 1998-1999, the dollar rose in price from 5.9 rubles to more than 20 rubles in a few weeks, and from 33.5 rubles to 62 rubles in 2014.

Donald Trump: word and deed

Another hypothetical possibility of replenishing the treasury is a sharp increase in oil exports. And why not, since Russian oil is still sold cheaper than the price ceiling? Alas, our opportunities to increase supplies are not unlimited. In 2024, according to Deputy Prime Minister Alexander Novak, Russia exported about 240 million tons.

Alexey Gromov believes that the domestic "oil industry" is able to add another 7, maximum 10 million tons to this indicator. Alas, this increase in volumes does not compensate for the losses from the observed drop in prices. "The entire policy of OPEC+ in recent years has clearly shown that maintaining a comfortable price level for oil producers is more effective than an uncontrolled increase in production," the expert explained.

Speaking about the prospects of Russian energy trade, it is impossible not to mention Donald Trump's threat to collapse our oil exports if Moscow does not make a deal on Ukraine. The head of the White House threatened in this case to introduce 500 percent export duties for countries that will continue to buy Russian oil.

It sounds harsh, but... these statements are nothing more than verbal interventions. Alexey Gromov cites Iran as an example. Since the beginning of his second presidency, Trump has repeatedly promised to literally strangle this country's oil exports. The United States is constantly imposing new sanctions against the Iranian "oil industry" and the "shadow fleet." And what is the result? The only buyer of Iranian oil now is China, which in recent months has not only not reduced, but to spite America has significantly increased purchases from Tehran. Beijing is likely to pursue the same policy with regard to Russian oil.

The question of India remains. That, on the one hand, wants to demonstrate to Washington that it is ready to increase imports of American oil, on the other hand, it is not going to collapse its economy in favor of Trump's ambitions. According to Gromov, China and India today is simply unable to abandon Russian oil. Moreover, at current prices, the Russian Federation is one of the most attractive suppliers.

According to Sergey Khestanov, in the current economic situation, "there are few chances to severely restrict Russian oil exports." You can only create additional difficulties that will result in losses, but will not lead to disaster.

"In order for Russian oil to become unnecessary for the world market, there must be a crisis of such magnitude that in comparison with it, 2008 will seem like childish babble," the expert assures.