Russia boosts spending in expectation of oil windfall

The government is gambling on future oil profits rather than waiting for them to actually materialize, the latest budget statistics published by the finance ministry indicate.

• Russia’s budget deficit from January to March was 4.58 trillion rubles ($60 billion, or 1.9% of GDP). That’s almost twice last year’s equivalent figure at the same point in the year and more than the entire planned deficit for 2026 of 3.79 trillion rubles (1.6% of GDP). 
• Oil and gas revenues for the period were down 45.4% year-on-year to 1.44 trillion rubles ($18.6 billion), while overall revenues were down 8.2%. Non-oil-and-gas revenues came in at 2.92 trillion rubles ($38 billion), up 11.3% year-on-year, exceeding expectations. In total, revenues were up 7.1% in the first quarter of the year, while spending was 17% higher. 
• Spending soared in March. Where in January and February outlays were up by a modest 5.8% year-on-year, in March they surged 44%. Advance payments on state contracts are usually paid by March, which typically enables spending to later return to seasonal norms. But the sharp increase shows that the government is burning through funds faster than it originally planned. Given the lack of reserves and the recent discussions about budget sequestration, the most logical conclusion is that the authorities anticipate additional oil revenues flowing thanks to the war in the Middle East.
• The estimated price for Russian oil in March climbed to $77 a barrel — 73% higher than February’s $44.59. According to Bloomberg, in the 28 days to April 5, the average value of maritime oil deliveries from Russia went up to $2.02 billion a day — the highest since June 2022. Reuters calculated that oil extraction taxes in April will reap about 700 billion rubles ($9 billion) — up 114% on March and 10% higher than last April. That would be the biggest monthly return since February 2025. Alfa Bank analysts expect April’s oil windfall to be even higher, close to 900 billion rubles ($11.7 billion). 
• Even with that April bonus, the total tax income from oil during the first four months of the year will be about 1.67 trillion rubles ($21.7 billion) — almost half as much as last year. One good month does not make up for three bad ones. When preparing the budget, the finance ministry assumed an exchange rate of 92.2 rubles to the dollar and annual oil extraction tax returns of 7.9 trillion rubles ($102 billion). To reach this figure, the current inflated oil prices and reduced discounts on Russian oil must last not one month, but for the rest of the year.

Why the world should care

The government is playing a risky game: increasing spending up front in the hope of covering it with future oil revenues. The logic is clear. The war in Iran has sent prices soaring and the Kremlin is eager to convert this into budget spending. Additional spending is pro-inflationary and this will likely be reflected in the Central Bank’s next interest rate decision on April 24. Moreover, pre-emptive spending now means there will be less flexibility in the latter half of the year, even if oil prices remain high.