Russian oil windfall limited

The war in Iran has begun to generate significant budget revenue for Russia — but the energy tax take will still be lower than it was in 2022.

• This week the finance ministry published figures on Russia’s oil and gas revenues for April, including income from the mineral extraction tax in March, the first month of $100-a-barrel oil after the US-Israeli attack on Iran and the blockade of the Strait of Hormuz.
• In April, oil and gas revenues for Russia’s budget came in at 856 billion rubles ($11.5 billion), up almost 40% on March and the highest one-month figure since October. But the income was still 21% below April 2025, and the monthly surplus compared to budget plans, fixed last year, was just 21 billion rubles ($280 million).
• The explanation lies in the fine print of Russian oil taxes. On paper, the main oil tax, the mineral extraction tax (MET), more than doubled month-on-month, generating 917 billion rubles ($12.3 billion). But 378 billion rubles ($5.1 billion) of this went straight back to oil companies through complicated compensation schemes. First, the damper mechanism kicked in, under which the state compensates oil companies for selling oil at reduced rates on the domestic market. Reverse excise taxes — a mechanism that incentivizes the modernization of capacity and oil refining over exporting unrefined crude oil — also kicked back a chunk to the companies. In effect, both mechanisms see the state paying oil companies to keep domestic prices down.
• For comparison, in April 2022 when oil prices were around $85 a barrel, the state’s oil and gas budget revenues came in at 1.8 trillion rubles — more than twice the current figure in ruble terms. The fall in 2026 is due to a stronger ruble and changes in oil production taxes that replaced export duties with a higher extraction tax.
• Thanks to rising oil and gas income, the Central Bank has started buying foreign currency under the budget rule for the first time since the start of the war in the Middle East. From May 8 to June 4 the finance ministry will purchase 110.3 billion rubles’ worth of foreign currency ($1.46 billion) to invest in the National Welfare Fund. Most will be in Chinese yuan. Almost 90% of the purchases are to make up for deferred operations from March and April, when transactions were suspended amid volatility. Moreover, the purchases will not replenish even one-fifth of what was sold at the start of the year to cover daily government expenditure.

Why the world should care

Clearly, rising oil prices benefit oil companies and Russia’s state finances. But a strong ruble and subsidies to producers to support low domestic prices gobble up a big chunk of the windfall. Without a weaker ruble or tax changes, the budget shortfall from before the surging prices will only be made up by the end of the year if prices remain at their current elevated levels. In any case, given Moscow’s current spending levels and sanctions impacting the exchange rate, Russia’s budget deficit is structural.