Russia’s Fiscal Tightrope: How Oil Prices and Currency Shifts Spell a 1.5% Deficit in 2025

Russia’s 2025 budget deficit is poised to balloon to 1.5% of GDP, tripling the government’s original target, as collapsing oil prices and an unexpectedly strong ruble upend fiscal plans. According to polls of economists and recent ministry reports, the Kremlin now faces a stark reality: its reliance on energy exports and currency stability has left it vulnerable to global market shifts.

The Oil Price Dilemma

The Russian budget is inextricably tied to oil, which accounts for 33% of federal revenue. The government’s 2025 budget assumed an oil price of $70 per barrel, but the Ministry of Energy has slashed its forecast to just $56 per barrel—a 23% drop from the baseline. This adjustment reflects a bleak outlook for global demand, driven by U.S.-China trade tensions and OPEC+ production hikes.

As of April 2025, Urals crude—a Russian benchmark—hit a low of $53 per barrel, exacerbating the revenue shortfall. Analysts estimate that every $10 decline below the $70 target erodes oil/gas export revenues by $100 billion annually, pushing the deficit higher.

The Ruble’s Double-Edged Sword

While a stronger ruble might seem like good news, its appreciation is a fiscal curse. The ruble surged 38% against the dollar early in 2025, hitting 82.7 to the greenback, as investors bet on a potential Ukraine peace deal. This has reduced the ruble value of energy exports, which are priced in dollars but converted to local currency.

Even if the ruble weakens to 95 to the dollar (as the Ministry projects), the damage is already done. A 20% oil price drop below budget assumptions could wipe out $2 trillion rubles in revenue, forcing deeper cuts or borrowing.

Economic Headwinds and Mitigation Challenges

Russia’s economy is slowing, with GDP growth projected to dip to 1.6% in 2025, down from 4.3% in 2024. Inflation, though controlled at 7.0%, keeps the central bank’s key rate anchored at 21%, stifling private investment. Meanwhile, sanctions continue to crimp oil sales: China’s imports fell to 18% of Russian oil exports, and India’s purchases dropped further.

To plug the deficit, the government plans to rely on domestic borrowing via OFZ bonds rather than tapping the National Welfare Fund (NWF), which holds 3.3 trillion rubles in liquid assets. However, if oil stays below $60, the NWF may be unavoidable—a move that could spook investors and strain public finances.

The Bottom Line for Investors

Russia’s 2025 budget deficit is a cautionary tale of over-reliance on volatile commodities and currency swings. With oil prices likely to remain depressed and the ruble’s strength uncertain, the deficit could breach 3.3 trillion rubles—more than double the government’s target.

Investors in Russian assets should note two key risks:
1. Debt Dynamics: While Russia’s public debt remains low at below 15% of GDP, a sustained deficit could force borrowing sprees or NWF draws, raising fiscal risks.
2. Geopolitical Uncertainty: Sanctions and geopolitical tensions remain wildcards, potentially worsening trade access and oil market conditions.

Conclusion

The 1.5% deficit forecast is not just a number—it’s a warning of systemic vulnerability. With oil prices averaging $56/barrel and the ruble defying expectations, Russia’s fiscal health hinges on external factors beyond its control. Should prices dip further or the ruble strengthen, the deficit could surge to 3.5–4.2 trillion rubles, testing the limits of the NWF and forcing tough choices.

For investors, this underscores the importance of diversification and caution in energy-heavy economies. While Russia’s low debt provides a buffer, the path to fiscal stability is narrow—and the next few quarters could determine whether the country stays on it.

Data sources: Ministry of Energy, Reuters polls, Izvestia analyses, and central bank reports.