The News
Despite Western sanctions aiming to punish Moscow over its invasion of Ukraine, Russia’s economy is growing. Russia’s GDP is expected to expand 3.2% this year, faster than any other advanced economy, according to recent International Monetary Fund projections.
But despite higher oil and gas revenues, Ukraine’s barrage of attacks on Russia’s oil facilities has led to a major drop in domestic oil production.
SIGNALS
Russian revenues and spending up
Russia’s treasury is likely “awash with cash,” with budget revenues up more than 50% this year, compared to the same time period in 2023, independent Russian news outlet The Bell reported. That is largely due to higher oil and gas prices and higher tax revenues. With Russia’s finances in a “comfortable position,” officials can fund more government spending — including social spending to boost birth rates — in line with President Vladimir Putin’s reelection promises. “But for Russia’s economy, an excess of money could be an even greater problem than a shortfall,” the outlet wrote. “As budget revenues rise, there will be an irresistible urge to spend more,” possibly on Russia’s military effort against Ukraine.
Ukraine successful in denting oil production
Ukraine has successfully brought the war to Russia through a string of attacks on oil refineries, a Kyiv-based professor wrote for The Jamestown Foundation. The estimated weekly production of Russian oil has dropped to its lowest level since December 2023, leading to a drop in overall Russian export revenue. Notably, Ukraine showed it can penetrate Russian airspace using domestically produced drones, rather than ones sent from Western allies. “Every successful strike puts more pressure on Putin and stokes Russian discontent for the Kremlin leader’s war.”
Impact on oil production hurts Russian oil giants
The impact on oil production has hurt Russian oil barons the most, The Economist wrote. Russia’s six-month ban on petrol exports that started on March 1 forced refineries to pivot to domestic production, and the oil giants now have to seek new customers who pay less than international clients would. Russia, the world’s third-largest oil producer, also struck a deal to import oil from Belarus, and informed Kazakhstan it may need some of its oil, too. Ukraine’s attacks on Russian oil refineries also risk impacting the global oil market. The U.S. “has urged Ukraine to halt its attacks, fearing they will provoke tough retaliation from Russia and drive petrol prices higher,” The Economist wrote. “Ukraine’s leaders are willing to take the risk.”