💰 Financial pressures could push Putin to end the war
Oil-and-gas revenues fell to a record low in 2025
United States special envoy Steve Witkoff will return to Moscow on Thursday to meet with Russian President Vladimir Putin and seek a diplomatic solution to the war in Ukraine. This will be Witkoff’s seventh visit to Russia since he began serving in President Donald Trump’s administration.
While there is little to indicate Witkoff will be able to strike a deal this time, growing economic headwinds for Moscow seem to make peace more likely in the long term. The Finance Ministry released preliminary budget data Monday laying bare Russia’s financial problems as the war approaches its fifth year.
🛢 Oil-and-gas revenues far lower than expected
Revenue from producing and selling oil and gas was 22 percent below what was predicted last year in the planning of the budget, and 24 percent lower than the year before (2024).
There are two reasons for this. Firstly, oil prices were lower than expected. Not only did prices fall, but Western sanctions meant Russia was obliged to sell crude even cheaper (mostly to India and China). As a result, the price of Russian oil fell below $40 a barrel in the second half of the year, even though Russia’s spending plans in last year’s budget had assumed it would be worth $60 a barrel.
Secondly, a stronger ruble. Russia’s currency was among the strongest in the world last year. The ruble was supported by a significant trade surplus, low capital outflow due to sanctions, and high interest rates. We previously looked in detail at the reasons for the ruble’s strength here.
⚙️ Non-oil-and-gas revenue also down (albeit not as much)
Non-oil-and-gas revenue was slightly down, but this was less concerning for the Kremlin. As the government has repeatedly raised taxes in recent years, non-oil-and-gas revenue has been growing, and 2025 was no exception: up 12.6 percent year-on-year. At the same time, the total amount collected was still below the official target.
🔁 Revenue mix shifts to a record low for oil-and-gas
The split last year was 23 percent oil-and-gas revenue, and 77 percent non-oil-and-gas. There is Finance Ministry data on the split going back to 2006, and this is the lowest the oil-and-gas share has ever been. Over the last two years it has hovered about 30 percent, and before 2014 it went as high as 50 percent.
📈 High spending resulted in a large deficit
With revenue below expectations, and expenditure a bit higher, Russia recorded a substantial deficit of 5.6 trillion rubles (2.6 percent of GDP) last year. It was covered mainly through an increase in government debt. Even so, sovereign debt remains extremely low (at around 17% GDP).
What conclusions can we draw?
Russia has become less dependent on oil-and-gas revenue, but the Kremlin is unlikely to be happy that this is occurring in wartime. Falling oil-and-gas revenue combined with economic stagnation means the option to dramatically increase state spending—like in the early years of the war—is off the table.
According to calculations by the respected Tverdie Tsifry Telegram channel, if oil prices, and the value of the ruble, remain at current levels, the deficit this year will be 3.5 trillion rubles ($45 billion). That is a huge amount—almost half the Kremlin’s annual spending on pensions and social benefits.
Through financial tweaks (like raising some taxes and increasing borrowing) and using reserves in the National Wealth Fund, Russia can maintain its current high level of military spending for several more years. However, this would mean there is not enough money for infrastructure development, and human capital.
The Finance Ministry believes the era of ultra-high oil-and-gas revenue is now at an end. The government last month published their budget forecasts through 2042. According to these figures, the share of oil-and-gas revenue in the budget will gradually fall to 13 percent.
Russia’s finances are not in great shape, and Putin cannot ignore economic reality as he engages in peace negotiations. It’s obvious that the war is draining resources not only from Ukraine, but also from Russia.
Further tax increases are inevitable. Even if the fighting in Ukraine comes to an end, Russia will need money for recovery and development. The only question is how big the tax rises will be.
This Faridaily piece is genuinely encouraging, but financial pressure alone is unlikely to end the war. Putin has already demonstrated a willingness to absorb catastrophic losses for negligible territorial gains. For him, ending the war without “victory” is more dangerous than prolonged economic damage. Economic stress matters, but it is a supporting pressure, not a decisive one.