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The Russian economy is facing a significant downturn, with approximately £23.7 billion erased from Moscow markets amidst a severe economic storm. According to Kyrylo Shevchenko, the former Governor of Ukraine’s National Bank, the scale of this economic crisis has severely impacted Russian companies, even though Russia remains exempt from tariffs imposed by the former US President Donald Trump administration.
Moscow Exchange Plummets Amid Economic Pressures
The Moscow Exchange witnessed a sharp fall of 8.5% within a mere 48-hour period, representing its most substantial collapse in 18 years. This dramatic decrease is attributed to a confluence of adverse factors affecting the Russian economy, including declining oil prices, heightened geopolitical tensions, and the aforementioned US tariffs. Specifically, oil prices have contracted by 15% over the past four trading days, with Brent crude futures dropping to $63.97 per barrel.
Dependence on Oil Revenue Intensifies Economic Strain
For Russia, a nation whose fiscal plan is heavily dependent on revenues from oil and gas, this substantial drop in prices represents a major setback.
The price of Urals crude, Russia’s principal export commodity, has decreased to approximately $53 per barrel, significantly lower than the $69.70 per barrel anticipated in the budgetary forecasts for 2025.
In a statement posted on X, Mr. Shevchenko asserted that “Driven by tariffs from the former US administration and decreasing oil prices, the market sell-off has heavily impacted leading Russian corporations, despite the fact that these tariffs do not directly affect Russia.”
He further added, “With crude oil prices continuing to decline and income diminishing, the Kremlin may encounter greater difficulty in managing market stability compared to controlling public narratives around conflict.”
Kremlin’s Economic Defenses Under Pressure
The Kremlin’s attempts to insulate the Russian economy from external economic shocks are proving ineffective, with immediate repercussions being observed.
Revenue from oil and natural gas accounts for a significant portion—approximately one-third—of the Kremlin’s federal budget. The substantial decline in oil prices poses a threat to curtail military expenditures, which had already increased by 25% this year, reaching levels unseen since the Cold War era.
With the economy facing significant challenges, Russia’s financial prospects are becoming increasingly precarious as the government endeavors to mitigate the cascading effects.
Adding to these complexities is the fluctuating value of the ruble. Despite showing some signs of strengthening in recent months, the Russian currency remains susceptible to instability in light of the sharp decline in oil prices.
Ruble Volatility and Inflation Concerns
The strengthening ruble, paradoxically, further intensifies the pressure on Russia’s oil export earnings, thereby worsening the nation’s fiscal deficit.
Officials from the Central Bank of Russia had previously cautioned that a sustained reduction in oil prices could seriously impair budgetary revenues. Such a downturn could compel the government to reassess its financial projections for 2025.
With Russia’s oil prices now reaching their lowest points since June 2023, the overall financial situation has become increasingly unsustainable.
Furthermore, inflation in Russia is anticipated to surpass the previously projected 4.5% for 2025. Minister of Economic Development, Maksim Reshetnikov, indicated that the Ministry is preparing to adjust its economic forecasts by March or April in response to these developments.