Russia’s oil revenues rebound on Middle East conflict price hike, but gains are modest

Russia’s oil and gas revenues rebounded sharply in April as surging crude prices linked to conflict in the Middle East boosted export earnings, offering the Kremlin temporary relief after months of mounting fiscal pressure. But thanks to rebates and fuel price subsidies the gain was relatively modest.

Data published by Russia’s finance ministry showed oil and gas revenues reached RUB855.6bn ($10.9bn) in April, the highest monthly level since October and a 38.7% increase from March, when revenues stood at RUB617bn ($7.9bn). The figure nevertheless remained 21.2% below the level recorded in April 2025, The Bell reports.

The increase comes after oil prices climbed towards $100 a barrel amid escalating tensions between the US and Iran and disruptions to shipping through the Strait of Hormuz, a critical route for global energy supplies.

The figures were closely watched because April was the first month to reflect higher mineral extraction tax receipts linked to the rise in oil prices during March, according to reporting by The Bell.

Despite the rebound, Russia’s fiscal windfall proved more limited than headline figures suggested. Additional oil and gas revenues — calculated as the difference between projected and actual receipts under Russia’s fiscal rule — totalled just RUB21bn ($268mn).

Russia's oil export revenues nearly doubled in March to $19bn as the Iran war drove global crude prices sharply higher, providing Moscow with a temporary financial lifeline even as underlying economic and fiscal indicators paint an increasingly stressed picture, according to the latest monthly Russia Chartbook published by the Kyiv School of Economics Institute on May 4.

The modest surplus nevertheless allowed the finance ministry to top up its National Welfare Fund (NWF) with foreign currency purchases for the first time in almost a year, primarily Chinese yuan. The ministry is expected to conduct net daily purchases of about RUB1.2bn ($15.3mn), a level analysts said was unlikely to materially weaken the value of the very strong ruble.

The stronger revenues partially offset a difficult first quarter in which Russia’s oil and gas income fell well short of official forecasts. During the first three months of the year, the budget undershot projected oil and gas revenues by whopping RUB570bn ($7.3bn), a decline of 45% compared with the previous year.

The government had been forced to consider spending cuts and revisions to the baseline oil price embedded in its fiscal rule framework that siphons extra revenues into the NWF.

A large share of April’s higher tax intake was also redirected back to producers. Mineral extraction tax (MET) receipts, that tax oil companies at the well-head and not export earnings, more than doubled from March to RUB917bn ($11.7bn), but RUB360bn ($4.6bn) was returned to oil companies through fuel subsidies and reverse excise payments designed to support domestic refining.

Russia’s crude oil production and exports remained relatively stable in the first quarter, but refining output fell noticeably because of Ukrainian drone attacks on refineries and maintenance outages. Russian refinery runs in the first quarter fell to their lowest seasonal levels in years. Several major refineries were hit by Ukrainian strikes, including facilities owned by the three biggest players, Rosneft, Lukoil and Gazprom Neft. At points during March and April, around 10-15% of Russian refining capacity was reportedly offline.

The subsidy payments reached their highest monthly level in more than two years as Moscow sought to shield domestic fuel prices from rising global crude markets and compensate refiners facing mounting operational pressures, including Ukrainian drone attacks on refining infrastructure.

The dynamics also reflect Russia’s long-running “tax manoeuvre”, which phased out export duties on crude and refined products in favour of higher extraction taxes. Analysts say the shift has reduced the state’s ability to fully capture gains from higher oil prices, particularly as sanctions force Russian crude to trade at discounts to global benchmarks.

Igor Sechin, chief executive of Rosneft (ROSN.MM), said recently that Russian oil companies continued to face elevated freight, insurance and currency conversion costs because of western sanctions, limiting their ability to benefit fully from stronger prices.

Finance minister Anton Siluanov said recently that additional oil and gas revenues in April could eventually total around RUB200bn ($2.6bn), though some of those receipts will only be recorded officially in May.

For tax purposes, the average price of Russia’s Urals crude settled at $77 a barrel in April, well above the fiscal rule benchmark of $59. Analysts expect the average for May to rise further, potentially approaching $95 a barrel if Middle East tensions persist.

Oil and gas revenues account for roughly a quarter of Russia’s federal budget and remain central to financing wartime spending, although VAT receipts remain the biggest contributor to the budget at just under 40% of the total.

Economists say sustained high prices could allow the Kremlin to continue expanding military expenditure despite sanctions and weak non-energy growth. The Gulf war price hike has come at a welcome time for the Kremlin which was expecting a very large budget deficit this year of between 3-4% of GDP.

Russia's cumulative budget deficit over the first quarter reached RUB4.6 trillion— approximately $59bn — a record figure that already exceeds the government's full-year deficit target by 21%. To cover the shortfall, Russia withdrew RUB460bn from its National Wealth Fund by selling gold and yuan-denominated assets, while the Finance Ministry issued RUB1.4 trillion in OFZ government bonds in the first quarter — 25% more than in the same period of 2025. Federal government debt has doubled since the start of the full-scale invasion of Ukraine, reaching RUB31 trillion. The KSE chartbook notes that April and May will bring considerable budget relief due to the windfall gains.

But the fiscal outlook remains highly sensitive to oil markets and the duration of the Iran war. Any easing in tensions around the Strait of Hormuz or renewed diplomatic engagement between Washington and Tehran could rapidly reverse recent price gains and expose renewed strains in Russia’s budget position.

The extra windfall income will bring some releif, but the broader overall economic picture has deteriorated sharply. Russia's statistical agency Rosstat reports real GDP growth of just 1% in 2025 — a marked slowdown from growth above 4% in both 2023 and 2024. The economy contracted in the first quarter of this year in real terms and Russian authorities have since reported a nominal contraction of 1.8% in January and February as well. Most forecasters expect growth of around 1% or below in both 2026 and 2027.