Russia’s deepening fiscal and economic problems create a favourable moment for Ukraine’s allies to intensify sanctions pressure and further constrain the Kremlin’s ability to finance its war.
In October, Russia’s oil export earnings continued to decline — to $13.1 billion (vs. $13.5 billion in September), KSE Institute wrote in the November edition of its Russia Chartbook: “Serious Vulnerabilities on the Eve of New US Sanctions on Rosneft and Lukoil.”
The average export price fell to around $54 per barrel — above the updated price cap but still significantly below global benchmarks.
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The new US sanctions on Rosneft and Lukoil, which came into force in November, could increase vulnerabilities: a further widening of the discount and a reduction in export volumes would heighten pressure on macroeconomic stability and the federal budget.
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The impact will depend on the strictness of enforcement and the response from buyers such as China, India and Turkey.
Over January-October, Russia’s federal budget deficit widened to 4.2 trillion rubles (vs. 3.5 trillion over January-September).
Oil and gas revenues fell 21% y-o-y, while non-oil-and-gas revenues grew only 11% y-o-y, and expenditures rose 15% y-o-y.
In October, non-oil revenues declined y-o-y for the first time in three years, signalling weakening economic activity. Given historically high December spending, Russia is likely to exceed even the revised full-year target of 5.7 trillion rubles.
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To finance the widening shortfall, the government continues to expand domestic borrowing: OFZ issuance over January-October reached 4.5 trillion rubles — 135% higher y-o-y and already 64% of the revised annual plan.
This rapid increase in borrowing is inflationary — especially if supported by CBR repo operations. For now, tight monetary policy continues to moderate price growth: inflation eased to 7.7% y-o-y in October (from 8.0% in September).
The liquid portion of the National Welfare Fund continued to shrink and stood at around 4.2 trillion rubles at the beginning of November — only 31% of total assets (vs. 75% in February 2022).
Economic activity continues to soften: according to preliminary Rosstat estimates, real GDP grew only 0.6% y-o-y in Q3 (vs. 1.1% in Q2 and 1.4% in Q1).
Russia’s war-driven growth model is increasingly constrained as budgetary pressures mount, monetary policy remains tight, labour supply is limited, and foreign investment is absent. Major international institutions have revised the outlook for 2025–2026 significantly – to around 1% real GDP growth.
The new US sanctions on Rosneft and Lukoil, growing pressure on the shadow fleet and continued Ukrainian strikes on Russian refineries create a meaningful opportunity to further undermine the financial foundations of Russia’s war machine.
The full report by KSE Institute can be read here.
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