Russia’s 2025 Budget Deficit Triples as Sanctions and Oil Prices Bite
One of the clearest signs of strain inside the Kremlin’s war economy has now emerged in the form of a massive revision to Russia’s 2025 federal budget: the deficit is expected to more than triple. Originally projected at 1.17 trillion rubles (roughly $13 billion), it will now reach 3.8 trillion rubles ($42.2 billion), according to documents obtained by Bloomberg and Ukrainian officials. That’s 1.7% of Russia’s GDP — up from just 0.5% in the previous forecast.
The reasons behind this widening hole are no mystery. A dramatic drop in oil revenue and the continued pressure of Western sanctions have significantly undercut the Russian state’s income.
The price estimate for Urals crude—Russia’s primary export blend—has been lowered from $69.70 to just $56 per barrel, reflecting both market conditions and buyers demanding steep wartime discounts. Combined with the strengthening ruble, Russia is now projected to earn 2.6 trillion rubles less from oil and gas in 2025 than it originally hoped—nearly a quarter of the expected total wiped out.
Russia’s budget has always leaned heavily on hydrocarbon sales. In peacetime, that dependence was already seen as a risk. In wartime, it’s a bleeding artery.
The Kremlin has also struggled to adapt to the evolving Western sanctions architecture. Restrictions on shipping, insurance, and payment processing have made oil sales more cumbersome, while the so-called “shadow fleet” of illicit tankers faces increasing interdiction. More damaging still is what lies ahead: the EU is preparing its 14th sanctions package, which may include removing 20 more Russian banks from SWIFT, tightening the oil price cap, and formalizing the ban on Nord Stream infrastructure.
At home, the Russian Ministry of Finance is considering changes to its budget rule, particularly the threshold oil price at which excess revenues are transferred to the National Wealth Fund. Lowering that threshold could free up short-term liquidity—but would further erode reserves meant to safeguard long-term stability.
Meanwhile, inflation remains a looming threat. The central bank’s key interest rate sits at 21%, a punishing level held in place to restrain soaring prices. The Bank of Russia has warned that persistently low oil prices could sap budget revenue, weaken exporters, and strain household incomes. Despite calls from some ministries for rate cuts to support economic activity, the bank shows no sign of blinking.
Economic data paints an uneven picture. GDP growth slowed slightly to 1.4% in Q1 2025, continuing a steady decline from 1.7% at the end of last year and more than 5% in early 2023.
Real wage growth has begun to stall, and while labor shortages are keeping nominal incomes afloat, business investment and household consumption are weakening.
As the war in Ukraine grinds on and the cost of repression at home rises, Russia’s economy is being restructured into a fortress. But the foundations are cracking.
Without a sharp rebound in oil prices or a rollback in sanctions—neither of which appear likely—Moscow will have little choice but to burn through its reserves or slash spending. Either option will be painful.
