- Global oil prices have tumbled since President Donald Trump’s tariff announcement.
- Urals crude fell to $47.50 a barrel last week, the lowest level for almost two years.
- Russia may offset lower oil revenues by cutting government spending, experts told BI.
Russia may not have been on President Donald Trump’s tariffs list, but the levies have had a significant effect on oil prices — and that’s bad news for Russian President Vladimir Putin.
The economic uncertainty triggered by the tariffs has sparked fears of a global downturn, dampening demand for oil and prices in turn.
Russia’s Urals crude oil was trading this week at about $51 a barrel at Primorsk in the Baltic Sea, one of the country’s biggest oil ports.
It had been as low as $47.50 last week — the lowest level for about two years.
China and India are the main buyers of Russian oil given sanctions imposed on Moscow following Putin’s invasion of Ukraine just over three years ago.
Brent crude, the global benchmark, was trading at just over $66 on Thursday, and is down about 11% this year. US oil, which usually trades at a discount to Brent, is down about 8% since January to about $63 a barrel.
Clayton Seigle, senior fellow in the energy security and climate change program at the Center for Strategic and International Studies, told Business Insider: "Urals moved lower in parallel with all crude grades, including benchmark Brent crude, as the escalating trade war caused analysts to slash forecasts for oil demand growth this year."
"Over the last 20 years, such low levels of oil prices have typically been associated with recessions and/or significant supply-side shocks, neither of which are our base case," Sara Grut, executive director of global credit strategy at Goldman Sachs, said in a note on Tuesday.
Henry Hoffman, portfolio manager at SL Advisors MLP and Energy Infrastructure SMA, said the sharp drop in Urals crude highlighted the "growing fragmentation in the global oil market."
"Urals is under disproportionate pressure due to sanctions and heightened concern about a prolonged conflict in Ukraine after President Trump's "Biden's war" comments," he said.
White House Press Secretary Karoline Leavitt told Axios that Russia didn't appear on the "Liberation Day" tariffs list because existing US sanctions "preclude any meaningful trade."
Russia had based its budget on oil prices averaging about $70 this year. The finance ministry said in March it now expected prices to be nearer $60, per comments reported by the Prime newswire and Bloomberg.
The Russian government obtains about 30% of its revenue from oil and gas.
The price slump may not force Moscow to make any major changes, however.
"The Urals price slump will pinch Russian oil revenues, but Moscow might make up some of the price effect by shipping more volume since the price cap is not a limiting factor these days," Seigle said.
'Considerable pain'
John Lough, senior research fellow and head of foreign policy at the New Eurasian Strategies Centre, said Putin still had options.
"If oil prices remain at $50 for a long period, Russia will feel considerable pain but still be able to cope by devaluing the ruble, drawing on the sovereign wealth fund and incentivising the banks to buy government bonds," he told BI.
While inflation would rise, Lough said Moscow's military spending would not be affected.
However, "if prices fall to $45, the situation would be much more challenging and would require budget cuts," Lough said. "The effects on the military industry would not be immediate because 80% of weapons purchases for this year have already been paid for."
Similarly, Brian Leisen, global energy strategist at RBC Capital Markets, told BI that Russia would turn to different avenues to maintain military spending on the Ukraine war.
"You have the largest defense budget since the fall of the Soviet Union, but you would likely see cuts elsewhere in the government budget before you saw a material effect on combat operations in Ukraine," he said.