Revenues from oil exports are the most important source of financing for the Russian war chest.Image: Moment RF
Russia’s most important source of income for the war is increasingly drying up: Falling oil prices, tougher sanctions and military pressure are hitting the Kremlin at an inopportune time – and increasing economic and political pressure amid ongoing talks with Ukraine.
January 31, 2026, 9:42 p.m02/01/2026, 1:06 p.m
While Russia for the first time in months direct talks with Ukrainethe most important source of financing for his war comes under increasing pressure: oil revenues. Falling prices, Western sanctions and an oversupply on the world market are hitting the Russian state budget hard.
The price of Russian crude oil, the country’s most important export, has fallen significantly. According to the Russian Finance Ministry, oil and gas revenue fell by almost a quarter last year. To close the gaps, the Kremlin is resorting to tax increases and financing a growing share of spending through new debt.
Putin is shifting the burden of war onto the Russian population by increasing taxes.Image: EPA
So far, however, there is little evidence that the economic burdens are causing President Vladimir Putin to change course on the war. Talks between Russia, Ukraine and the USA are scheduled to continue on Sunday in Abu Dhabi. At the same time, it is clear that with a stagnating economy and limited reserves, the costs of the war are increasingly being passed on to the Russian population. According to estimates, the war costs more than $170 billion a year.
Moscow economist Yevgeny Nadorzhin, who advises companies and banks, says:
The situation is manageable, but no one feels comfortable with it.”
Yevgeny Nadorzhin
The end of a stable economic model
For years, Putin had also derived his legitimacy from economic stability. After the collapse of the Soviet Union, he stabilized government finances, reduced debt and brought inflation under control. A strong oil economy enabled rising living standards while political freedoms were gradually restricted.
This model is now beginning to falter. The collapse in oil revenues has led Russia into a period of persistent budget deficits, higher taxes and persistent inflation. The financial stability that the Kremlin has maintained for years is beginning to crumble.
Sanctions and oversupply are hitting Russia’s oil industry
Russia’s oil trade is currently being weighed down by two factors at the same time. On the one hand, global oil prices have fallen since April after OPEC decided to gradually increase production. On the other hand, Western states are tightening sanctions and their enforcement.
In October, US President Donald Trump imposed new sanctions on the two largest Russian oil companies, the state-owned giant Rosneft and the private company Lukoil. These measures significantly limited their sales opportunities. At the same time, the USA and European countries are increasingly taking action against the so-called shadow fleet, with which Russia exports oil while circumventing sanctions.
So The US military recently seized a Russian-flagged tanker in the North Atlanticwhich had previously transported Venezuelan oil. France also stopped a ship in the Mediterranean that was flying a false flag and presumably belonged to a network close to Russia.
The United States seized the Russian-flagged oil tanker, formerly known as Bella 1, on Jan. 7 as officials tried to stop Venezuelan oil exports.Image: Getty Images Europe
Buyers demand high discounts
Due to the global oversupply, buyers now have more alternatives to Russian oil. This strengthens your negotiating position. Buyers can either forego Russian oil altogether or demand steep discounts to offset the risk of sanctions, explains energy expert Sergei Vakulenko of the Carnegie Endowment for International Peace.
Without the significant drop in prices, the sanctions would be far less effective, says Vakulenko. The discounts are now massive: The Russian Ministry of Economy put the average price for Russian oil at $39 per barrel in December – in August it was still over $57.
Drone attacks and export bans are making the situation worse
Moscow is coming under additional pressure from military actions by Ukraine. Since November, Kiev has been using drones to attack tankers close to Russia in the Black Sea and the Mediterranean. Refineries on Russian territory were also attacked several times.
The consequences are felt regionally: there were fuel shortages in several parts of the country. The government was forced to temporarily ban the export of oil products in order to secure domestic supplies.
Ukrainian President Volodymyr Zelenskyj explained that economic pressure was the decisive lever: Russia must run out of money for the war so that an end is possible.
Ukrainian attacks on the Russian oil infrastructure form a central component of Ukrainian defense tactics.Image: AP Governor of Bryansk Region Al
Less leeway than before
Putin is familiar with falling oil prices. But the state used to have more options: spending could be cut or the ruble could be deliberately devalued in order to stabilize income. Today this scope is severely limited.
The costs of the war account for around 30 percent of the Russian state budget, which totals around $580 billion. At the same time, the ruble remains unusually strong. Supported by import restrictions and high interest rates, it rose by around 45 percent against the dollar in 2025. For the state, this means that for every barrel of oil sold, less money flows into its coffers.
Taxes go up, deficits grow
Due to a lack of alternatives, the Kremlin is now increasing national debt and personal and corporate taxes. Even small businesses such as bakeries or shops were put under greater strain – a move that triggered unusually strong reactions among entrepreneurs.
The Russian government increased taxes on smaller businesses such as bakeries and shops, causing a rare uproar among owners.Image: Getty Images Europe
Russia’s budget deficit amounted to around $72 billion in 2025, nominally the highest value since 2009. Economist Nadorshin expects the deficit to continue to widen. “The situation is becoming increasingly complicated,” he says.
“The pace of this escalation is clearly worrying.”
Yevgeny Nadorzhin
(mke)