Oil Prices Have Fallen: Next year, Russia is very likely to have to live with oil prices in the range of $40–45 per barrel

While the Kremlin exaggerates its battlefield successes, the latest data on Russian budget revenues exposes Moscow’s weak position in the ongoing negotiations over the terms of a peace agreement with Ukraine. In November, oil and gas revenues fell by one third year on year, to 530 billion roubles. Over the first 11 months of 2025 they declined by 22%.

The sharp fall in oil and gas revenues reflects two and a half factors that have shaped their dynamics throughout the year. First is the general decline in oil prices. The average Brent price over the first 11 months was 13% lower than a year earlier. Second is sanctions pressure, which has intensified as sanctions were applied to the largest Russian oil companies. Their negative effect was amplified by the rouble’s strengthening by more than 20% over the year. As a result, the expected federal budget deficit has increased fivefold, from the originally planned 1.2 trillion to 6 trillion roubles, or from 0.5% to 3% of GDP.

The impact of Trump’s sanctions on Russian oil is transmitted through two channels, a reduction in export volumes and wider discounts. These discounts increased sharply after the new sanctions were introduced and amount, according to various market participants, to between 15% and 30%. As a result, the tax reference price for Russian oil has fallen to $45 per barrel, which corresponds to levels last seen during the Covid lockdown period.

Shipments of Russian seaborne crude have so far declined only marginally. However, up to half of current cargoes do not have a specified destination. The volume of contracts concluded in November for deliveries to India reached only 60% of the monthly average for 2025. Market participants believe the volume in December could fall by another half.

Nevertheless, Russian traders and officials remain optimistic, assuming that, as in previous episodes when sanctions were tightened, their effect will last only one or two months. Yet the current situation has a distinctive feature. Since the last such episodes, the global oil market has shifted from deficit to surplus, and this may significantly reduce the ability of Russian oil trading to adapt.

Saudi, Iraqi and Kuwaiti producers are seeking to replace Russian crude in India, offering discounts on spot contracts and new long-term agreements. Under these conditions, finding new buyers for Russian oil is likely to require even larger discounts.

Meanwhile, forecasts for the 2026 oil price continue to be revised downward. As of early December, the median expectation implies that Brent will fall by a further 15%, to just under $60 per barrel. This is the price the Russian budget currently assumes for Urals next year, although Urals may trade 20–30% below Brent. If so, Russia will, with high probability, face an actual oil price of about $40–45 per barrel in the coming year.

Any potential rouble depreciation would provide the budget with only limited support. It would also sharply increase the cost of imports, which remain widely used in military production, and this in turn would generate additional budgetary expenditure.

Russia's Achilles heel

While the Kremlin promotes and overstates its gains on the Russia–Ukraine frontline in an effort to pressure Donald Trump, and again threatens to seize not only Donbas but all of 'Novorossiya', the latest data on Russian oil export revenues exposes Moscow’s weakest point in the ongoing haggling over the terms of a peace settlement.

Russia’s oil and gas revenues in November 2025 fell by 34% compared with November 2024, amounting to 530.9 billion roubles rather than 802 billion, according to statistics from the Ministry of Finance published in early December. Mineral extraction tax receipts fell by 36%, and export duty revenues by almost 40%. Revenues for the three autumn months were 28% lower than in the same period last year. The Ministry of Finance now expects to receive 580 billion roubles in oil and gas revenues in December, which is 140 billion lower than the baseline level set during the latest revision of budget parameters and the lowering of revenue expectations only at the end of October. It cannot be ruled out, however, that even these projections are somewhat optimistic. At present, the ministry expects to collect 8.6 trillion roubles in oil and gas revenues for the year, 22% less than last year.

Monthly dynamics of federal oil and gas revenues in 2024 and 2025, billion roubles

The sharp decline in oil and gas revenues is the result of two and a half factors that have shaped their trajectory throughout the year. The first is the general decline in oil prices. Brent fell from $79 per barrel in January to $64.5 in November, with an annual average of $69.5, which is 13% lower than in 2024. The second is sanctions pressure, which intensified when sanctions were imposed on Gazprom Neft and Surgutneftegaz at the start of the year and when Trump’s sanctions targeted Russia’s largest oil companies, Rosneft and Lukoil, later on. This effect was further amplified by the rouble’s appreciation from 100 roubles per dollar in January to 79 roubles in the past month. As a result, the expected federal budget deficit will reach 6 trillion roubles (3% of GDP) or even higher, instead of the originally planned 1.17 trillion (0.5% of GDP).

If sanctions pressure remains at its current level and oil prices continue to fall, as most forecasts suggest, Russia’s oil and gas revenues in 2026 will experience another substantial decline, comparable to or exceeding the current downturn.

Two channels of revenue decline

As noted earlier, the effect of Trump’s sanctions on Russian oil is transmitted through two channels: a reduction in Russian export volumes and widening discounts on Russian crude (→ Re:Russia: Cutting Off The Tail Piece by Piece).

Shortly after the sanctions were introduced, the discount on Urals relative to the Brent benchmark, according to Argus data cited by Kommersant from market participants, jumped to $20 per barrel or more, although other market players report wide variation across different cargoes. Previously, the discount reached its peak in the second quarter of 2022 at $32 and in early 2023 at $30, following the EU and G7 embargo and the price cap on seaborne Russian oil. However, today’s oil prices are significantly lower than during those earlier episodes. According to the US Energy Information Administration (EIA), Brent traded at $105–123 per barrel in the second quarter of 2022 and at $78–83 in the first quarter of 2023, whereas it is now trading around $63–64, according to ICE. This means current discounts are near their maximum in percentage terms, comparable to early 2023. The actual Urals price has fallen to multi-year lows: according to the Ministry of Economic Development’s calculations based on Argus data, the average price for November was $45 per barrel. This is the lowest since November 2020, as noted by the MMI Telegram channel.

As for the impact of the new sanctions on export volumes, the picture is almost impossible to determine precisely at this stage. The sanctions introduced on 22 October had a one-month transition before full enforcement. Meanwhile, several key buyers of Russian oil, including companies in China, India and Turkey, announced plans to stop purchases almost immediately after the sanctions were announced. For example, India’s largest refinery, Reliance Industries in Jamnagar, which specialises in exports, announced early termination of purchases of Russian oil and is increasing imports from Saudi Arabia and Iraq, according to analysis by the Indian branch of the Carnegie Endowment. The fate of Reliance Industries' long-term agreement with Rosneft remains uncertain.

Current shipment statistics may be misleading. According to Bloomberg, tanker loadings for shipments of Russian crude to Asian markets fell only marginally in November, by 2%, from 3.35 million barrels per day (mbd) to 3.27 mbd. Yet shipments to the largest individual buyers fell sharply. Seaborne exports to India and China, which at the end of October were 1.65 mbd and 1.61 mbd respectively, collapsed by roughly half to 0.85 mbd and 0.96 mbd. At the same time, the volume of oil on tankers without a declared destination rose from almost zero to 1.47 mbd, mirroring the drop in loadings with identified destinations. Most of these vessels departing from western Russian ports list Port Said or the Suez Canal as an intermediate stop. Previously, these cargoes eventually reached India or China, Bloomberg notes. But the new US sanctions may leave the cargo stranded at sea if Russian companies fail to find workarounds. In other words, Russia continues to ship almost the same volume of oil, but only 55% currently has a declared final destination.

Bloomberg also notes that delivery times have increased. For example, the average voyage time for ESPO crude from Kozmino on the Pacific coast to Chinese ports has risen from 8 to 12 days. Tankers are choosing longer routes, bypassing the Red Sea and sailing around the Cape of Good Hope. These delays have driven a sharp increase in the volume of Russian oil stored on tankers at sea, which exceeded 180 million barrels by the end of November, up 21% in the past three months. Kpler analysts suggested back in late October that sanctions could force Rosneft and Lukoil to place part of their production into storage, both onshore and in floating storage, while seeking buyers willing to accept secondary sanctions risks and purchase the oil at a steep discount. Bloomberg’s data appear to confirm this scenario.

In any case, according to Kpler data for 6 December, cited by Bloomberg, Indian refiners contracted 1.2 mbd of Russian crude for delivery in December, compared with an average of about 1.75 mbd earlier in the year. Market sources expect January volumes to be even lower, around 600,000 barrels per day, roughly 35% of the January 2025 level.

Short-term or long-term effect?

Market participants nonetheless believe the current high level of discounts on Russian oil will last for roughly two months or less, until suppliers and their partners develop new sanctions-evading arrangements. Kommersant’s sources among oil traders express this view. Kremlin spokesman Dmitry Peskov also insists that shipment volumes will recover soon, arguing that the Russian oil trading system is highly flexible and reacts swiftly and precisely to external pressure. Their optimism is grounded in past episodes of tightened sanctions. Yet the current situation has a crucial difference: since those episodes, the oil market has shifted from deficit to surplus. This could significantly reduce the adaptability of Russian oil trading.

Even OPEC, typically conservative in its assessments, acknowledged the emerging surplus in November. In September it had forecast a 0.7 mbd deficit in 2026. According to the November forecast by the International Energy Agency (IEA), the surplus will reach 2.4 mbd this year and exceed 4 mbd in 2026. The IEA expects global oil supply to rise by 3.1 mbd in 2025 and a further 2.5 mbd in 2026, while demand will grow much more slowly, at roughly 0.8 mbd annually in 2025–2026. To limit the scale of the surplus, eight OPEC+ countries, including Russia and Saudi Arabia, decided to freeze production increases in the first quarter.

Contrary to Peskov, the US Treasury’s Office of Foreign Assets Control (OFAC) noted in a special statement on 17 November that the latest sanctions are having the intended effect and that Russian export volumes will decline over the long term. Indeed, as sanctions restrict the ability of Asian refiners, especially Indian ones, to process Russian crude, Middle Eastern producers, particularly Saudi Arabia, Kuwait and Iraq, have expressed readiness to replace it, Reuters reported, citing sources at several Indian refineries. In addition to long-term contracts, they are offering increased spot volumes as early as December and are prepared to cut prices.

At the same time, Middle Eastern firms seek long-term agreements involving investment commitments. Saudi Arabia has been negotiating investments in Indian refining and petrochemical facilities since the spring, apparently with a view to replacing Russian crude as feedstock for refining products destined for the premium European market. The EU’s 18th sanctions package, which bans imports of petroleum products refined from Russian oil (closing the so-called refining loophole), enters into force on 21 January 2026. Suppliers will have to certify the origin of crude used to produce these products. The ban explicitly excludes 'mass balancing', meaning that refineries receiving Russian crude cannot claim that their exports to Europe are produced solely from non-Russian feedstock.

This creates additional incentives for export-oriented Indian refineries to abandon Russian crude. The same logic applies to Turkish refiners such as SOCAR and Tupras, which also export to Europe. Russian oil exports to Turkey in November totalled 0.17 mbd, which is 40% lower than the October level.

It is impossible at present to predict the overall reduction in Russian export volumes if sanctions pressure remains unchanged. Russian suppliers will search for new buyers and ways to circumvent restrictions. But exports will remain under dual pressure: sanctions on the one hand and market bearishness driven by surplus conditions on the other. Finding alternative buyers will almost certainly require deeper discounts on what is increasingly seen as toxic Russian crude.

While Brent declined over 2025, the price of Russian Urals, according to Argus quotations published by the Ministry of Economic Development and used for tax calculation, fell from $68 per barrel in January to $54 in October, with an average discount of $12 or 17%. In November the discount jumped to 30%. According to CREA, discounts during the year were much smaller, around $5 per barrel, but this difference appears to cover additional corporate costs and does not affect budget revenues.

Meanwhile, in November, forecasts for Brent prices in 2026 continued to decline. EIA and ABN Amro expect the average price per barrel to be around $55, Goldman Sachs forecasts $56, JPMorgan – $58, the World Bank – $60, and a Reuters survey of market analysts gives an average of $62. If this scenario materialises and Brent settles around $58, this will imply a fall in oil prices of about 15%. Brent would be near the price assumed for Urals in Russia’s 2026 budget, while Urals itself would trade 20–30% below Brent. Under this scenario, Russia would face an effective oil price of about $40–45 per barrel. Any rouble depreciation would provide only limited support to the budget, since it would also sharply raise the cost of imports, which remain widely used in military production, thereby generating additional budgetary pressure.