Data about the Russian economy for August suggest a sharp decline in revenues from oil and gas exports. Russia’s budget surplus for 2022 has “evaporated” after a sharp drop in energy exports in August led to a monthly deficit of up to 360 billion rubles.
Russia recorded a surplus of nearly 500 billion rubles in the first seven months of the year. But the cumulative total fell to just 137 billion rubles last month, suggesting a large deficit for August, which economists attributed to a sharp drop in oil and gas revenues.
Russia’s surplus in the first six months of the year reached 1.37 trillion rubles, creating a “war wall” due to the rapid increase in energy prices. Russian gas flows to Europe have fallen to about 1/5 of deliveries compared to before the invasion of Ukraine.
In early September, the Russian Federation said it would indefinitely shut down the Nord Stream I gas pipeline, which runs under the Baltic Sea to Germany, if the West does not call off lift imposed on Moscow’s occupation of Ukraine.
The sharp deterioration in Russian state finances comes as its army is suffering losses in northeastern Ukraine, in its biggest military setback since March, when it lost the battle for Kyiv.
According to the data, oil and gas revenues, which account for nearly half of budget revenue received so far this year, fell 18 percent year in year out in the January-August 2022 period.
The EU has also banned Russian coal imports, while a ban on Russian crude oil imports will come into effect in December. Revenues other than oil and natural gas also fell sharply, by 37 percent year in year between January and August, the figures show.
Initially, Russia showed resilience in dealing with the impact of the sanctions, including freezing half of its foreign reserves. But, energy giant Gazprom, which holds Russia’s state natural gas monopoly, said earlier this month that output fell 15 percent year in year in the first eight months of the year.
Exports, which go mainly to Europe, fell by more than a third. Revenues look set to hit even lower levels after Russia suspended Nord Stream I, one of Europe’s main natural gas pipelines, in early September.
Russia’s economy shrank by 4.3 percent in July 2022 compared to the same month last year, according to the Economy Ministry. Analysts at Aton expect the economy to shrink further by 5 percent in 2023 due to declining energy production.
Russia’s central bank said it would be cautious about the economic outlook in a report released last week on the regional economy, noting that exports are likely to decline.
Russia’s monetary policymakers raised interest rates to a record 20 percent and introduced capital controls to quell a potential attack on the ruble in the days after the war broke out.
Borrowing costs have fallen gradually since then and are now at 8 percent.