 "Why are falling oil prices bad news for Vladimir Putin?")
The price of oil is collapsing.
And this is bad news for Russian President Vladimir Putin.
Oil prices on Tuesday remained near a four-year low.
This development comes as the US and China seem to be on the verge of a trade war.
China has vowed not to bow to what it called U.S “blackmail” after US President Trump threatened an additional 50 per cent tariff on Chinese goods if Beijing does not lift its 34 per cent retaliatory tariff.
But what happened with the oil price? And why is it bad news for Putin?
Let’s take a closer look:
What happened?
On Tuesday, the international benchmark Brent price of oil settled at $64.33 (Rs 5,546) per barrel.
This comes a day after Brent futures lost $2.43 (Rs 209) to touch $63.15 (Rs 5,445) per barrel – the lowest level since 2021.
Bloomberg on Monday reported that the price of Russia’s Urals oil – its key export blend – was down at just $50 (Rs 4,311) per barrel.
That’s the lowest price level for Russian Urals oil since March 2023.
Last week, the Urals oil price was at $52 (Rs 4,483) per barrel at the Baltic Sea port of Primorsk.
Russian Urals oil prices for cargoes loading from Ust-Luga and Novorossiisk ports were around $53 (Rs 4570) per barrel on Friday.
Why is this bad news for Putin?
Because Russia’s economy is heavily dependent on oil.
So much so that former US presidential Republican hopeful John McCain once called Russia a ‘gas station masquerading as a country.’
Russia has based its 2025 budget on the average Urals price being $69.7 per barrel.
Revenue from oil and gas account for a huge chunk – around 25 per cent – of Russia’s federal budget.
In March, the revenue from the sector collapsed 17 per cent compared to a year ago.
The plunge in oil prices poses a direct threat to Russia, which is spending hundreds of billions of dollars on its military campaign in Ukraine, Russia’s most expensive military operation since the Soviet-Afghan war of 1979-1989.
Russia in 2025 increased its defence budget by 25 per cent.
It also comes as in the backdrop of negotiations between Russia and the United States about the ceasefire in Ukraine.
Some think this might put Moscow at a disadvantage at the bargaining table.
Trump, who says he wants to be remembered as a peacemaker, has repeatedly said he wants to end the “bloodbath” of the three-year conflict in Ukraine - which his administration casts as a proxy war between the United States and Russia.
Putin said last month that Russia supported a US proposal for a ceasefire in Ukraine in principle, but that fighting could not be paused until a number of crucial conditions were worked out or clarified.
What is Russia saying?
The Kremlin is clearly worried.
NDTV quoted Kremlin spokesman Dmitry Peskov as saying “Of course this indicator is very important for filling the budget. Our authorities are very closely monitoring the situation, which is currently extremely turbulent, tense, and emotionally charged. We aim to take measures in order to minimise the consequences of this economic storm.”
Peskov blamed the tumbling oil prices on “the US decision to introduce tariffs for most countries in the world.”
A sharp drop in global oil prices triggered by Trump’s tariffs poses a risk to the Russian economy, the state TASS news agency cited Elvira Nabiullina, the governor of Russia’s central bank, as saying on Tuesday.
She was quoted as saying that the central bank was analysing the fallout, but as saying that a technical budget rule would smooth out the consequences for the budget.
“You are absolutely right that the main channel of influence may be through changes in oil prices, specifically a decrease in oil prices,” Nabiullina was quoted by TASS as telling members of the Russian lower house of parliament.
“If such tariff wars, and we are seeing an escalation of tariff wars, continue, it usually leads to a decline in global trade, the global economy, and possibly even the demand for our energy resources,” she said.
The central bank said last week that US tariff hikes may slow world economic growth and fuel inflation, while oil prices could be lower than forecast for several years as a result of reduced global demand.
The central bank forecasts an average oil price of $65 (Rs 5,605) per barrel in 2025 and of $60 (Rs 5,173) per barrel in 2026. The central bank will review its forecasts at its next board meeting on April 25.
Weakness and strength
For Russia, oil and gas have been its strength and weakness since the Soviets discovered vast fields in the world’s largest hydrocarbon basin in Western Siberia in the decades after World War Two.
When prices are high, Siberia’s wealth cushions the economy, bolsters state spending. But when prices are low, the economy can hit the rocks - with spectacular geopolitical consequences such as in 1991 when the Soviet Union crumbled.
The central bank said last week that US tariff hikes may slow world economic growth and fuel inflation, while oil prices could be lower than forecast for several years as a result of reduced global demand.
Interestingly, Trump did not levy any tariffs against Russia and North Korea.
White House press secretary Karoline Leavitt told Axios this is because sanctions against Russia ‘preclude any meaningful trade’.
“A massive crisis is unfolding before our eyes,” Yevgeny Kogan, an investment banker and professor at the Higher School of Economics in Moscow, told Moscow Times.
The cost of shipping Urals oil from the Baltic ports of Primorsk and Ust-Luga to India fell to $7 million per one-way shipment on average after rising to a 12-month high early in March.
In late 2022 the Group of Seven countries – the United States, Canada, Britain, Italy, France, Germany and Japan – together with the European Union and Australia imposed a cap of $60 per barrel on the sale of Russian oil on a free-on-board basis, seeking to reduce Russia’s revenue from seaborne oil exports as part of sanctions.
With inputs from agencies
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