With Russian oil trading at over $100 and discount to Brent at zero or less, Russia's Ministry of Finance is anticipating a significant windfall this year that will reduce. However despite the good news, MinFin is still intending to cut at least 10% off spending in 2026.

“Despite the unexpected gift of war in the Middle East, the Russian government, concerned about depleting its reserves, is beginning to cut budget spending,” according to Alexandra Prokopenko, a research fellow at the Carnegie Berlin Centre. “In a war economy, cutting the already depleted civilian workforce will be necessary—and this could lead to new problems.”

This year started very badly for MinFin after the January-February deficit ate up 90% of the full year’s forecast. Russia ended 2025 with a deficit of 2.6% of GDP, but economists say that relatively modest result was due to a lot of end of year spending being shunted over into the 2026 budget.

“The budget deficit for January-February amounted to RUB3.45 trillion, or 1.5% of GDP—almost the entire annual target in just two months,” Prokopenko noted. Oil and gas revenues fell 47% y/y to RUB826bn ($8.9bn), with a shortfall exceeding RUB300bn, reflecting a mismatch between assumptions and reality.

“The budget is projected at $59 per barrel of Urals, but the average price in January was $41 and in February $44.6, while the ruble is stronger than expected,” she said. “The arithmetic doesn’t add up on any parameter.”

The war in Iran may dramatically change those parameters this year. As of the morning of March 17, Urals was trading at $93.6 per barrel, but a great deal of uncertainty remains over how long the conflict in Iran will last. US President Donald Trump has called for an end to the war by April and the White House has already reached out to Tehran twice to launch talks, but has been rebuffed on both occasions. In the meantime, Trump has ordered the rest of the US navy to sail to the Gulf, including some 5,000 marines, relocated from US bases in Japan, which are expected to arrive at the end of March.

Spending pressures have compounded Russia’s lopsided budget spending.

“Expenditures in January and February increased by 5.8% y/y, against a planned annual increase of just 2.9%,” Prokopenko said. With deficits rising, the liquid portion of the National Welfare Fund, currently RUB4.1 trillion, could be exhausted within a year. “In just two months, RUB399bn has already been withdrawn to cover the deficit,” she added.

The Ministry of Finance has responded by seeking cuts of up to 10% in unprotected spending.

“In practice, this translates into roughly RUB1.5–2 trillion of reductions, primarily targeting national projects, infrastructure and road construction,” Prokopenko said. However, the macroeconomic impact is likely to be limited. “Against projected money supply growth of RUB6.5–13 trillion this year, a cut of RUB0.5–1 trillion appears insignificant.”

At the same time, structural constraints limit the scope for adjustment. “Protected expenditures — defence at RUB12.9 trillion, security at RUB3.9 trillion, social policy at RUB7.1 trillion and debt servicing at RUB3.9 trillion — account for RUB27.8 trillion of the RUB44.1 trillion budget,” she noted. “This leaves little room for manoeuvre.”

Higher oil prices offer only partial relief. “At current levels above $70 per barrel, the budget is receiving an additional $150mn per day,” Prokopenko said, citing Financial Times estimates. A sustained $10 increase in oil prices could generate about RUB127bn ($1.4bn) per month, or 0.05% of GDP. “If Urals averages above $75, additional revenues could reach RUB3 trillion, or 1.5% of GDP,” she added.

Yet war-related spending continues to dominate fiscal policy. “In 2025, expenditures directly linked to the war reached 5.1% of GDP and are dictated by the front line, not by the Ministry of Finance,” Prokopenko said. “If more is needed, more will be spent, and civilian spending will be pushed back again.”

The underlying problem, she argued, is structural rather than cyclical. “Even successful spending cuts will provide only temporary relief and will not resolve deeper imbalances,” Prokopenko said. “An economy restructured for military needs cannot grow through its civilian sector.”

“The government is struggling with the symptoms,” she added. “The disease is political.”