The price of Russian crude rose above the level assumed in the country’s federal budget for the first time in more than a year on the back of turmoil on the international energy markets as the Middle East conflict reshapes Moscow’s finances. However, the ever-cautious Ministry of Finance (MinFin) is still planning to cut 10% off spending this year.

While the federal budget for 2026 assumes an oil price of $59 per barrel, Urals averaged about $41 in January and $44.6 in February.

The war in Iran has now pushed prices up. The benchmark price used by Russian authorities to calculate taxes reached RUB6,105 per tonne — equivalent to about $77.28 a barrel — on March 9, according to data cited by Reuters. The surge represents an increase of roughly 82% from February 27, the day before the joint US-Israeli military campaign against Iran began.

Markets were suffering from whiplash at the start of this week after oil prices rose to $120 per barrel on March 9 as the global energy crisis gathered momentum, only to fall back to $85 again by the end of the day after Trump said the war was “pretty much over.”

More remarkably, the price of a barrel of Russia’s flagship Urals blend overtook Brent to trade at $100 per barrel, a $13 premium, before falling back to $85 in the middle of the week. At the time of writing on the morning of March 12, Brent was trading at $96.5 per barrel and Urals at $85.

The jump has pushed the effective price of Russian oil above the $59 per barrel level assumed in Russia’s 2026 federal budget, providing a short-term boost to government revenues at a time when the Kremlin faces mounting wartime spending pressures and a painfully high budget deficit this year.

As of the end of February, the government had already used up 90% of the deficit spending allocated for 2026. In January and February the deficit reached RUB3.45 trillion ($43.7bn), equivalent to about 1.5% of GDP, according to official figures.

Prices retreated on March 11 after reports that member states of the International Energy Agency had begun releasing strategic petroleum reserves in an effort to stabilise markets and offset supply shortages linked to the blockade of the strait. But they were pushed up again the next day on reports that three more oil tankers had been hit by Iranian missiles and more attacks on neighbouring oil production and infrastructure, including Bahrain and Oman.

The recent volatility comes as Russia’s energy revenues have already been under pressure. Oil and gas income fell sharply in February, declining by 44% y/y to RUB432.3bn ($5.47bn), according to government data.

MinFin looking to cut 10% from spending

MinFin is preparing plans to reduce non-core federal spending by around 10% as a prudent preparation in case the conflict in the Middle East is short.

The finance ministry has asked federal agencies to review potential reductions in expenditure, with the aim of trimming roughly RUB1 trillion – RUB2 trillion ($12.7bn–$25.4bn), equivalent to about 0.5–1% of GDP, Reuters reported, citing sources familiar with the discussions.

The proposal has been confirmed by MinFin to the Russian newspaper Vedomosti, which said officials had already collected responses from government departments and were preparing a final decision.

The ministry said the measures are intended to “avoid an additional increase in government borrowing” and would not result in tighter monetary policy.

The planned reductions would exclude what officials describe as “sensitive” spending categories, including defence expenditure, social benefits, public sector wages and payments linked to the government’s so-called “SVO” programme supporting the war in Ukraine. Instead, cuts are expected to fall primarily on national development projects and infrastructure investment, including road construction.

Officials cited by Reuters linked the proposal to a sharp deterioration in the federal budget’s performance and a desire to conserve Russia’s National Welfare Fund (NWF), the sovereign reserve built from oil and gas revenues. President Vladimir Putin has repeatedly signalled his reluctance to see the fund significantly depleted.

The NWF has been used to cover fiscal shortfalls since the start of Russia’s full-scale invasion of Ukraine in 2022. At current spending rates and with oil prices below $50 per barrel, the liquid portion of the fund — estimated at around RUB4.1 trillion — could last only about another year, according to estimates cited by Reuters.

Reuters recently cited projections from a “think tank close to the government” suggesting the deficit could reach 3.5–4.4% of GDP this year, well above the official target of 1.6%.

Currency movements have compounded the pressure. Although a weaker ruble normally boosts the local-currency value of oil revenues, the currency strengthened to around 77–78 to the dollar early in the year, reducing the budgetary return from exports.

Officials are reluctant to finance the deficit through large-scale borrowing, partly because higher domestic debt issuance could ultimately be absorbed by state-controlled banks — a process some economists liken to indirect money creation that risks fuelling inflation.