Russia’s Finance Ministry released a budget policy document on Thursday, stating that the country’s revenues from oil and gas exports are expected to increase by almost a third next year. The ministry forecasts that proceeds from oil and gas sales will rise from $91 billion to $118.2 billion in 2024, accounting for 6.4% of GDP compared to 5.3% this year.
The Finance Ministry also predicts a further increase in energy revenues to $121.3 billion in 2025, followed by a decline to $117.1 billion in 2026. According to the forecast, by 2026, the share of oil and gas income in Russia’s GDP will decrease to 5.6%. This decline is attributed to the stabilization of the price environment and an increase in the share of oil production at fields with preferential tax treatment.
To boost budget revenues, the Russian government plans to reduce discounts on Urals crude to the Brent benchmark. Currently, the discount is $20 per barrel, but it is expected to gradually decrease to $6 per barrel by 2026. In 2022, the discount will be reduced to $15 per barrel, and by 2025, it is expected to be $10 per barrel.
This change in assessing crude prices for tax purposes follows the EU and G7’s imposition of a ban and price cap on purchases of Russian oil in December. By offsetting the drop in prices for Urals crude, Moscow aims to minimize the impact on budget revenues. The price of Urals crude has been consistently lower than Brent, at times even reaching a difference of $35 to $40 per barrel.
In July, Russian President Vladimir Putin signed amendments to the tax code for the energy sector, reducing the discount on Urals crude to Brent from $25 per barrel to $20, effective from September. These measures are expected to contribute to an increase in oil and gas revenues, which are projected to reach around $7.5 billion in September, a 14% increase from the previous month. In September 2022, the corresponding figure was $7 billion.
The rise in revenues reflects a 24% month-on-month increase in proceeds from the mineral extraction tax, amounting to $11.2 billion. These calculations are based on data from industry sources and official statistics on oil and gas production.
Overall, Russia’s oil and gas exports are set to experience significant growth in the coming years, providing a boost to the country’s economy. By reducing discounts on Urals crude and stabilizing prices, the Russian government aims to maximize its revenues from the oil and gas sector. These additional funds are crucial for supporting the national budget and ensuring economic stability in the long run.
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