The Russian government is planning to gradually decrease the discount of Russia’s flagship Urals blend of crude oil to the Brent benchmark, according to a draft of the federal budget for 2024-2026. Currently, the discount stands at $20 per barrel, but it is expected to decrease to $15 per barrel next year and further reduce to $6 per barrel by 2026. The aim of this change is to offset the impact that the drop in prices for Urals crude has had on budget revenues, particularly after the European Union imposed an embargo on purchases of Russian oil and the G7 nations implemented a price cap.
To address the fluctuating prices, the Russian government amended the tax code for the energy sector in July. The amendments reduced the discount of Urals crude to Brent from $25 per barrel to $20, effective from September. The government’s plan to further reduce the discount in the coming years is expected to have a significant impact on the Russian budget. According to RBK, the changes will allow the budget to collect an additional 860.9 billion rubles ($8.9 billion) in 2023, $9.7 billion in 2025, and $8.9 billion in 2026. As a result, oil and gas revenues are projected to increase from $92 billion in 2023 to $119 billion in 2026.
In addition to adjusting the discount, the Russian government is also working on developing its own price indicator for crude oil. This indicator will be calculated based on trading on the St. Petersburg International Mercantile Exchange (SPIMEX) and is expected to be operational from the beginning of 2024. The new price indicator will not only be used to calculate oil taxes but will also serve as a reference point for pricing.
These developments are crucial for Russia as it aims to manage its oil and gas revenues effectively while navigating the challenges posed by international sanctions and price fluctuations. By gradually reducing the discount of Urals crude to Brent, the government hopes to stabilize budget revenues and ensure a more sustainable economic future.
Overall, the Russian government’s plan to decrease the discount of Urals crude to Brent reflects its commitment to adapt to changing market dynamics and secure a higher price for its oil. As the country continues to focus on diversifying its economy and reducing its dependence on oil and gas, these measures play a crucial role in ensuring stability and long-term growth.