(Bloomberg) -- The Russian government sees its oil and gas revenue falling for the next three years due to lower energy prices and a more lenient tax regime for Gazprom PJSC.
According to a draft three-year budget seen by Bloomberg News, this key source of funds for the Kremlin will slide by 14% from 2024 to 2027, with implications for the war in Ukraine and Moscow’s escalating military spending.
Russia’s oil and gas industry is set to contribute 10.94 trillion rubles ($118 billion) in taxes to state coffers next year, according to the draft projections prepared by the government. That would be 3.3% less than the projection for 2024. Annual revenue is expected to keep declining in the following two years, reaching 9.77 trillion rubles in 2027, the documents show.
The press-service for the Russian government didn’t immediately respond to a Bloomberg News request for a comment.
The flow of petrodollars has helped the Kremlin continue its military aggression against Ukraine into its third year, even as Western nations have funneled billions of dollars in military aid to Kyiv and imposed several waves of sanctions intended to curb Russia’s earnings from energy exports. Russia has circumvented these restrictions, amassing shadow fleet of tankers to deliver oil and liquefied natural gas to new clients in Asia.
The latest projections for declining revenue reflect the weakening of global energy markets. The average export price of Russia’s crude is expected to drop below $70 a barrel from next year, according to the documents seen by Bloomberg. The average contract prices for the nation’s gas exports are also expected to slide through to 2027.
Over the longer term, oil may become even cheaper as demand shrinks and renewable energy becomes more popular, according to the projections. The documents praise the efforts of OPEC+, which is led by Saudi Arabia and Russia, to rebalance oil markets by cutting production.
Lower Taxes
Another factor contributing to the projected decline in oil and gas revenue for Russia’s budget next year is a plan to remove an extra tax burden on Gazprom, which has long been a major source of cash for the government.
Since the invasion of Ukraine, the Russian gas giant has cut most of its pipeline exports to Europe, formerly its largest foreign market. The decision resulted in Gazprom’s first net loss since the start of the century in 2023. Still, the government imposed a windfall gas-output tax on the producer, expecting to receive an extra 50 billion rubles from the company every month between 2023 and 2025.
A plan now exists to ease that tax burden on Gazprom, the documents show. If adopted, the more lenient fiscal regime would curb Russia’s tax revenue from gas production by more than 30% from a year earlier to just over 1 trillion rubles in 2025, according to Bloomberg calculations based on the draft data.
However, the tax relief could boost to Gazprom’s financial results, which started to recover earlier this year. If Gazprom resumes dividend payouts, that could offset some of the decline in government revenue, since the state is the company’s largest shareholder.
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