Oil exports have been a cash cow for Russia. But revenues are dwindling,
thanks to sanctions
[February 10, 2026] By
DAVID McHUGH
Oil and gas exports have sustained Russia's finances throughout its war
against Ukraine. But as the fourth anniversary of the full-scale
invasion approaches, those cash flows have suddenly dwindled to lows not
seen in years.
It's the result of new punitive measures from the U.S. and the European
Union, U.S. President Donald Trump's tariff pressure against India, and
a tightening crackdown on the fleet of sanctions-dodging tankers
carrying Russian oil.
The drop in revenue is pushing President Vladimir Putin to borrow from
Russian banks and raise taxes, keeping state finances on an even keel
for now.
But those measures only increase strains in a war economy now plagued by
slowing growth and stubborn inflation.
In January, Russian state revenues from taxing the oil and gas
industries fell to 393 billion rubles ($5.1 billion) That’s down from
587 billion ($7.6 billion) in December and from 1.12 trillion ($14.5
billion) in January 2025. That's the lowest since the COVID-19 pandemic,
says Janis Kluge, an expert on the Russian economy at German Institute
for International and Security Affairs.
A new approach to sanctions
To pressure the Kremlin to halt fighting in Ukraine, the Trump
administration imposed sanctions on Russia’s two largest oil companies,
Rosneft and Lukoil, from Nov. 21. That means anyone buying or shipping
their oil runs the risk of being cut off from the U.S banking system — a
serious concern for any multinational business.
On top of that, on Jan. 21 the EU began banning fuel made from Russia
crude — meaning it could no longer be refined somewhere else and shipped
to Europe in the form of gasoline or diesel fuel.
The head of the EU's executive commission, Ursula von der Leyen, on
Friday proposed a full ban on shipping services for Russian oil, saying
sanctions offered leverage to push Russia to halt the fighting. “We must
be clear-eyed: Russia will only come to the table with genuine intent if
it is pressured to do so," she said.
The latest sanctions are a step beyond the oil price cap imposed by the
Group of Seven democracies under the Biden administration. The $60 per
barrel cap, enforced through insurers and shippers based in G-7
countries, was aimed at reducing Russia’s profits, not banning imports,
out of concern over higher energy prices.
The cap did reduce government oil revenues temporarily, especially after
an EU ban on most Russian seaborne oil forced Russia to shift sales to
China and India. But Russia built a “shadow fleet” of aging tankers
operating beyond the reach of the cap, and revenues rose again.
Pressure on India to stop Russian oil imports
Trump on Feb. 3 agreed to lower tariffs to 18% from 25%, saying Indian
President Narendra Modi agreed to halt Russian crude imports, and on
Friday removed an additional 25% tariff imposed over continued imports
of Russian oil.
Modi hasn’t commented. Foreign affairs spokesman Randhir Jaiswal said
India's strategy was “diversifying our energy sourcing in keeping with
objective market conditions.” Kremlin spokesman Dmitry Peskov noted that
Moscow was monitoring the statements and remains committed to our
“advanced strategic partnership” with New Delhi.
In any case, Russian oil shipments to India have declined in recent
weeks, from 2 million barrels per day in October to 1.3 million per day
in December, according to figures from the Kyiv School of Economics and
the U.S. Energy Information Administration. Data firm Kpler says “India
is unlikely to fully disengage in the near term" from cheap Russian
energy.
Ukraine's allies increasingly have sanctioned individual shadow tankers
to deter customers from taking their oil — raising the number to 640
among the U.S., U.K. and EU. U.S. forces have seized vessels linked to
sanctioned Venezuelan oil, including one sailing under a Russian flag,
while France briefly intercepted a suspected shadow fleet vessel.
Ukrainian strikes have hit Russian refineries, pipelines, export
terminals and tankers.
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Reservoirs seen at Priobskoye oil field near Nefteyugansk, in
western Siberia, Russia, on April 5, 2006. (AP Photo/Misha Japaridze.
File)
 Russian oil is trading at a steep
discount
Buyers are now demanding bigger discounts on Russian oil to
compensate for the risk of running afoul of U.S. sanctions and the
hassle of finding payment workarounds that skirt banks reluctant to
touch the transactions. The discount widened to about $25 per barrel
in December, as Russia's primary crude export, Urals blend, fell
below $38 per barrel, compared with about $62.50 per barrel for
international benchmark Brent crude.
Since Russia’s taxes on oil production are based on the price of
oil, that cuts into state revenues.
"It’s a cascading or domino effect,” said Mark Esposito, a senior
analyst focused on seaborne crude at S&P Global Energy. Including
diesel and gasoline created “a really a dynamic sanctions package, a
one-two punch that are impacting not only the crude flow, but the
refined product flow off of those barrels. ... A universal way of
saying, if it’s coming from Russian crude, it’s out.”
Reluctance to take delivery has meant an inordinate amount — about
125 million barrels — has built up in tankers at sea. That has
driven up costs for scarce capacity, with rates for very large oil
tankers reaching $125,000 per day “and that’s directly correlated
with the ramifications of the sanctions,” said Esposito.
Slowing growth strains Russia's budget
On top of that, economic growth has stalled as the boost from
war-related spending reaches its limits and as labor shortages put a
cap on potential business expansion. And lower growth means less tax
revenue. Gross domestic product increased only 0.1% in the third
quarter. Forecasts for this year range between 0.6% and 0.9%, down
from over 4% in 2023 and 2024.
“I think the Kremlin is worried about the overall balance of the
budget, because it coincides with the economic downturn,” said
Kluge. “And at the same time the costs of the war are not
decreasing.”
The Kremlin responds by raising taxes and borrowing
The Kremlin has resorted to higher taxes and borrowing to fill the
gap left by dwindling oil revenues and by slower economic growth.
The Kremlin-controlled parliament, the Duma, raised value-added tax
paid on consumer purchases at the cash register to 22% from 20% and
increased levies on car imports, cigarettes and alcohol. The
government has increased its borrowing from compliant domestic
banks. And a national wealth fund still has reserves to patch budget
holes.
So the Kremlin has money — for now. But raising taxes can slow
growth even more. And borrowing risks worsening inflation, brought
down to 5.6% through interest rates of 16% from the central bank,
down from a peak of 21%.
"Give it six months or a year, and it could also affect their
thinking about the war,” said Kluge. “I don’t think they will seek a
peace deal because of this, but they might want to lower the
intensity of the fighting, focus on certain areas of the front and
slow the war down. This would be the response if it’s getting too
expensive.”
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