Russias Economic Outlook: Navigating Tariff Turbulence and Oil Price Challenges

A surge in global tariff increases initiated by the Trump administration has heightened concerns of an impending worldwide recession and caused a decline in energy markets.

When tariffs are elevated and pervasive — as seen with the recent ones between the U.S. and its trade partners — they can compel companies to concentrate production in a single country. This situation escalates production expenses, adversely affecting factories in Asia and shipping companies.

Should the trade conflict worsen, it could result in decreased production of goods at inflated costs, contributing to a slowdown in the global economy and a surplus in energy demand.

Although Moscow is not one of the nations targeted by Trump’s tariffs and exports minimal goods to the U.S., it might still be impacted by falling oil prices and increased import costs.

Goldman Sachs projects that the price for Brent crude could reach $62 by December 2025 if the U.S. dodges recession and lowers its tariffs; conversely, it might drop to $58 if the American economy contracts, according to a report by Reuters.

For fiscal planning purposes, the Russian government has anticipated that the price of Urals oil, which is traded at a discount to Brent, will average $69.70 per barrel in 2025.

In light of trade war anxieties, the price of Russia’s benchmark Urals crude has plunged below $50 per barrel for the first time since June 2023, as reported last week by the RBC news website, citing estimates from Argus Media.

Even as oil prices have rebounded due to Trump’s suspension of certain tariffs, the situation remains precarious, as trade discussions between the U.S. and its trading allies, especially China and the EU, continue to be fraught with uncertainty.

With energy markets oversupplied and global demand diminishing, Russia is at risk of losing its position as a leading exporter, as buyers — particularly in Asia — might start demanding larger discounts compared to oil and LNG supplied by Middle Eastern producers and others.

Furthermore, every $10-per-barrel drop in the export price of Russian oil translates to an annual revenue loss of around $17 billion. This isn’t catastrophic news, but it also isn’t insignificant: $17 billion accounts for roughly 4% of Russia’s total exports in 2023, which reached $425.1 billion.

Additionally, Russia’s oil production is unlikely to come to a standstill.

As per estimates provided by analyst Sergei Vakulenko, the average cost associated with producing, processing, and transporting Russian oil to export terminals, factoring in drilling and other expenses, is only $17 per barrel.

However, should energy prices continue to decline, Russian firms will generate less foreign currency and contribute less in taxes to the government.

A scarcity of foreign currency in Russia could devalue the ruble, consequently raising the cost of imported goods domestically — particularly concerning as inflation already hovers around 10%.

This price increase could extend to everyday consumer items such as vehicles, clothing, and electronics.

For instance, the retail price of a Chinese-assembled iPhone 16 Pro Max with 256GB could escalate from $1,199 to $1,999 due to the tariff conflict, according to analysis by UBS Investment Research, as reported by CNN.

It is estimated that imported goods make up to 25% of the average Russian consumer’s purchasing basket.

Additionally, a lack of tax revenue will complicate budget financing.

Russia finished the previous year with a deficit of approximately 3.5 trillion rubles, or $34.4 billion, and its emergency fund has diminished by over 50% since the onset of the war.

For January-March 2025, the federal budget deficit was around $25.5 billion, significantly larger than the deficit for the same quarter the previous year, and exceeding the anticipated total deficit for all of 2025. This was attributed to a nearly 10% decline in oil and gas revenues compared to the same timeframe last year and a nearly 25% surge in expenditures.

According to the Telegram channel MMI, 27.1% of the government’s budget for the year was spent in the first quarter of 2025, marking an unprecedented high.

Although spending also soared in the first quarter of 2024, expenses were more controlled then, and revenue conditions were notably better.

Yet, while the outlook appears troubling for the Russian government, the situation is not yet critical, as noted by analyst Pavel Ryabov in his Spydell Finance blog.

“Relative to budget revenues, the annual deficit stands at 14.5%, which is within a concerning ‘yellow zone,’ whereas in a true budget crisis deficits exceed 20% of revenues,” he remarked.

The confluence of these pressures could lead to a deceleration in Russia’s economic growth.

The Kremlin has struggled to reduce inflation to its target of 4%, but it has also been cautious to avoid rampant inflation.

This indicates that Russia will need to curtail spending that has significantly bolstered its economic growth.

“The Finance Ministry must significantly reduce fiscal stimulus in the coming nine months to keep the deficit in a relatively manageable range. This will adversely affect economic activity, which heavily relies on governmental financial support,” Ryabov stated.

The Central Bank has identified potential trade conflicts as a significant downside risk in its economic forecast for 2025-2027 published last August.

In a crisis scenario, the Bank projects that the Russian economy may contract by as much as 4% in 2025 and by up to 2% in 2026, with the country’s emergency fund possibly being exhausted in 2025.