Oil Price Collapse and War: The Kremlin Faces a Tough Choice.

The Kremlin Prepares to Change Budget Rules Due to Falling Oil Prices

The Kremlin is considering changing its key budget mechanism due to declining oil export revenues. According to Bloomberg, the Russian government may lower the budget rule threshold from $60 to $50 per barrel if oil prices remain low. Discussions on the new measures are still in the early stages, but the main obstacle to their implementation is the need to reduce state spending due to the war against Ukraine.

The budget rule has helped Russia shield itself from oil price volatility by ensuring reserves during periods of high prices. However, over the last few years, the National Wealth Fund has significantly dwindled due to expenses related to the war with Ukraine. The global decline in oil prices also complicates the situation for Russia, which needs budget support from reserves.

Russia is forced to adapt to a new reality as the current threshold of $60 per barrel loses its significance. The Ministry of Finance continues to use reserves to support the budget, which quickly depletes them

In this situation, Russia supported the OPEC+ decision to increase oil production in June. Moscow plans to compensate for budget losses by boosting oil production. Trump's trade wars have also impacted the Russian economy, crashing its growth.