The key pillar of Russia’s war chest is cracking. The timing couldn’t be worse
In July, Russian President Vladimir Putin’s administration collected 787.3 billion rubles, or $9.8 billion, from oil and gas revenue — 27% lower than a year ago, according to the country’s finance ministry on Tuesday. The decline in energy tax revenue further strains Russia’s budget, which posted a deficit of 3.7 trillion rubles, or 1.7% of GDP, in the first half of the year. Oil and gas remain vital to Russia’s economy and to funding its war, now in its fourth year. That funding is now under threat on multiple fronts. Last month, the European Union unveiled its 18th sanctions package against Russia. It replaced the fixed $60-per-barrel cap on Russian oil with a more flexible mechanism that limits prices to 15% below global market averages, effectively slashing Moscow’s revenue on each exported barrel. But the pressure isn’t just coming from Europe. Recently, Trump has sharpened his rhetoric — and trade threats — against countries buying Russian oil, singling out India, a top buyer of the fuel. Last week, Trump announced a 25% tariff on Indian goods and a “penalty” for its purchases of Russian oil. Recently, Trump has sharpened his rhetoric — and trade threats — against countries buying Russian oil, singling out India, a top buyer of the fuel. Last week, Trump announced a 25% tariff on Indian goods and a “penalty” for its purchases of Russian oil. “Putin will stop killing people if you get energy down another $10 a barrel. He’s going to have no choice because his economy stinks,” Trump told CNBC on Tuesday. Even with Trump’s ultimatum, Russia is likely to dig in its heels, according to Tatiana Orlova, a lead emerging markets economist at Oxford Economics. “The Russian leadership seems to view the economy’s resilience during the first three and a half years of war as proof that it is immune to further sanctions,” Orlova wrote in a Wednesday note.
Oil Prices Rise After Trump Targets India’s Imports
Oil prices ticked higher in early Thursday trading in Asia, buoyed by renewed trade tensions and a surprise decline in U.S. crude inventories. The modest rebound follows a rough week for crude, which had slumped to two-month lows on concerns over rising OPEC+ output and faltering global demand. At the time of writing, Brent crude futures for October delivery rose 0.88% to $67.48 per barrel, while West Texas Intermediate futures climbed by 0.98% to $64.98. The upward momentum was driven in part by a new wave of geopolitical uncertainty after President Trump signed an executive order ramping up tariffs on Indian imports. The move is a direct response to New Delhi’s continued purchases of Russian oil, with tariffs set to reach a cumulative 50% and take effect on August 28. India is the world’s third-largest oil importer, and its increasing reliance on discounted Russian crude has drawn sustained criticism from Washington. Trump’s decision to target India comes alongside fresh warnings aimed at China, another major buyer of Russian oil. The tariff measures are part of a broader U.S. strategy to tighten pressure on the Kremlin as the war in Ukraine drags on. With Trump now saying there is a “good prospect” of a summit with Putin and Zelensky. While Trump’s latest action adds to global tensions, analysts at ANZ pointed out that the 21-day delay before implementation leaves room for possible negotiations, potentially softening the impact. Nevertheless, the prospect of disrupted trade routes and shifts in global oil flows injected a degree of bullishness into the market. If India and China are forced to reduce purchases from Russia under tariff pressure, they may turn to other suppliers—tightening available supply elsewhere and potentially lifting prices. Another factor underpinning Thursday’s price recovery was an unexpectedly large drawdown in U.S. crude inventories. Weekly data from the Energy Information Administration (EIA) showed a 3 million barrel decline in crude stockpiles, far exceeding analysts’ expectations of a 200,000-barrel build. The inventory data suggests stronger-than-anticipated demand or tighter domestic supply in the U.S., which helped offset some of the broader bearish sentiment in the market. However, the longer-term outlook for oil does not appear to have changed. Prices are still down sharply over the past week, weighed by signs of weakening global demand and rising production among OPEC+ members. The OPEC+ alliance, which includes Russia and Saudi Arabia, announced plans last week to proceed with a sharp output increase in September. The move comes despite the current soft pricing environment and reflects member states’ need to bolster fiscal revenues after months of underwhelming oil receipts. If output continues rising while demand remains underwhelming, oversupply could become a persistent feature in the market heading into the fourth quarter. Adding to the bearish undertone are recent weak economic indicators from both the United States and China. A string of disappointing manufacturing and services data has fueled concern that energy demand could stagnate or even contract in the coming months. China, in particular, has seen lackluster industrial activity and tepid consumer sentiment, raising doubts about its role as a growth engine for oil demand in 2025. The rise of tariff politics under Trump’s leadership is injecting new volatility into the market, as traders now face the dual uncertainty of trade policy and production policy as they try to assess where prices go from here.