In just a few weeks, the war in the Middle East has acquired enormous importance for the Russian authorities. Russia’s budget deficit in the first two months of the year has spiraled out of control. But the closure of the Strait of Hormuz, through which about 27% of global maritime trade in oil and petroleum products passes, caused the prices of basic commodities to skyrocket. This may allow the Kremlin to keep the annual deficit at the planned level of 1.6% and continue to prioritize military spending. However, even such luck cannot solve the war-torn economy’s severe structural problems.
What happened to the Russian budget at the beginning of the year?
For the period from January to February 2026, the federal budget deficit It consists of 3.45 trillion rubles, or 1.5% of GDP. That is, it reached almost the entire value of the plan (3.79 trillion, or 1.6% of GDP) envisaged for the year 2026 under the budget law.
Because of oil and gas revenues He collapsed By 47.1% compared to the result of January and February 2025. Chief macroeconomist Dmitry Kulikov to cautionThe government included in the 2026 budget an overly optimistic price for a barrel of Urals of $59, which threatens revenue shortfalls, an increase in the budget deficit and other problems.
At the same time, budget expenditures in the first two months of the year increased by 5.8% compared to the same period in 2025. Ministry of Finance to caution On advances, i.e. financing provided for expenses at the beginning of the year, to distribute them more evenly throughout the year.
However, declining oil and gas revenues coupled with increased spending resulted in a huge budget deficit (91% of annual plan). To cover this, the domestic market budget reached the national reserves accumulated from surplus income from the sale of oil and gas in previous years, i.e. the National Welfare Fund (NWF). It actually declined during the war years. Given the dynamics of the deficit expansion (in January-February, almost 400 billion rubles were withdrawn from the National Social Welfare Fund), this will not be enough for long. The alternative to spending reserves is a stronger increase in domestic government debt, but at the current level of rates this will only accelerate price growth.
The depletion of reserves has already forced the Russian authorities to plan to reduce budget expenditures (not military expenditures, of course, but more on this below). But the bleak budget forecasts were corrected at the end of last February, when Donald Trump decided to go to war against Iran, and Tehran responded by closing the Strait of Hormuz, sparking a widespread crisis in the global oil and gas market. In the third week of the war, Brent crude prices stabilized above $100 per barrel, and the end of the conflict is not yet in sight (Washington does not rule out launching a ground operation in the region).
Under what conditions will the war in the Middle East save the Russian budget?
It is clear that Russia may be the main beneficiary of this conflict. Its oil supplies are not dependent in any way on the Strait of Hormuz (unlike Saudi Arabia, Iraq, the United Arab Emirates and other exporters). Russian Urals crude prices jumped from $45 in February to about $75 a barrel in March, and the United States imposed temporary sanctions on Russia.
The amount Russia will gain from the US-Israel war with Iran will depend on the duration and intensity of the conflict. The Kremlin does not need a conflict in the Middle East to push the global economy into recession as demand for oil declines. But it would be beneficial for the Russian authorities if the conflict were somewhat prolonged and oil prices remained at their peak for some time (due to the actual or threatened closure of the Strait of Hormuz).
An increase in the average monthly price of Urals oil by $10 per barrel, according to estimates by Sergei Vakulenko, a senior fellow at the Carnegie Berlin Center for Russian and Eurasian Studies, gives the budget an additional $1.63 billion in tax revenue per month (or about 134 billion rubles). “As a result, the price rose by $20 and lasted for a month, and the Russian state received an additional three billion dollars. The price rose by $40 and lasted for six months – that is, an additional 38 billion.” Countries expert.
If the war in the Middle East continues for a few more months, Russia will actually be able to meet its budget plan for 2026. “The plan for oil and gas revenues that was in the original approved budget (8.919 trillion rubles. -)” almost. “Jellyfish”) and was unrealistic due to high oil prices and at the same time a very weak ruble, now seems quite possible, at least with a slight deficit [по доходам]”, confirms a prominent economist at one of the Russian research centers in a comment to Meduza:
In my opinion, it all comes down to the fight itself [на Ближнем Востоке] It is likely to continue for a few months, in addition to the consequences of losing capacity in the area, in addition to being closed or semi-closed [Ормузский] Strait Now the oil allocated for taxes has already exceeded what was budgeted; As a result, the average annual price may be close to the base oil price ($59).
Russia’s benefits are not limited to oil: Moscow can also make financial and political profits in gas markets (Qatar supplies about a third of the global LNG market, and the country’s main terminal at Ras Laffan has not been operational for several weeks) and fertilizers (you can learn more about this) here and here).
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What happens to the Russian economy?
The Russian economy, despite the windfall resulting from the war in the Middle East, continues to slow and production in the civilian sectors to decline.
The latest indicators of institutional monitoring, Sold out The Central Bank showed a significant slowdown in the economy in March: the Composite Business Climate Index (BCI) fell to a negative value (-0.1) for the first time since October 2022. The lower the numbers, the worse Russian companies’ assessment of the production situation and demand for their products. For comparison, in May 2024, during the period of economic depression, the index value reached 10.5.
The IBC, as the most representative (central bank) indicator of business activity, emphasizes the loss of further momentum in the economy, He writes Economist Dmitry Polevoy. With such low index levels, the economy has typically been either in recession or teetering on the brink of recession – and the dynamics are thought to be decidedly weaker than potential GDP growth of 1.5-2.5% per year.
Last week, the central bank managed to lower its key interest rate by just 50 basis points – to 15%. In January, inflation accelerated due to a 20-22% increase in value-added tax; By the beginning of February, price growth had slowed, but pro-inflation risks were still exceeding expectations, which did not allow the regulator to lower the rate faster. At the end of March, annual inflation rose, according to… appreciation Dmitry Belousov of may be about 5.7%. With the cost of money reaching 15%, loans remain expensive for businesses and individuals. In 2025 decreased For the first time since 2020, by 2.3% in real terms.
How did the authorities want to reduce the budget?
Ministry of Finance of the Russian Federation, according to Information Reuters asks ministries and departments to identify 10% of “unprotected” expenditures to be reduced. “The Finance Ministry promised to cut everything except military spending and basic social services,” says Meduza’s interlocutor from a Russian think tank. “These ‘protected expenditures’ should also include debt service.”
Spending on national defense and homeland security in 2026 Planned At the level of 16.8 trillion rubles, social policy – 7.1 trillion, national debt service expenditures – 3.9 trillion. In total – 27.8 trillion out of a total of 44.1 trillion rubles of budget expenditures for the current year. That is, 16.3 trillion remain. These are expenditures on the civilian economy, healthcare, education, infrastructure construction and other items.
Meduza’s interlocutor says: “They wanted to reduce the rest by about 10%. I think it will not be possible to reduce everything equally; there will also be semi-protected items that will be reduced, but cosmetically. As a result, I do not expect that it will be possible to reduce the original spending plan by more than 0.4% to 0.5% of GDP.” Bloomberg estimated The maximum budget sequestration the Russian government can undertake this year is 2 trillion rubles, or 0.8% of GDP.
“We’re supposed to cut not what’s been inflated, but what’s left — and there are crumbs in there. Cutting expenses will wipe out the remaining economic growth,” he said in the post. The bell Official of the Ministry of Economic Development.
But if spending cuts occur at all (the gift of oil from the Middle East may discourage the authorities from making unpleasant decisions this year), this will not alleviate the mounting structural problems – the deterioration of the civil sector, labor shortages, regional budget deficits, major corporate debt, dependence on China, and so on.
One of these issues is never raised in the public space, but is already discussed They say Economists: Against the background of natural population decline, deaths and injuries of working-age men in the war, anti-war migration, growth of nominal wages and inflation, the replacement rate, i.e. the ratio of the average pension to the average salary, fell during the years 2018-2025 (in 2012-2015 the coefficient reached the level of 35-37%). This means that financing pensions in Russia may soon require a new increase in the retirement age.
Yulia Starostina