Russia's oil windfall: Shadow fleet and weak rouble boost revenues

Bloomberg calculated that Russia recorded a significant increase in oil revenues in June compared to last year, based on data from the Russian Ministry of Finance. This is attributed to a combination of factors, including a weak rouble and increased activity of Vladimir Putin’s so-called shadow fleet.

Bloomberg calculated that oil industry revenues to the Russian budget in June 2024 were 50% higher than the previous year. Oil-related taxes last month amounted to 590.6 billion roubles (£5.5 billion), compared to 402.8 billion roubles a year earlier. The Ministry of Finance states that total revenues from gas and oil increased by 41% to 746.6 billion roubles.

The agency points to a combination of factors that helped significantly fill the country's budget. The country has to cope with various sanctions imposed by the West for its military aggression in Ukraine. One of these factors is the high price of Russia's key export commodity and the weakened rouble.

Bloomberg reports that the price of Ural oil, under discussion, increased over the year from $53.5 to $67.37 per barrel. Meanwhile, the rouble weakened by approximately 15% against the US currency, providing Russian dictator Vladimir Putin with literally more money, among other things, for paying soldiers fighting on the Ukrainian front.

The G7 countries, aiming to limit the Kremlin's ability to finance the war in Ukraine, imposed a price cap of $60 for Russian oil. This means, among other things, that tankers can legally transport crude up to that price level. Furthermore, Europe has banned the import of most Russian petroleum products.

A weaker rouble than last year is insufficient for the Kremlin to achieve this oil industry revenue growth under the above constraints. However, "Moscow adapted to these restrictions, utilising a massive shadow fleet of tankers (i.e., those hiding from official records) and redirecting its oil flows to non-Western buyers, mainly in Asia," Bloomberg writes.

The agency emphasises that oil revenues would be even higher, but Russia has granted large subsidies to refineries to maintain fuel prices at a socially acceptable level. This is especially crucial during the era of increasingly effective Ukrainian drone attacks on oil infrastructure.