The real problem lies in revenues, which have sharply declined from oil and gas. However, this weakness extends beyond the energy sector, as non-oil revenues are barely growing and are actually declining in real terms. The core issue may be Russia's inability to extract sufficient resources from other sectors, which is more critical than selling oil at low prices. When the rule is reinstated, it will likely be revised to minimize the need to draw down reserves. At first glance, the government's measures seem strange, especially given the significant rise in oil prices since the Iran war. However, a closer look reveals the depth of Russia's financial crisis, making Moscow's efforts seem feeble and late. When the 2025 federal budget was passed with a record, but not exceptional, deficit of 5.6 trillion rubles ($67 billion), or 2.6% of GDP, the situation was not as bad as expected. Observers and analysts state that the figures from Russia's Ministry of Finance are inaccurate. It turned out that the deficit in the consolidated budget—which includes the federal budget deficit, the budgets of extrabudgetary government funds, and regional government budgets—jumped in 2025 from 1.7% of GDP to 3.9%. The regions faced a larger deficit, and extrabudgetary funds, which finance pensions and healthcare, shifted from a surplus to a deficit. Federal transfers, which previously covered one-fifth of regional spending, now cover only about 15%. Last year, as it has now become clear, Russia's public finances faced unprecedented difficulties for the first time since the start of the war in Ukraine. So what can be expected this year? Private data for early 2026 indicates the situation is worsening. In January and February of this year, total federal revenues amounted to 4.8 trillion rubles ($55.8 billion), while spending reached 8.2 trillion rubles ($95.36 billion). Nevertheless, most Russians already disagree with the claim that prices have stabilized. Most families have noticed that their shopping basket is steadily becoming more expensive while its quality and variety decline. Prices for imported electronics may seem stable, but only until the rubble weakens. As for public utilities, bills rose sharply in January, despite official denials. Pressure on Russia's finances has intensified to the point that even the rise in oil prices, driven by disruptions in the Strait of Hormuz, will not be enough to cover the growing budget deficit. Despite rising oil prices, Moscow is moving quickly to tighten fiscal policy, with officials and advisors to President Vladimir Putin beginning a new round of limited budget cuts, stricter preservation of dwindling reserves, and increased accountability per Kremlin directives. This will continue until October, when taxes and fees will be officially raised again. Raising taxes and fees is inevitable, and currently, Russian officials have decided to accelerate the pace of increasing indirect taxes on tobacco and carbonated drinks, but this is just the beginning. Cuts to already-approved spending are also increasing, of course, excluding military spending. Overall, this will likely slow, but not stop, the growth in federal spending. Moscow has begun a new cycle of limited budget cuts and stricter conservation of dwindling reserves. The government froze the 'budget rule,' designed to stabilize the ruble and protect the federal budget from oil price fluctuations. This shift began quietly. Three days before the start of the Iran war, Russian Prime Minister Mikhail Mishustin addressed the State Duma, hinting at a sharp, possibly unpopular, shift in economic policy. Mishustin did not announce this explicitly. Instead, using the carefully coded language typical of Russian officials, he responded to a question from Deputy Andrei Makarov, who asks probing questions. Makarov asked how the government is handling the deficit, and Mishustin replied that he and other senior officials had spent 'many, many hours' in discussion with the president to find the best solution. Such statements are never made by chance, and Mishustin's clear openness indicates that a difficult decision has already been made and approved at the highest levels and is therefore no longer up for discussion. 'Budget Rule' A few days later, details emerged that the government had frozen the so-called 'budget rule,' designed to stabilize the ruble and protect the federal budget from oil price fluctuations. Even accounting for inflation, the Russian government has made only limited progress in curbing spending. For the first two months of this year, this will amount to about 1.5 trillion rubles ($17.4 billion). Oil prices were low in January and February, so total oil and gas revenues were only 0.8 trillion rubles ($9.6 billion), half of last year's figure. The actual deficit is already approaching the annual target of 3.8 trillion rubles ($44.2 billion). Compared to the previous year, revenues have fallen sharply, while spending continued to rise. In February alone, gold and yuan worth three billion dollars were sold from the National Wealth Fund, about 6% of the fund's assets. Before the war in Ukraine, Russia's National Wealth Fund held assets equivalent to just over eight trillion rubles ($96.3 billion), half of which has been used. Of course, the government will not allow the fund to be exhausted entirely. But abandoning the 'budget rule' or keeping it nominally while sharply lowering the minimum threshold means weakening the ruble, and after a period, triggering a wave of inflation. For this reason, the authorities were not expected to abolish the rule until the fall, when the National Wealth Fund will have shrunk by half again, making any further delay impossible. However, the Russian president suddenly decided not to delay freezing the rule, especially amid a sharp drop in reserve sales. Even if this figure rises, spending on the war in Ukraine has exceeded forecasts every year since the war began in 2022. Rising Cost of Living By early March 2026, the rate of growth of the Russian money supply had already slightly exceeded that of 2025, but inflation takes time to accelerate. In 2026, it was expected that the share of oil and gas revenues would gradually decline to 22% even with a slight nominal increase. In reality, in the first two months of 2026, the share of oil and gas revenues was 17% of total revenues, and for the whole year, Finance Minister Anton Siluanov already expects it to be below 20%. Thanks to rising oil prices, the worst-case scenario for Russia is unlikely, but the deficit will certainly continue to rise due to the lack of non-oil and gas revenues. Oil no longer accounts for half of Russia's budget revenues. For example, if the Russian Urals blend is sold below the set price (around $60 per barrel), yuan (Chinese currency) and gold will be sold from the National Wealth Fund on the open market, and the proceeds will be used to cover the budget deficit. This is precisely what Moscow has been doing in the first months of this year. In 2025, oil and gas revenues of 8.5 trillion rubles ($102 billion) accounted for only 23% of total federal revenues.
