Approximately 39 percent of Russia’s total federal spending in 2024 (14 trillion rubles or 157.5 billion dollars) will be allocated to defense and law enforcement.
Russia’s road to Chinese vassalage: Oil and gas revenue is down by 65 percent. Less than 10 percent of Russian oil is paid for in dollars
“Russia had spent 10.8 trillion rubles last year or 29.5 billion rubles every day on the war in Ukraine.” Konstantin inside Russia
Today, we will take a look at Russia’s finances and its increasingly uneven mercantilist relationship with China and India.
The economic data we get from Russia is limited and incomplete. Russia has stopped collecting specific data several sectors of its economy. This is a part of Moscow’s information warfare.
This data looks at official income and expenditure figures are published by Russia every month
Compared to 2021, Russia’s oil and gas revenue have crashed by 65 percent. In the same time period Russia’s expenditure went up by 34 percent compared to 2021.
India and China refuse to pay them in rubles for its oil, coal, and gas
Russia offers large discounts to China and India. In return for their oil, Russia receives worthless Indian rupees and semi worthless Chinese Yuan. Russia was once Europe’s main energy partner. Russia is turning into China’s resource vassal. Putin remains a master strategist.
“I compare the Russian economy to the Titanic. After the collision the people didn’t feel much, but the damage was done. It took the passengers 30 minutes to notice what is happening. Something similar happens to the Russian economy.” Konstantin Inside Russia
This data was published on the 9th of November. The data is from the period of the first of January to the 31st of October 2023
- Russian oil and gas revenue in billions of Ruble
Compared to 2021, there is a shortfall in revenue of 13.2 trillion Ruble. This equates to a reduction of 147 billion dollars or 65 percent in revenue.
In 2022, Russia’s non oil and gas revenue were 8.507 trillion rubles, and in 2023, this revenue has been 7.2 trillion rubles, or 83 billion dollars thus far.
2. Non oil and gas revenue
There was an increase in non oil and gas revenue of 3.5 trillion rubles or 39 billion dollars from 2021 to 2022. That’s an increase by 29 percent.
In 2023, this non oil and gas revenue saw a further increase to 7.3 trillion rubles or 81 billion dollars. That means the non oil and gas revenue figure has more than doubled since 2021.
The Kremlin fails to explain how this increase in non oil and gas revenue was achieved
One explanation could be the war economy. In my opinion, Russia is covering up a gaping hole in its budget. Dictatorships don’t hide good news unless there aren’t any to report.
“There are three types of lies — lies, damn lies, and statistics.” Benjamin Disraeli
3. Total Russian revenue (for the first ten months of 2023)
The total revenue was 23.1 trillion rubles or 257 billion dollars. That’s a 4 percent or 1 trillion ruble increase compared to 2022.
In 2021, the total revenue was 27.7 trillion rubles or 308 billion dollars
The total revenue has dropped 50 billion dollars in a 2 year period. As Russia doesn’t provide any details, the spike in non oil and gas revenue remains a mystery. There is a good chance that the drop in revenue is even worse in reality.
4. Russian expenditure (first ten months of 2023)
Russian expenditure was sitting at 24.3 trillion rubles or 270 billion dollars for the first ten months of 2022. This translates into an increase of 2.6 trillion rubles or 12 percent compared to 2022. Compared to 2021 that’s an increase of 70 billion dollars or 34 percent in total expenditure.
The graph shows an uptick in the orange line for the last few months of the year. The pattern might be similar for this year.
5. Russia's net profit and net deficit
Let’s have a look at Russia’s net profit/net deficit.
In 2021, Russia reported a profit for every single month of the year.
In 2022, Russia had a large deficit of 3.3 trillion rubles.
In 2023, every single month thus far has shown a net deficit.
Russian expenditures are bound to rise in the last two months of the year. Russia will likely have to deal with an even bigger deficit in 2023.
Comparing the data of 2021 to 2023 shows that Russia’s oil and gas revenue is 65 percent lower today than it was 2 years ago.
The US has recently sanctioned three companies that didn’t enforce the price cap. This won’t help Russia in recovering its lost revenue. Two of these companies are based in the UAE and one in Liberia.
“Enforcement of the price cap on Russian oil is a top priority for the United States and our Coalition partners,” Treasury Deputy Secretary Wally Adeyemo
The sanctions had a devastating impact on Russia’s oil industry. In response, Russia pivoted its business towards India and China
Russia faces problems with India and China. The discounts that was offering have been narrowing over time. Currently, Russia is selling their oil in between 10 to 15 dollars per barrel under the market price.
Russia had announced several production cuts. In total, these cuts amount to 800.000 barrels of oil per day
Currently, Russia receives 62 dollars per barrel. Russia’s voluntary production cuts have resulted in serious income losses. The reasons for these cuts might be an attempt to keep the prices up, or Russia may be facing production problems. The other explanation could be that Russia faces difficulties in finding new markets for its oil.
Russia cannot store all of this oil and Russia produces more oil than it can sell
Turning the taps off can be a dangerous idea. Russia has lost access to Western technology and Western partners. Stopping the flow of oil might cause the pipelines to burst as the oil could turn into gel in the perm frost.
Putin has had to add 600 ocean tankers to Russia’s shadow fleet in just one year, at a cost of at least $2.25 billion—a cost that is still rising as ships are retired and replaced Sonnenfeld Yale Insights
This happened in the early 90s, and it took the West and Russia 20 years to fully repair the damage.
Russia is currently switching to a war economy. This provides a short-term boost in production and of industrial output in certain industries
Russian expenditure is up by 35 percent compared to 2021. Expenditures will likely rise even further in 2024. There are lots of moving parts. The bottom line is that Russia will post another massive net deficit in 2023. Putin is cannibalizing the Russian economy to fuel his insane genocidal war.
Putin has delivered Russia right into the fangs of China
The Chinese hold an ever larger sway over the Russian economy. Apart from oil and gas purchases. The Russians owe China roughly 300 billion in BRI loans. Entire industries such as the automotive sector are gradually taken over by Chinese companies.
Car production has collapsed in Russia. Most of Russia’s news cars are produced and exported by China.
China controls large segments of Russia’s car market. Prior to the invasion, Chinese cars accounted for less than 10 percent of the Russian market. This summer, Chinese car sales have peaked at almost 56 percent.
Russian car production has collapsed since the full scale invasion. China is rebooting this production now. The sector employs roughly 1 million people
2018: 1,767,674 vehicles production ranked 13th worldwide
2021: 1.6 million vehicles production Ranked 11th worldwide
2022: 450.000 vehicles produced ranked 24th worldwide
2023: 355k passenger cars from January to September 2023
Russia pays China in Yuan for its oil with a weak Ruble. Russia must buy Chinese goods and services with Yuan at a premium price
Russia pays India in Rupees. Russia can’t use most of this currency due to a lack of imports from India. The balance of power in this relationship is shifting in India’s favor.
The Ruble is collapsing because nobody wants to deal with Russian ruble
The Ruble has bounced back recently due to the implementation of capital controls by the Russian Central Bank. In reality, its value is almost irrelevant. India wants to be paid in Rupees. Even the Chinese in Yuan are almost useless for Russia. Generally, Russia exports far more than it imports from both India and China.
The Russian Central Bank complains that this revenue in non convertible currency has little value outside of India
Lately, freight costs to India have doubled to over 8 .7 million dollars up from 4.2 million in early October. These problems have affected deals with China Turkey and African countries. Saudi Aramco puts the breakeven cost for drilling Russian oil at 44 dollars per barrel.
This breakeven point is twice as high as that of the UAE, Saudi Arabia, Iran, and other major oil producers
Yale researcher Sonnenfeld explains that the oil sanctions put an extra cost of 36 dollars on every barrel of Russian oil. Russia would have to sell their oil for around 80 dollars a barrel to make a profit.
Currently, India is importing more from Russia, while Russia is importing more from China
The trade deficit between Russia and India is widening to 28.4 billion dollars from 17 billion dollars last year. The trade deficit with China is also widening.
China wants Russia to pay in Yuan or UAE Dirham
China is Russia’s largest crude oil, the largest export market. Russia has one pipeline and 4 train routes in place towards China. The BAM has been attacked recently. Since December of last year, oil exports to China made up 52 percent of Russia’s oil revenue, which equates to 50 billion dollars.
China’s share in buying Russian coal makes up 45 percent of Russia’s exports or 10 billion dollars. China buys 7 billion dollars worth of oil products and 6+3 billion dollars worth of pipeline/LNG gas.
Russia exported 76 billion dollars worth of fossil fuels to China in 2023.
India is also very important for the Russian crude oil export business
In the last 11 months, around 34 percent of Russian crude oil exports worth 35 billion dollars went to India.
Russia has exported 5 billion dollars worth of coal, which accounts for 18 percent of the total coal export revenue.
Russia has also exported 2.5 billion dollars in refined oil products.
That gives us a total of 42.5 billion dollars in exports that went to India.
There was almost no natural gas exported for a lack of pipelines to India
Russian exports to India and China combined amout to 118.5 billion dollars. This equates to 47 percent of all of Russia’s exports. Russia was paid by their customers in their local currencies.
China pays Russia 460 Chinese Yuan per barrel of crude oil. Twelve months ago, the same barrel would have earned Russia 679 Yuan. This represents a fall in earnings by 32 percent.
Russia receives less revenue due to the weaker Ruble
The same goes for the Russian ruble compared to the Indian Rupee. 12 months ago, the Russian Ruble was stronger than the Rupee. Since June 2023, the Rupee is slightly stronger than the Ruble.
India pays 5300 rupees for one barrel of crude oil. Twelve months ago, Russia would have earned Russia 7700 rupees per barrel
That’s a fall in value by 45 percent. Russia’s problem is twofold.
Firstly, they receive less revenue due to the de-valuation of the Ruble.
Secondly, rupees can only be used to trade with India. Both India and China charge Russia high premiums if they want to exchange their currency for any Indian or Chinese made goods.
Summary and Conclusion
On paper, Russia seems to have bypassed the sanctions. China and India demand payment in Rupees and Yuan. This shows who dictates the terms to whom. China also renames cities alongside the Russian border. That is another sign that things aren’t going according to plan.
The value of the ruble has gone downhill since 2022
Russia faces a huge trade surplus, and both China and India store large amounts of Russian cash in their Central Bank
Russia’s purchasing power is diminishing. The move to Asia would require infrastructure that would take a decade to build.
Nobody wants to have these fringe currencies. In theory Russia’s plan may look great. In reality, turning these strongly regulated rupees and yuan into useful cash is not going to happen.
The devil is in the details
Russia remains the master of short-term solutions with detrimental mid to long-term consequences. The West must plug the many sanction loopholes by putting pressure on Russia’s new customers, which continue to fund this genocidal war. Putin needs hard cash to fuel his war economy. We must redouble our efforts and we must stop feeding this monster.
Russia’s increased military spending means we must urgently increase our own spending as well
We shouldn’t underestimate Russia. Russia is all in. Putin may not win on the battlefield, but he may still win by the stroke of a pen. The Russian regime will go to any length to wipe Ukraine off the map. This continued Russian genocide will include the killing and deportation of Ukrainian civilians. Russia won’t stop, unless we stop them.
“How did you go bankrupt?” Bill asked.
“Two ways,” Mike said. “Gradually and then suddenly.”
Ernest Hemingway, The Sun also rises
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“Russiae Imperium delendum est”
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