The price of Russian Urals crude fell to an average of $37.50 per barrel in January as the Kremlin grappled with US sanctions and a more complicated trade relationship with India, The Telegraph reports.
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Robin Brooks, former chief economist at the Institute of International Finance, said Urals is now 42% cheaper than Brent, which is currently around $67 a barrel. The drop is a significant blow to Putin as he tries to fund his war effort against Ukraine using money from oil sales.
Previously, Russian oil exporters had mostly found ways to circumvent Western sanctions to prop up the economy and pay for the war. But after Donald Trump imposed sanctions on Russian oil giants Rosneft and Lukoil, the situation changed dramatically.
“If this continues, it will create big problems for Putin, as a key part of the strategy to keep the domestic economy afloat is to use high oil export revenues,” said analyst Steffen Dietel of Altana Wealth. “This has led to a significant reduction in Russian oil revenues, so the implications for the war in Ukraine are potentially significant.”
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Trump also said in early February that India had agreed to stop buying Russian oil in exchange for lower tariffs. Tanker tracking data showed that India's imports of Russian crude fell to 1.1 million barrels per day during the month, the lowest since November 2022.
In addition, in February the EU imposed its 20th package of sanctions against the Kremlin since its invasion of Ukraine. The measures range from price caps by G7 countries to a complete ban on sea shipments of Russian crude oil.
Experts expect that Urals oil prices will likely continue to fall for the rest of this year “due to fundamental factors that will lead to a decline in oil prices worldwide.” However, they add: “The current financial situation in Russia does not seem to be serious enough to force Putin to scale back the war effort in Ukraine.”
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Meanwhile, experts predict a “perfect storm” for the Russian economy in the near future.