Russia is abandoning plans for a sharp downgrade to its 2026 growth forecast as the war in Iran boosts its oil revenue.
The Economy Ministry is now unlikely to significantly revise its projected 1.3% expansion in gross domestic product when it updates its macroeconomic outlook in April, according to three people familiar with the discussions.
The government no longer plans any substantial cuts to federal budget spending and may even increase defense outlays if the war in Ukraine drags on, the people said, asking not to be identified because the discussions aren’t public.
That marks a sharp reversal in sentiment from just a month ago, when the government was weighing a downgrade to about 0.7% to 1% in its growth forecast as tougher sanctions over the invasion of Ukraine and lower oil prices caused revenue to tumble. It was also discussing a cut to the oil price used in Russia’s budget rule, which governs how excess energy revenues are allocated, from the current $59 per barrel to as low as $45–$50 as it braced for a potential long period of cheap crude.
The US-Israel war on Iran upended those assumptions. Russia has emerged as a major beneficiary, as disruptions to Gulf flows through the Strait of Hormuz pushed oil above $100 a barrel. The rally lifted Russia’s flagship Urals crude to near a four-year high, while the US also eased some sanctions on Russian oil sales to help stabilize global supply.
“We expected the first half of the year to be difficult, and that’s exactly how it has turned out,” Economy Minister Maxim Reshetnikov told reporters on Friday, according to the Interfax news service. While the ministry will lower its 2026 GDP growth forecast in April, “much will depend on how a number of longer-term challenges are addressed,” he said.
An increase in Russia’s average Urals price to $75–$80 per barrel or higher this year would bring an additional 3–4 trillion rubles ($37-$49 billion) in oil and gas revenue, helping reduce the budget deficit to about 1% of GDP, said Natalia Milchakova, a senior analyst at Freedom Finance Global.
Even as Ukrainian drone strikes on Russia’s Baltic export hubs at Primorsk and Ust-Luga are undermining Moscow’s ability to benefit from the crude rally, officials see only a limited impact. Longer term, Russia is expected to benefit even if oil prices ease as its negotiating position with China, India and other major buyers has strengthened, with attitudes toward its energy supplies shifting in response to the Middle East war.
Russia has suspended its budget rule until at least June, Finance Minister Anton Siluanov said Thursday, according to Interfax. The country could still meet its 2026 budget parameters if favorable commodity market conditions persist, he said.
The situation is beneficial for Russia’s economy, according to Dmitry Polevoy, investment director at Moscow-based Astra Asset Management. “An additional budget deficit could arise only if the ruble is stronger than assumed in the budget,” he said.
Written by: Bloomberg News
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