Russia Ramps Up Spending Ahead of Windfall From Middle East War

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(Bloomberg) — Russia stepped up spending in March in anticipation of a surge in revenue from the jump in oil prices caused by the war in the Middle East.

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Spending in March rose 44% from a year earlier, following a 16% increase in February, according to Bloomberg calculations. The deficit was 1.1 trillion rubles in March.

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The deficit for the first quarter was 4.6 trillion rubles ($58.6 billion), exceeding the 3.8 trillion-ruble target for the full year, according to Finance Ministry data published on Wednesday. 

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The budget deficit widened because the higher oil prices recorded over the last month will boost revenues only from April. Government spending is typically heavy in the early months of the year, with payments for contracts front-loaded, especially amid its ongoing invasion of Ukraine.

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Oil tax revenue in March dropped by nearly half from a year earlier. Taxes are calculated with a one-month lag to market prices for Urals, Russia’s main export blend. In February, Urals averaged below $45 a barrel, according to government data, well under the $59 a barrel assumed in the country’s 2026 budget. Prices were under pressure as the remaining buyers of Russian crude demanded steep discounts amid ongoing energy sanctions, while a stronger ruble also weighed on revenues.

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But after the Mideast war led to a spike in global prices, the figure used to calculate taxes payable in April has been set at $77 a barrel, according to the Economy Ministry, pointing to a sharp increase in budget receipts this month.

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The windfall may amount to around 0.9 trillion rubles, more than offsetting the 0.6 trillion ruble revenue shortfall in the first quarter, analysts at Alfa-Bank in Moscow said. Ukrainian strikes on Russia’s Baltic Sea export infrastructure may reduce its ability to benefit from the spike in prices.

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Even higher revenues are unlikely to fully allay concerns over the budget deficit, analysts said.

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Russia had planned to limit military spending this year, even as it remains a top budget priority. But economists and officials have questioned the feasibility of that goal, given the lack of progress in peace talks with Ukraine.

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President Vladimir Putin, while showing no sign of scaling back his military ambitions, has warned the government against squandering additional revenues unexpectedly generated by Donald Trump’s confrontation with Iran.

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“There may be a temptation to take advantage of the situation, to receive windfall revenues and, so to speak, to spend them away,” Putin said on March 26. “We must remain prudent.”

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