Russia’s flagship Urals crude is trading at its steepest sustained discount to international benchmarks since the early phase of the full-scale invasion of Ukraine, squeezing Moscow’s oil revenues just as military and security spending reaches a post-Soviet high.
By mid-November, Urals loaded at the Black Sea port of Novorossiysk was changing hands at about $36.6 a barrel, roughly $23.5 below North Sea Brent – the widest gap since March 2023, according to Argus data cited by Bloomberg. New US sanctions on state oil champion Rosneft and private giant Lukoil have further depressed prices, with the US Treasury estimating that Urals briefly fell to around $45.35 a barrel on 12 November as major Indian and Chinese buyers delayed or suspended purchases.
At the same time, Ukraine has opened a new front against Russia’s oil logistics in the Black Sea. Naval drones have struck two sanctioned “shadow fleet” tankers, Kairos and Virat, as they sailed empty towards Novorossiysk to load Russian crude, causing fires on board. Separate Ukrainian drone and naval strikes have repeatedly disrupted operations at export terminals around Novorossiysk and Tuapse, including the Caspian Pipeline Consortium’s marine terminal, temporarily halting loadings and forcing tankers out of the harbour.
These attacks come on top of tightening Western measures against Russia’s “shadow fleet” of ageing tankers used to move sanctioned oil, which have raised insurance costs and financing risks along key routes. Australia, for example, has recently sanctioned an additional 45 vessels linked to the fleet, bringing its list to 200 ships.
Higher operational risk, longer routes to Asia and higher insurance premia are eroding Russia’s netback – the price received at the export terminal after costs. Analysts note that while Indian refiners may see delivered Urals cargoes in the mid-$50s per barrel, a growing share of that margin is absorbed by intermediaries, shipowners and insurers, leaving Russia with something close to the mid-$30s to low-$40s per barrel at the point of export – in some cases only a little above estimated average production costs.
India and China, now the principal buyers of Russian seaborne crude, have leveraged this position to demand steeper discounts. Trade and customs data compiled by researchers point to buyer discounts in the mid-teens to low-$20s per barrel in some recent months, compared with discounts of around $12–13 before the latest sanctions wave. At the same time, Indian purchases of Russian crude have eased from their 2023–24 peaks amid US diplomatic pressure and greater competition from other medium-sour grades.
The pricing shift is feeding directly into the Russian budget. Oil and gas taxes still account for roughly a quarter of federal revenues. Moscow’s 2025–26 fiscal plans were drawn up on the assumption of Urals averaging around $56–59 a barrel, but rouble-denominated oil prices have repeatedly undershot those assumptions: in March, the finance ministry reported that the average rouble price per barrel was about 24% below the budgeted level.
The result has been a marked decline in hydrocarbon takings. In October, Russia’s oil and gas budget revenues fell 27% year-on-year to 888.6 billion roubles, with receipts for the first ten months of 2025 down 21% compared with the same period in 2024. The central bank and finance ministry have both warned that if current price and discount levels persist, oil and gas income over 2025–26 could end up around 30% below what the budget envisages.
Corporate results mirror this pressure. Rosneft, Russia’s largest oil producer and a key taxpayer, reported that its net income for January–September 2025 fell 70% year-on-year to 277 billion roubles, down from 926 billion roubles a year earlier. Revenue declined 17.8% to 6.29 trillion roubles, while EBITDA dropped 29% to 1.64 trillion. Profitability deteriorated over the year: quarterly net income fell from 170 billion roubles in the first quarter to 32 billion roubles in the third. The company cited lower oil prices, a stronger rouble, high interest rates and increased security expenditure as key factors.
At the macro level, Russia is responding to weaker energy revenue by adjusting its fiscal framework and drawing more heavily on reserves and domestic borrowing. In September the finance ministry announced changes to the “budget rule”, lowering the oil price threshold above which excess revenues are saved, in an effort to stabilise finances and reduce the share of energy in overall income.
At the same time, spending on the armed forces and internal security continues to rise. Defence and security together are projected to account for around 38–41% of federal expenditure in 2025–26 – roughly 16.8–17 trillion roubles, or about $200 billion at current exchange rates – a record share in the post-Soviet era. This has come at the expense of social and economic programmes, whose combined share has fallen to multi-year lows.
Taken together, the combination of sanctions on major producers and shipping, deepening discounts on Urals, targeted Ukrainian strikes on export infrastructure and tankers, and structurally higher security and logistics costs is compressing Russia’s oil margin. The sector continues to move substantial volumes, but at lower net prices and with increased operational risk.
Analysts generally argue that the immediate threat is not an abrupt halt to exports but a gradual erosion of fiscal space. If oil prices and discounts remain at current levels while war-related spending stays elevated, Russia is likely to face persistent budget deficits, greater reliance on domestic borrowing and reserve drawdowns, and pressure to further adjust its tax and spending mix. The sustainability of Moscow’s war-time economic model will depend on how long that combination endures – and how much more of the oil rent global buyers are able, or willing, to capture.
India’s tightrope on Russian oil as Modi hosts Putin in New Delhi
