$ 30 that will bring peace. Why the marginal prices for oil is a powerful weapon against Putin
It became known when the Russian government published a revised budget of the country for 2025, which shows the increasing expenses for the war of Russian President Vladimir Putin with Ukraine. Europe and the US now have to take advantage of this and increase the economic costs for Russia by closing loopholes for sanctions. In doing so, they will be able to accelerate the end of the war in favor of Ukraine or, at least, encourage Putin to serious negotiations on peaceful settlement.
The devil of the Russian problem is hidden in the details of the published national budget. Careful study of Putin's plans for the costs of the next year shows that the Kremlin intends to spend $ 145 billion in defense of approximately $ 436 billion government expenditures. 6. 3 percent of Russia's GDP - instead the NATO control indicator is 2 percent - the highest level of Moscow's military expenditures since the Cold War.
And the bad news for Putin: his technocrats actually hid the full cost of his invasion of Ukraine. All the annual budgets have been scattered with additional payments related to the war, including the salary that Moscow pays to workers in illegally occupied regions of Ukraine, health care of wounded soldiers, disassembly of blockages, infrastructure repair and undoubted "secret" costs.
If you make all these costs, the real military burden on the Russian economy approaches a stunning 10 percent of GDP. The simple truth is that the Russian government does not receive enough money to cover these costs associated with war. The Kremlin is forced to work with a deficit - and last year it has already planted about $ 34 billion. This gives the event an opportunity. For most governments, budget deficits are quite overwhelming, but Russia is not a regular country.
Due to Western sanctions, Moscow cannot balance its financial statements at the expense of international loans and is forced to pay to domestic creditors excessively high interest-up to 16 for 10 years. These are overwhelming expenses. It is even more dangerous that the Putin technocrats are devastating the Russian National Welfare Fund (FND), launched on a "rainy day".
Under normal conditions, the FND of Russia has two goals - to maintain excess tax revenues in good times and to insure from low oil prices when things go bad. But lately, the Kremlin has been exhausting the fund to pay its war. In 2021, the Fund's liquidity amounted to $ 117 billion, while today - only $ 55 billion. If the FND is ever exhausted, Moscow will have to choose from many bad options to melt the financial stoves of its military machine.
Such options include increasing taxes on the Russian elite and the middle class, increasing the amount of borrowing, printing rubles that are worthless, and it is possible to reduce social subsidies and social payments that help keep the population in humility. The Ministry of Finance already uses these options in one way or another, trying not to cause serious public resonance.
If he has to resort to large borrowing, raising taxes, printing a ruble and reducing assistance, it promises risks to the stability of the regime. Let's look at the subsidies that Moscow pays to maintain calm in their troubled regions. These payments are crucial in places such as Chechnya, where the field commander Ramzan Kadyrov manages the territory as a de facto client state within Russia.
In the event of failure to receive money from Moscow, Kadyrov warned: "We will not be able to last three months - even a month. " It is a vulnerable place that Europe and the US should take advantage of. And the fastest way to do this is to reduce the "G7 marginal prices" for export of Russian oil. The EU is first proposed as a tool for Moscow's income, the G7 price limit actually gives Russia a serious loophole for sanctions.
In its current form, while it sells oil at a price of $ 65 per barrel, the Kremlin can receive as long as income without any sanctions. Moscow receives about $ 9 billion in the form of tax revenues every month, including about $ 1 billion from the EU. And every billion that the Kremlin receives from the sale of energy is a billion that it does not need to withdraw from the FND to balance his budget, support the regime and pay the war against Ukraine.
It is time to twist the financial nuts of Russia by reducing the oil "ceiling" to $ 30 per barrel - that is, to approximately the level of real costs of Russia for production - and to increase sanctions against illegal oil buyers in China, India and Turkey for Europe and for the USA . This should be one of the main priorities when European leaders sit at the negotiation table with the next US administration. Such a blow to Putin's financial weaknesses will help Ukraine win.