Investment Impact Analysis of Russia's Widening Budget Deficit

According to the latest data, Russia’s fiscal situation deteriorated significantly in 2025, which has had a profound impact on the global energy market and the credit risk of Russian government bonds. The following is a systematic investment analysis:

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According to data from the Russian Ministry of Finance, the 2025 Russian federal budget deficit reached

, accounting for , the highest level since 2020 [0]. This figure deviates significantly from the Russian government’s initial target of 0.5% of GDP, reflecting a sharp rise in fiscal pressure [1].

Indicator	Value	Year-on-Year Change
Total Expenditure	42.93 trillion rubles	+6.8%
Total Revenue	37.28 trillion rubles	+1.6%
Deficit Scale	5.65 trillion rubles	Substantial Expansion

In 2025, Russia’s

[0], and this decline is the direct cause of the widening budget deficit. The main factors contributing to the drop in oil and gas revenues include:

• Sharp Drop in Oil Prices
  : The average price of Urals crude oil in November 2025 was only $44.87 per barrel, a 16.5% decrease from October [2]
• Sanctions Effects Emerge
  : In October 2025, the U.S. imposed sanctions on Rosneft and Lukoil, Russia’s two largest oil companies, which together account for approximately half of Russia’s oil production and exports [2]
• Widening Price Discounts
  : Due to stricter sanctions enforcement, the discount on Russian crude oil relative to Brent crude oil has further expanded

Despite the Russian government adopting multiple revenue-increasing measures, including raising the corporate income tax rate from 20% to 25% and introducing a progressive personal income tax (with a top rate of 22%),

[0]. However, this growth still cannot offset the sharp decline in oil and gas revenues.

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According to the latest forecast from the U.S. Energy Information Administration (EIA):

Time Period	Average Price of Brent Crude Oil
2025	$69 per barrel
2026 (Forecast)	$56 per barrel
2027 (Forecast)	$54 per barrel [3]

• Global oil prices are expected to continue declining in 2026-2027, mainly driven by global production growth outpacing consumption growth [3]
• The EIA forecasts that OPEC+ production in 2026 will be approximately 900,000 barrels per day below the target, with Russia’s production decline due to sanctions being the main contributing factor [3]
• Despite facing sanctions, Russia maintains exports through channels such as “shadow fleets” and third-country processing, reducing the effectiveness of sanctions [4]

• Russia’s pipeline natural gas exports to the EU fell by 45% year-on-year in 2025, as natural gas pipelines transiting Ukraine completely ceased operations in 2025 [4]
• The EU’s LNG imports from Russia also fell by 13% [4]
• The cumulative loss of Russia’s natural gas export revenues is estimated to reach
  160 billion euros
  during 2025-2030 [5]

Investment Target	Strategy Recommendation	Risk Warning
Oil and Gas Upstream Stocks	Wait-and-See/Underweight	Sustained downward pressure on oil prices
Russian Energy Stocks (e.g., Gazprom, Rosneft)	Avoid	Sanction risks, liquidity constraints
Emerging Market Energy-Importing Countries	Focus on India, China	Potential access to cheaper Russian oil
Alternative Energy/Renewable Energy	Long-Term Positive	Accelerated energy transition

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As of now,

:

• Fitch Ratings
  : Revoked on March 25, 2022 [6]
• Moody’s Investors Service
  : Revoked [6]
• S&P Global Ratings
  : No rating provided [6]

This means that Russian government bonds no longer have official credit evaluations in the international mainstream rating system.

Risk Indicator	Value	Risk Assessment
3-Year Government Bond Yield	14.6% [7]	Elevated
Key Interest Rate of the Central Bank of Russia	16.0% [8]	Extremely High
Sovereign Default Risk Index	High	High risk tracked by CFR [9]
Predicted CDS Spread	~1000bps	Extremely High Credit Risk

Widening Budget Deficit → Increased Financing Needs → Rise in Domestic Lending Rates →
Increased Debt Servicing Pressure → Rising Tendency for Monetary Financing → Inflation Risk →
Pressure for Ruble Depreciation → Increased Real Debt Burden → Rising Default Risk

• Russian sovereign bonds have been excluded from major international bond indices (including the Bloomberg Global Aggregate Index) [10]
• The proportion of Russian government bonds (OFZ) held by foreign investors has dropped significantly, limiting market liquidity
• Western countries have frozen approximately $300 billion of Russia’s foreign reserves, restricting its external financing capacity

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Risk Type	Level	Transmission Mechanism
Sovereign Credit Risk	Extremely High	Rating revocation, elevated yields, sanctions isolation
Currency Risk	High	Ruble volatility, central bank’s high interest rates
Liquidity Risk	High	Foreign capital withdrawal, capital market sanctions
Energy Price Risk	Medium-High	Uncertainty of Russian oil supply
Geopolitical Risk	Extremely High	Sustained conflict, potential for sanctions escalation

• ❌ Russian government bonds (OFZ)
• ❌ Stocks and bonds of Russian energy companies
• ❌ Ruble-denominated assets
• ❌ European banks with significant business exposure to Russia

• ✅ Assets related to countries such as India and China that have access to cheaper Russian oil
• ✅ Shipping stocks benefiting from the restructuring of energy trade routes
• ✅ Alternative energy investments (strengthened long-term logic)
• ✅ Increased allocation value of safe-haven assets (U.S. dollar, gold)

Scenario	Probability	Trigger	Investment Implication
Base Scenario	55%	Sustained sanctions, moderate oil price decline	Russia’s fiscal situation deteriorates slowly, risky assets come under pressure
Optimistic Scenario	15%	De-escalation of conflict, lifting of sanctions	Oil and gas revenues recover, value of Russian bonds rebounds
Pessimistic Scenario	30%	Sanctions escalation, sharp oil price crash	Russia may face debt restructuring or default risks

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Russia’s 2025 budget deficit widened to 2.6% of GDP, the most direct manifestation of fiscal pressure since the Russia-Ukraine conflict.

[0].

1. Russian Government Bonds Are High-Risk Assets
   : Given the revoked ratings, elevated yields (14.6%), and capital market isolation caused by sanctions, investors are advised to avoid Russian government bonds and related credit exposures.
2. Global Energy Prices Under Pressure but Divergent
   : Short-term oil prices are under pressure due to oversupply, but the geopolitical premium has dropped significantly. In the long term, uncertainty about Russia’s energy supply may support price fluctuations in certain periods.
3. Monitor Sanctions Transmission Effects
   : Russia is evading sanctions through third-country transshipment and “shadow fleets”, but the implementation costs are rising, which may marginally support some oil prices.
4. Recommendations for Asset Allocation Adjustment
   : Against the backdrop of escalating geopolitical risks, it is recommended to increase allocations to safe-haven assets such as gold and the U.S. dollar, and reduce exposure to Russian assets and European assets significantly affected by sanctions.

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[0] Trading Economics - Russia Government Budget Value (https://tradingeconomics.com/russia/government-budget-value)
[1] RAND Corporation - The Russian Federal Budget 2025-2027 (https://www.rand.org/content/dam/rand/pubs/perspectives/PEA3800/PEA3854-1/RAND_PEA3854-1.pdf)
[2] NEST Centre - What awaits Russia’s economy in 2026 (https://nestcentre.org/the-price-of-stability-what-awaits-russias-economy-in-2026/)
[3] U.S. Energy Information Administration - Short Term Energy Outlook (https://www.eia.gov/outlooks/steo/report/global_oil.php)
[4] Centre for Research on Energy and Clean Air - December 2025 Monthly Analysis (https://energyandcleanair.org/december-2025-monthly-analysis-of-russian-fossil-fuel-exports-and-sanctions/)
[5] Ifri - Europe-Russia Balance of Power Review (http://www.ifri.org/en/studies/europe-russia-balance-power-review)
[6] Wikipedia - List of countries by credit rating (https://en.wikipedia.org/wiki/List_of_countries_by_credit_rating)
[7] Russia Matters - Russia-Ukraine War Report Card (https://www.russiamatters.org/news/russia-ukraine-war-report-card/russia-ukraine-war-report-card-jan-14-2026)
[8] Global Property Guide - Russia’s Residential Property Market Analysis 2026 (https://www.globalpropertyguide.com/europe/russia/price-history)
[9] CFR - Sovereign Risk Tracker (https://www.cfr.org/tracker/cfr-sovereign-risk-tracker)
[10] Bloomberg - Fixed Income Index Methodology (https://assets.bbhub.io/professional/sites/10/Bloomberg-Index-Publications-Fixed-Income-Index-Methodology.pdf)