Oil exports have been a cash cow for Russia. But revenues are dwindling, thanks to sanctions

Oil and gas exports have sustained Russia's finances throughout its war against Ukraine. But as the fourth anniversary of the full-scale invasion approaches, those cash flows have suddenly dwindled to lows not seen in years.

It's the result of new punitive measures from the U.S. and the European Union, U.S. President Donald Trump's tariff pressure against India, and a tightening crackdown on the fleet of sanctions-dodging tankers carrying Russian oil.

The drop in revenue is pushing President Vladimir Putin to borrow from Russian banks and raise taxes, keeping state finances on an even keel for now.

But those measures only increase strains in a war economy now plagued by slowing growth and stubborn inflation.

In January, Russian state revenues from taxing the oil and gas industries fell to 393 billion rubles ($5.1 billion) That’s down from 587 billion ($7.6 billion) in December and from 1.12 trillion ($14.5 billion) in January 2025. That's the lowest since the COVID-19 pandemic, says Janis Kluge, an expert on the Russian economy at German Institute for International and Security Affairs.

To pressure the Kremlin to halt fighting in Ukraine, the Trump administration imposed sanctions on Russia’s two largest oil companies, Rosneft and Lukoil, from Nov. 21. That means anyone buying or shipping their oil runs the risk of being cut off from the U.S banking system — a serious concern for any multinational business.

On top of that, on Jan. 21 the EU began banning fuel made from Russia crude — meaning it could no longer be refined somewhere else and shipped to Europe in the form of gasoline or diesel fuel.

The head of the EU's executive commission, Ursula von der Leyen, on Friday proposed a full ban on shipping services for Russian oil, saying sanctions offered leverage to push Russia to halt the fighting. “We must be clear-eyed: Russia will only come to the table with genuine intent if it is pressured to do so," she said.

The latest sanctions are a step beyond the oil price cap imposed by the Group of Seven democracies under the Biden administration. The $60 per barrel cap, enforced through insurers and shippers based in G-7 countries, was aimed at reducing Russia’s profits, not banning imports, out of concern over higher energy prices.

The cap did reduce government oil revenues temporarily, especially after an EU ban on most Russian seaborne oil forced Russia to shift sales to China and India. But Russia built a “shadow fleet” of aging tankers operating beyond the reach of the cap, and revenues rose again.

Trump on Feb. 3 agreed to lower tariffs to 18% from 25%, saying Indian President Narendra Modi agreed to halt Russian crude imports, and on Friday removed an additional 25% tariff imposed over continued imports of Russian oil.

Modi hasn’t commented. Foreign affairs spokesman Randhir Jaiswal said India's strategy was “diversifying our energy sourcing in keeping with objective market conditions.” Kremlin spokesman Dmitry Peskov noted that Moscow was monitoring the statements and remains committed to our “advanced strategic partnership” with New Delhi.

In any case, Russian oil shipments to India have declined in recent weeks, from 2 million barrels per day in October to 1.3 million per day in December, according to figures from the Kyiv School of Economics and the U.S. Energy Information Administration. Data firm Kpler says “India is unlikely to fully disengage in the near term" from cheap Russian energy.

Ukraine's allies increasingly have sanctioned individual shadow tankers to deter customers from taking their oil — raising the number to 640 among the U.S., U.K. and EU. U.S. forces have seized vessels linked to sanctioned Venezuelan oil, including one sailing under a Russian flag, while France briefly intercepted a suspected shadow fleet vessel. Ukrainian strikes have hit Russian refineries, pipelines, export terminals and tankers.

Buyers are now demanding bigger discounts on Russian oil to compensate for the risk of running afoul of U.S. sanctions and the hassle of finding payment workarounds that skirt banks reluctant to touch the transactions. The discount widened to about $25 per barrel in December, as Russia's primary crude export, Urals blend, fell below $38 per barrel, compared with about $62.50 per barrel for international benchmark Brent crude.

Since Russia’s taxes on oil production are based on the price of oil, that cuts into state revenues.

"It’s a cascading or domino effect,” said Mark Esposito, a senior analyst focused on seaborne crude at S&P Global Energy. Including diesel and gasoline created “a really a dynamic sanctions package, a one-two punch that are impacting not only the crude flow, but the refined product flow off of those barrels. ... A universal way of saying, if it’s coming from Russian crude, it’s out.”

Reluctance to take delivery has meant an inordinate amount — about 125 million barrels — has built up in tankers at sea. That has driven up costs for scarce capacity, with rates for very large oil tankers reaching $125,000 per day “and that’s directly correlated with the ramifications of the sanctions,” said Esposito.

On top of that, economic growth has stalled as the boost from war-related spending reaches its limits and as labor shortages put a cap on potential business expansion. And lower growth means less tax revenue. Gross domestic product increased only 0.1% in the third quarter. Forecasts for this year range between 0.6% and 0.9%, down from over 4% in 2023 and 2024.

“I think the Kremlin is worried about the overall balance of the budget, because it coincides with the economic downturn,” said Kluge. “And at the same time the costs of the war are not decreasing.”

The Kremlin has resorted to higher taxes and borrowing to fill the gap left by dwindling oil revenues and by slower economic growth. The Kremlin-controlled parliament, the Duma, raised value-added tax paid on consumer purchases at the cash register to 22% from 20% and increased levies on car imports, cigarettes and alcohol. The government has increased its borrowing from compliant domestic banks. And a national wealth fund still has reserves to patch budget holes.

So the Kremlin has money — for now. But raising taxes can slow growth even more. And borrowing risks worsening inflation, brought down to 5.6% through interest rates of 16% from the central bank, down from a peak of 21%.

"Give it six months or a year, and it could also affect their thinking about the war,” said Kluge. “I don’t think they will seek a peace deal because of this, but they might want to lower the intensity of the fighting, focus on certain areas of the front and slow the war down. This would be the response if it’s getting too expensive.”

FILE - An oil tanker is moored at the Sheskharis complex, part of Chernomortransneft JSC, a subsidiary of Transneft PJSC, in Novorossiysk, Russia, on Oct. 11, 2022. (AP Photo, File)

FILE - Reservoirs seen at Priobskoye oil field near Nefteyugansk, in western Siberia, Russia, on April 5, 2006. (AP Photo/Misha Japaridze. File)

TEL AVIV, Israel (AP) — Prime Minister Benjamin Netanyahu is heading to Washington on Tuesday to encourage President Donald Trump to expand the scope of high-stakes nuclear talks with Iran. The negotiations resumed last week against the backdrop of an American military buildup.

Israel has long called for Iran to cease all uranium enrichment, dial back its ballistic missile program and cut ties to militant groups across the region. Iran has always rejected those demands, saying it would only accept some limits on its nuclear program in return for sanctions relief.

It's unclear if Iran's bloody crackdown on mass protests last month, or the movement of major U.S. military assets to the region, has made Iran’s leaders more open to compromise, or if Trump is interested in broadening the already difficult negotiations.

Netanyahu, who will be in Washington through Wednesday, has spent his decades-long political career pushing for stronger U.S. action toward Iran. Those efforts succeeded last year when the U.S. joined Israel in 12 days of strikes on Iran's military and nuclear sites, and the possibility of additional military action against Iran is likely to come up in this week’s discussions.

Netanyahu's visit comes just two weeks after Trump’s special envoy Steve Witkoff and Jared Kushner, Trump’s son-in-law and Middle East adviser, met with the prime minister in Jerusalem. The U.S. envoys held indirect talks in Oman with Iran's foreign minister on Friday.

“The Prime Minister believes that any negotiations must include limiting ballistic missiles and ending support for the Iranian axis,” Netanyahu's office said over the weekend, referring to Iran-backed militant groups like the Palestinian Hamas and Lebanon's Hezbollah.

Years of nuclear talks have made little progress since Trump scrapped a 2015 agreement with Iran, with strong encouragement from Israel. Iran has shown little willingness to address the other issues, even after suffering repeated setbacks. But the meeting with Trump gives Netanyahu an opportunity to shape the process and may also bolster his standing back home.

“Clearly these are the days when decisions are being made, America is expected to complete its force buildup, and it’s trying to exhaust the prospect of negotiations,” said Yohanan Plesner, head of the Israel Democracy Institute, a Jerusalem-based think tank.

“If you want to have influence on the process, only so much can be done via Zoom.”

Trump threatened a military strike against Iran last month over the killing of protesters and concerns of mass executions, moving a number of military assets into the region. Thousands were killed and tens of thousands detained at Iranian authorities crushed the protests over widespread economic distress.

As the protests largely subsided, Trump shifted his focus to Iran's nuclear program, which the U.S., Israel and others have long suspected is aimed at eventually developing weapons. Iran insists its program is entirely peaceful and says it has the right to enrich uranium for civilian purposes.

Sima Shine, an Iran expert formerly with Israel's Mossad spy agency who is now an analyst at Israel's Institute for National Security Studies, said Israel fears that the U.S. might reach a narrow agreement with Iran in which it would temporarily halt uranium enrichment.

A deal in which Iran halts enrichment for several years would allow Trump to claim victory. But Israel believes any such agreement that does not end Iran's nuclear program and reduce its ballistic missile arsenal will eventually require Israel to launch another wave of strikes, she said.

Iran might be unable to enrich uranium after last year’s strikes, making the idea of a temporary moratorium more appealing.

In November, Iranian Foreign Minister Abbas Araghchi said Iran was no longer enriching uranium due to the damage from last year's war. The U.S. and Israeli airstrikes killed nearly 1,000 people in Iran, while Iranian missile barrages killed almost 40 in Israel.

It's unclear how much damage was done to Iran's nuclear program. Inspectors from the International Atomic Energy Agency have been unable to visit the bombed nuclear sites. Satellite images show activity at two of them.

Netanyahu, who faces elections later this year, has long touted his close ties to world leaders, particularly Trump, who he has praised as the best friend Israel has ever had in the White House. This week's meeting allows Netanyahu to show Israelis he is a player in the Iran talks.

“The issue of relations between Netanyahu and Trump will be the issue of the campaign, and he is saying, ‘Only I can do this, it’s only me,’” Shine said.

Netanyahu is Israel's longest-serving prime minister, having held the office for a total of over 18 years. His government, the most nationalist and religious in Israel's history, is expected to survive until the election in October, or close to it.

Netanyahu was originally scheduled to visit Washington next week for the Feb. 19 launch of Trump's Board of Peace, an initiative that was initially framed as a mechanism for rebuilding Gaza after the Israel-Hamas war but has taken on a larger mandate of resolving global crises.

Netanyahu agreed to join the initiative but is wary of it because it includes Turkey and Qatar, countries he does not want to have a presence in postwar Gaza because of their relations with Hamas.

Moving the visit up could provide an “elegant solution” that allows Netanyahu to skip the launch without offending Trump, Plesner said. Netanyahu's office declined to comment.

FILE - President Donald Trump answers a question from a reporter at the end of a news conference with Israel's Prime Minister Benjamin Netanyahu at Mar-a-Lago, Dec. 29, 2025, in Palm Beach, Fla. (AP Photo/Alex Brandon, file)