Key facts
- Russian Urals crude oil averaged $41.66 a barrel in early July.
- This price decline erases revenue gains Moscow previously experienced.
- Russia's federal budget is predicated on oil prices of approximately $59 a barrel.
- A European intelligence assessment indicates increasing vulnerability in Russia's banking sector.
- Approximately 10% of corporate loans in Russia are now considered doubtful.
- Ukraine has continued targeting Russia's energy infrastructure with drone campaigns.
Russian crude oil prices have plummeted, with its flagship Urals grade averaging $41.66 a barrel in the first three days of July. This sharp decline erases the revenue boost Moscow had experienced following the Middle East conflict and places significant pressure on the federal budget, which is based on an assumption of oil prices around $59 a barrel.
Prior to this drop, Urals had consistently averaged over $59 a barrel each month since March, reaching $60.92 in June. This period of higher prices had enabled the Kremlin to replenish its reserve fund for the first time in nearly a year and postpone planned spending cuts. However, with Urals now trading near $42 a barrel, this financial relief is likely to be short-lived, especially as oil and gas revenues constitute approximately one-third of Russia's federal budget.
Adding to Russia's economic concerns, a European intelligence assessment cited by Reuters indicates that the country's banking sector is becoming increasingly vulnerable. Years of war-driven lending have led to rising bad loans and deteriorating asset quality, posing a risk of a wider financial crisis. Russian banks have reportedly absorbed much of the war's financial burden by extending subsidized loans to defense contractors, state-backed companies, and households. The assessment estimates that around 10% of corporate loans are now considered doubtful, with some major lenders experiencing retail non-performing loan ratios as high as 15%. Furthermore, the report projects over 500,000 personal bankruptcies in 2025.
Meanwhile, Ukraine continues its efforts to target Russia's energy infrastructure. Bloomberg reported that drones were intercepted near the Baltic ports of Ust-Luga and Primorsk, which are critical crude export hubs for Russia. However, there were no immediate reports of damage or disruptions to oil exports resulting from these incidents.