Russia's Kommersant daily reported that Russia is looking to reduce high discounts on Urals and stabilize oil revenue. At the end of January, Russian President Vladimir Putin asked the government to submit proposals to change the method of calculating oil taxes within a month.
Urals are nearly $40/barrel lower than Brent, reducing Russia's budget revenue from oil export taxes. Since the EU began sanctions on crude oil imports from Russia and the G7 imposed a price cap, Russia's crude oil export tax has decreased due to sharp declines in Urals oil prices.
Urals crude oil was traded at 49.48 USD/barrel in January. The rising transportation costs combined with discounts have caused Russia's top crude oil prices to fall sharply compared to last year. The Russian Finance Ministry said that the average urals oil price in January was 49.48 USD/barrel, 1.7 times lower than in January 2022, when the average price was 85.64 USD/barrel.
The lower the price of Urals, the lower the export tax on crude oil and petroleum products, thereby reducing the revenue for the Russian budget.
Recognizing the threat to the most important source of budget revenue, oil, Russian authorities are considering amending tax laws, according to Kommersant. The top idea is to link export tax calculation with Brent oil price instead of Urals price.
The price ceiling has not significantly affected Russia's crude oil exports, but has affected revenue, due to the sharp decline in Urals compared to Brent oil. According to data from the Russian Finance Ministry cited by Kommersant, the tax collected from companies decreased by 10% in December 2022 compared to November 2022, down to 6.75 billion USD (474.8 billion Russian rubles).
Meanwhile, on February 3, the West agreed on a new price cap for Russian oil exports.
According to Reuters, the G7, EU and Australia set a new price cap of $100/barrel for high-end Russian products, such as diesel, and $45/barrel for other products such as fuel oil and naphtha.
The price ceiling, along with the EU ban on imports of Russian oil products effective on February 5, is designed to limit Russia's financial capacity for the war in Ukraine.
"The limits we have just set will now play an important role in efforts to reduce Russia's financial capacity for the Ukrainian conflict," US Treasury Secretary quan quan Yellen said after the deal was announced.
Previously, from December 5, the EU banned imports of Russian crude oil transported by sea. The EU, the G7 and Australia also imposed a price cap of $60 per barrel on Russian oil, preventing Western companies from providing insurance and other services to Russian oil tankers unless the goods are purchased at a regulated price or lower.
Yellen said the sanctions and price ceilings forced Russian President Vladimir Putin to " Choose between funding for the war or supporting his struggling economy."
Data from the Russian Finance Ministry shows that monthly budget revenue from oil and gas in January fell to its lowest level since August 2020 due to the impact of Western sanctions on the country's most profitable export activities.
According to Ms. Yellen, the global energy market still has good supply. Oil importers such as China and India are using price ceilings to boost purchases of "bargain oil" from Russia.
The International Monetary Fund last week raised Russia's growth forecast for 2023 to 2.6 percentage points, citing "quite high" export revenue last year and a strong fiscal stimulus package from Moscow.
A senior US Treasury official told reporters that while Washington is interested in the IMF's view, it still believes that the price cap is "changing the trajectory" of the Russian budget because oil and gas are the country's main source of income.
