Russia's oil and gas revenue crashed by nearly 50% at the start of 2023, leading to a wider budget deficit as Moscow's spending soars

A slide in Russian revenue from oil and gas clashed against the Kremlin ramping up spending on its nearly year-long war against Ukraine, resulting in a wider budget deficit for the country in January.

Oil and gas revenue tumbled 46% in January from the same month a year ago to 426 billion rubles ($5.96 billion), Russia's finance ministry said Monday in a preliminary release. It attributed the decline largely to a drop in prices for its Urals blend — its largest crude oil export — and to a fall in exports for natural gas.

Russia sold Urals at an average price of $49.48 per barrel in January, lower than the $70 per barrel total in Russia's budget, according to the Financial Times. Revenue from oil and gas serves as a key source of funding for spending by Moscow, but the country has run into sanctions imposed by Western countries after Russia invaded Ukraine.

Government spending in January, meanwhile, jumped by 58.7% from a year earlier to 3.12 trillion rubles. Expenditures rose amid largely classified plans by Russia to increase defense spending to 3.5 trillion rubles in 2023, the FT reported.

The lower energy sales and the rise in spending contributed to the federal budget logging a deficit of 1.76 trillion rubles ($24.78 billion) last month.

Russia has been selling energy to countries, including China and India, to boost its funds. Russia has also increased sales of its foreign exchange reserves to address the budget shortfall stemming from the war it launched in February 2022.

Last week, the finance ministry said it would sell more than $2 billion worth of foreign currency from February 7 to March 6 – nearly tripling the 54.5 billion rubles worth of currency reserves sold last month.

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