Oil price collapse: Why it matters for Russia and war in Ukraine

Takeaways

• What will happen next with oil prices?
• What is the cost price of Russian oil production?
• Will Siberian oil still be able to compete with resources from the Persian Gulf?
• How much money is the Kremlin already losing?

Further drop in oil prices

At the beginning of April, US President Donald Trump launched a trade war against almost the entire world. As a result of his announcement on April 2 of new tariffs, many economists began discussing a potential future economic downturn worldwide – a global recession. If business activity decreases, the world will need less oil than expected, so prices for “black gold” also began to decline.

Additionally, on April 4, eight member countries of OPEC+ (the oil cartel OPEC and another 9 countries, including Russia) announced their intention to increase oil production from May 1 by 411,000 barrels per day. Against this backdrop, according to Bloomberg, the price of the benchmark Brent oil dropped by 12.5% from April 2 to 4, to $65.6 per barrel. It then remained approximately at the same level, in the range of $62 to $68 per barrel.

Amid expectations of a global crisis, on April 14–15, leading Western financial institutions published forecasts for oil prices in 2025–2026. According to Reuters, American investment banks JP Morgan and Goldman Sachs expect that the average price of Brent this year will be at $66 and $63 per barrel, respectively.

For the next year, both financial institutions agreed in their views that the price would drop to $58 per barrel. The largest bank in the United Kingdom, HSBC, offered a slightly better forecast for oil-producing countries – $68.5 this year and $65 next year. At the same time, the overall conclusion can be drawn as follows – financiers predict a long-term decline in oil prices.

Moreover, Goldman Sachs suggested a scenario in which Brent oil could fall to $40 per barrel. This is a very low price; the last time oil cost this little was in May 2020 – at the height of the pandemic caused by the coronavirus infection and the introduction of quarantine measures worldwide.

Most inexpensive oil is from the Middle East

The oil market is very competitive, and the same OPEC (Organization of the Petroleum Exporting Countries) + member countries do not always adhere to their commitments and fight each other for the opportunity to sell their own resources.

The greatest potential lies with Saudi Arabia. According to the US Energy Information Administration, Saudi Arabia can bring to market and maintain for 90 days an additional oil volume of 1.5–2 million barrels per day within 30 days. Moreover, the cost of oil production in Saudi Arabia is the lowest in the world. According to the annual report of the state oil and gas company Saudi Aramco, in 2024, it had a production cost at the level of $12 per barrel.

Saudi Aramco’s oil production costs are incomparably lower than the cost of oil from Western Siberia, the Canadian province of Alberta, the Gulf of Mexico, and other regions of the world. Thus, with falling prices, the greatest opportunities open up for increasing the share of oil from the kingdom of the House of Saud and other Middle Eastern countries.

Photo: Saudi Arabia has the world’s lowest oil production cost (Getty Images)

In recent years, the United States has become a significant oil producer in the world. This country managed to increase oil production from shale formations and even took first place in the world. In 2024, oil production in the US increased by 2% compared to the previous year – to 13.2 million barrels per day, according to the US Energy Information Administration. The average national benchmark price for US WTI oil last year was $77 per barrel. On April 8, futures dropped to the lowest level since the coronavirus crisis – $59.6 per barrel.

“I believe that the price level of $60 per barrel for WTI will have an impact on activity in the Permian Basin (a large oil and gas basin in the southwestern US states – ed.). If this trend persists in the long term, I expect a reduction in drilling rigs and at least a flat production profile. But there is a certain inertia of processes – 3–6 months (the time after which the production sector will respond to the price trend – ed.),” said in a comment to RBC-Ukraine, former top manager of Naftogaz Ukraine and head of Ukrgazvydobuvannya (2023–2024) Oleh Tolmachev.

The issue is that the cost of oil production from shale formations in the US is significantly higher than the cost of raw materials from the Middle East. As a result, the American oil business will suffer from low oil prices, and the "Drill, baby, drill" program announced by the Trump administration will be at risk.

Russia's current positions on the global market

Together with the United States and Saudi Arabia, Russia is among the world's top three largest oil producers. In 2024, the aggressor country extracted 516 million tons of raw material, which is only 2.8% lower than the corresponding figure in 2023. In Russian media, Deputy Prime Minister of the Russian Federation Alexander Novak (who held the position of Minister of Energy in 2012–2022) forecasted oil production in 2025 at the level of 515–520 million tons. That is, oil production in Russia remains at a stable level.

According to the April 2025 Oil Market Review by the International Energy Agency and the April 2025 OPEC Report, Russia produced the most oil among all OPEC+ members in February and March of this year, at 9 million barrels per day. Its production even slightly exceeded the figure of Saudi Arabia — the leading country of the oil cartel. Russia's share in the total OPEC+ production structure in February and March 2025 amounted to approximately 22%.

According to the report of the Kyiv School of Economics, "Impact of Sanctions on the Russian Economy," from March 2025, Russia managed to maintain the volume of oil and petroleum product exports at a more or less stable level. In February, the aggressor country sold 4.6 million barrels of crude oil per day and 2.7 million barrels of petroleum products. For three years in a row, since the beginning of the full-scale invasion of Ukraine, the main buyers of Russian oil remain China, India, and Türkiye.

According to OPEC data, Russia remains the main supplier of oil to China, with its share in China's oil import structure in February and March amounting to 18–19%. Also in February, Russia provided a third of all oil imports to India.

Photo: All three years of the war, Russia continues to supply significant volumes of oil to China, India, and Türkiye (Getty Images)

"Russia also remains a very powerful exporter of gasoline and diesel fuel. Entire pipelines have been built from refineries to ports. They even managed to send diesel via the Caspian Sea, for example, to Iran. They earn from both crude oil and petroleum products," said Oleksandr Sirenko, an analyst at the consulting company NaftoRynok, in a comment for RBC-Ukraine.

If Russia manages to maintain the volumes of oil exports, then revenues from sales are decreasing proportionally to the drop in prices. According to estimates by the Kyiv School of Economics, over a year (from February 2024 to February 2025 inclusive), the total income from oil sales from the Russian Federation decreased by 17% — to 13.3 billion dollars per month. During the same period, the average price of Russian export oil grades decreased from 66 to 61 dollars per barrel.

It is worth noting that the current EU sanctions regime is not aimed at eliminating Russian oil companies from the market, thereby preventing a price increase, but rather at reducing the price of their oil. The situation when Russia extracts and exports stable volumes but at a lower price corresponds to the idea of sanctions.

Impact of low oil prices on Russia

If a decrease in oil prices to the level of 60–61 dollars per barrel has led to a significant reduction in Russia’s revenues, then what will happen when oil quotations drop even lower?

On April 7, according to Bloomberg, the price of the Urals oil grade, which Russia exports to Europe, fell to 50 dollars per barrel. This was the lowest figure since the end of 2022. It prompted an official reaction from the Kremlin, which declared that they would work to minimize "the consequences of this international economic storm for our economy."

The Urals oil blend, extracted from various fields beyond the Ural Mountains, has a higher density and sulfur content, which reduces the yield of light oil products and complicates their refining. Therefore, Russian Urals oil is always sold at a discount to the Brent blend, which is extracted in the North Sea and has lower density and sulfur content. For example, when Urals oil was sold at $50 per barrel, the Brent grade cost $64 per barrel.

"With Brent priced at 80 dollars per barrel, the discount for Urals was 20 dollars per barrel. This discount is currently 13–15 dollars per barrel. We can model that if global oil is at 40 dollars, then the Russian Urals will be at 30 dollars per barrel," predicted Oleksandr Sirenko for RBC-Ukraine.

He noted that such a price is already close to the cost of oil production in Russia. The expert added that one should consider both the cost of oil extraction and its transportation since from the fields beyond the Urals to the ports on the Black and Baltic Seas — is a very long distance. According to the estimate by Serhiy Kuyun, Director of Consulting Company A-95, the cost of transporting oil from the fields to the loading ports can amount to $ 10–$ 12 per barrel.

Photo: Russian oil from Western Siberia has a high cost and requires transportation over thousands of kilometers to loading ports (Getty Images)

The assessment of the cost of Russian oil extraction was also provided to RBC-Ukraine by energy expert Hennadii Riabtsev. "The cost of heavy oil (lower quality) with transportation to the border is estimated at 35–40 dollars per barrel. This type of oil accounts for three-quarters of Russia’s production," he said, adding that the cost of light oil, which makes up a quarter of the production structure, may be 20–25 dollars per barrel.

The last official data on the cost of oil production in Russia were published for the first three quarters of 2023, then the average cost for different fields was 39 dollars per barrel.

It turns out that with Brent priced at $ 40 per barrel, Russian Urals may fall to a level below the cost of extraction and transportation to the global market. "If Brent oil is at 40, and Urals — at 30, the latter will not be sold. No one will sell at a loss," added Oleksandr Sirenko.

"Even keeping the current price at 60 dollars per barrel will lead to Russian oil being traded at the breakeven point. This means that the Russian budget will be under-receiving revenues because it is based on the price of Urals at 69.7 dollars per barrel. This means that every day the Russians lose at least 70 million dollars in lost revenue (15% of the value of oil and petroleum products exports from the Russian Federation in February — ed.)," said Hennadii Riabtsev in a comment for RBC-Ukraine.

The expert added that the cheap oil will also harm the Ukrainian economy, as a fall in oil prices will also affect other commodity markets, including agricultural and metal products. As a result, the Ukrainian economy will receive less revenue from its own exports, leading to reduced foreign currency inflows and a possible weakening of the hryvnia.

However, if any economic conditions in the world could pacify the aggressor and force him to stop, then a long-term period of cheap oil is best suited for this. Under such conditions, the Soviet Union collapsed. The longer the period of low oil prices lasts, the less financial resources the Kremlin will have to continue aggression and terrorism.