Russia has avoided tariffs imposed by US President Donald Trump, but the consequences of the trade war will still hit the Kremlin's pocket through oil.
The Wall Street Journal writes that oil and gas make up about a third of the Russian state budget revenues - this is the main engine of the Kremlin's economy and the main source of its vulnerability. Analysts believe that if prices remain low, the Russian economy will face a hard landing, and the budget deficit will almost double.
Russia's economy was already slowing even before the collapse of oil prices, and the Kremlin is negotiating with the United States for a ceasefire in Ukraine. Moscow is in no hurry to negotiate peace, hoping that victories on the battlefield will give it more leverage to maximize concessions.
While current oil prices are unlikely to force Vladimir Putin to abandon the war, a deeper decline could change his plans. In the meantime, analysts say the oil squeeze will force the Kremlin to make a painful choice.
“If oil prices continue to fall, they will feel the strain and are already feeling it,“ said Elina Rybakova, a senior fellow at the Peterson Institute for International Economics in Washington.
Analysts at J.P. Morgan believes that while Moscow is more isolated from global trends due to sanctions and severed international ties, “the tsunami generated by US trade policy is unlikely to leave Russia unscathed“.
The centrality of oil to the Russian economy extends beyond the state treasury. Economists call this the multiplier effect, in which a booming energy industry spreads to related sectors. A decline in production will have a negative impact on entire communities that are organized around oil production and refining.