RUSSIAN Revenue Disaster

Hi, welcome back to Joe Blogs. In today's episode I want to talk to you about what's happening in the Russian economy and specifically to talk about the impact of Donald Trump's tariffs against Russia. Now you might be sitting there quite rightly thinking, hang on a minute, I didn't see Russia on that board that Donald Trump was holding up outside the White House. He didn't say he was going to apply a 145 percent tariff against all Russian imports, he said that about Chinese imports, but he never mentioned anything about Russia. And of course the reason why Russia wasn't on that list is because it's currently facing the most significant financial sanctions that have ever been applied against any country in the history of the world. So I don't think Donald Trump needs to think about applying more tariffs because you can't actually do any trade with Russia, virtually everything has been banned. So you might be sitting there thinking, well what does the impact of those tariffs have on the Russian economy? Well it does have a massive impact because what's been happening over the course of the past couple of weeks since Donald Trump came out and said that he was going to tariff every country in the world is that we've seen a lot of uncertainty, we've seen markets starting to get very volatile and very panicky, and what we've seen is the oil price falling, we've seen global markets being concerned that we could be moving into a period of global recession, and when that happens demand for oil falls, and so the futures market starts to build that in. So oil traders have been seeing sell-offs, they've been seeing the oil price coming down, and of course that has a huge impact on Russia because Russia derives around 30 percent of all of its federal revenue directly from oil sales. So if the price of oil goes down then that's going to have a really detrimental impact onto the amount of money that Russia is earning and therefore the Russian economy. Now just before we go on any further today I want to talk to you about Incogni who I've partnered with for today's video. One of the things that drives me absolutely insane is spam marketing, whether it be text messages or emails or my pet hate phone calls, people phoning you up to have a chat and to try to sell you something, and the reason why you're getting more and more spam marketing is because of data brokers. Data brokers can take your personal information and sell it on the internet, but the problem that you've got is that how do you stop those data brokers from doing that? Well you can actually contact each individual one of them and try to get them to take you off their database, but who's got the time to be able to do that? Well the answer to that is Incogni. Once you sign up with Incogni they will contact all of the data brokers and have your data removed and they will also protect you from cybercrime and identity theft. And the great news is that you can get a 60% discount off an annual plan, which is what I use, by going to incogni.com forward slash joe blogs or clicking in the link in the description below. This chart shows the movement in the price of Brent crude oil over the past five years and the reason I want to go back five years is just to show the impact of Russia's invasion of Ukraine on oil prices. The invasion started at the end of February 2022 and you can see that oil prices around that time jumped significantly and they actually hit a peak of around $120 per barrel, which was actually more than double the price that oil had been trading at at the end of 2021. So on paper that actually represented potential good news for Russia as one of the world's largest exporters of oil. However as you can see that elevated price didn't last for long and during the rest of 2022 oil prices did come back down but they didn't go back down to the same level that they were at at the end of 2021. We've then seen oil prices moving around over the course of the last couple of years between around But if we zoom in and have a look at what's been happening over the course of the last few months you can see that when Donald Trump took over as president oil prices were sitting at around $82 per barrel. However over the last three months there has been a significant downward movement in oil prices and recently they were trading as low as $63 so that represents a significant fall in a short space of time and as I mentioned at the start of today's video the reason why this is important when we're looking at the Russian economy is because Russia is still dependent on oil for the vast majority of its income and therefore its cash in order to keep funding the war in Ukraine but also to keep paying for all of the Russian necessities. Now the charts that we've just looked at are for the price of Brent crude oil but obviously Russia doesn't produce Brent crude oil it produces its own version called Urals and this chart shows the quarterly movement in the price of Urals oil dating back to 2021 and you can see that at that time Russian oil was selling for around $53 per barrel. Now interestingly the invasion of Ukraine which took place at the end of February 2022 had a beneficial impact on the price that Russia was selling its oil and you might be thinking well that's not what you told us at the time because you said that Russian oil was trading at a significant discount and we'll go on to look the difference between the price of Brent crude oil and Urals oil in a moment but you can see that the price spiked at around $80 per barrel at the start of 2023 and that was because Russia was able to benefit from the global increase in prices however as a result of the global decrease in price that we've just seen that's taken place over the last couple of years the sales price of Urals oil has been falling and also of course the impact of the financial sanctions has had a negative impact on the price that Russia has been achieving and if we look at the far right hand side here you can see that the most recent data shows that Russian oil is now trading at close to $50 per barrel so it's basically back to where it was in 2021 however the volumes now are lower than they were back in those days because in those days Russia was selling its oil to everybody lots of European countries were buying oil coming through pipelines and also seaborne oil however the west has now turned its back on Russia so Russia is now struggling to be able to achieve the same volume of oil sales this chart shows the movement in both the price of Brent crude oil which is shown by the orange dotted line and Urals Russian oil which is shown by the blue line dating back to 2021 and what you can see here is that throughout this period there has been a clear differential in terms of the price that Brent crude oil sells at versus Russian oil. Russian oil sells at a discount to Brent crude oil and you can see that following the invasion of Ukraine that discount actually widened significantly and at the start of 2023 Russia was achieving $80 per barrel but that was at the time when Brent crude oil was selling for around $105 so at that point there was a $25 differential between the two types of oil and the reason for that obviously was because a lot of the west had decided that no longer wanted to buy Russian oil so Russia was having to offer a larger discount to encourage countries like China and India to take larger volumes to offset the volumes that it had lost selling into the west but you can see that the differential has been maintained throughout this period and the reason why Russian oil prices have been falling over the last couple of years is because the general oil price has been going down so every time a barrel of Brent crude oil sells at a lower price it forces down the price of Russian oil and therefore reduces the amount of revenue that Russia is earning so this is why Donald Trump's latest tariffs and the impact that they've had on the global economy are having a seriously negative impact on the Russian economy because every time the price of a barrel of oil falls by a dollar Russia loses a hell of a lot of money and this chart plots the impact of the drop in Russian oil prices compared to the loss of revenue for the Russian economy the dotted blue line here shows Russia's total export revenue loss so that's basically the gross value of all of the oil sales and the red line shows the loss of government revenue because the Russian government takes around one-third of all of the gross revenue proceeds from oil sales now the scale on the left hand side of this chart is shown in billions of US dollars per year and across the bottom here we've got the drop in Russian oil price per barrel which starts at zero on the left and goes up to twenty dollars on the right now in 2024 Russia was exporting around six million barrels of oil per day which on an annualized basis equates to around 2.2 billion barrels in total so for every one dollar that Russian oil falls in price it has a serious impact Russia is losing 2.2 billion dollars worth of revenue and the Russian government is losing a third of that so you can see here when we look at the blue line that if the price of Russian oil was to fall by ten dollars per barrel that would have a 22 billion dollar impact over the course of 12 months in terms of gross revenue and from the government's point of view it would be losing around 7.5 billion dollars worth of government revenue now if we jump back to the chart that we've just looked at showing the movement in the price of euros oil you can see that since the start of 2023 when euros oil was trading at 80 dollars per barrel Russian oil has fallen by 30 dollars per barrel so if we go back to this chart we only go up to 20 on this but a 20 dollar movement equates to 45 billion dollars of lost revenue for Russia across the board so that's Russian companies and that means that the Russian government is losing around 13 billion dollars of direct income so the current movement in oil prices that we're seeing as a result of Donald Trump's tariffs we're seeing this global downward trend in oil prices is having a hugely negative impact on both Russian companies but more importantly the Russian government and the Russian economy okay in terms of putting some more detail onto those figures this chart shows the breakdown of the Russian federal budget from 2021 to 2024 you can see on the left hand side here I've shown the percentage of the budget that was derived from oil and gas revenue so in 2021 which was before the invasion of Ukraine started Russia earned 36 percent of all of its revenue directly from oil and gas sales now interestingly in 2022 that percentage actually increased to 45 percent and of course that was because the price of oil and gas spiked so Russia benefited from that increase in price and also it took a while for European countries to find alternative supplies so in that initial six-month period Europe was still buying lots of oil and gas that was being fed directly to it through pipelines because it was impossible for those countries to actually change overnight so this represented a real boost for the Russian economy so that was a record-breaking year now in 2023 as the European countries started to find alternative supplies and turned their back on Russia the percentage crashed to 28 percent which was actually significantly below where it was in 2021 at 36 percent and 2024 interestingly it's increased to 31 percent and that's because Russia is now finding more established markets it's selling a lot more to India on a regular basis it's also putting into place more pipelines with China and selling more volume into them and if we look at the actual numbers here you can see that in 2021 Russia earned 9 trillion Russian rubles which at that time because of the exchange rate equated to 123 billion US dollars in 2022 the figure increased to 12.6 trillion Russian rubles which was an all-time high and because of the exchange rate that equated to 185 billion US dollars now interestingly in 2023 we saw a fall in the amount of revenue from oil and gas now at that time the gas supplies had been completely switched off to Europe so there was a major reduction in gas revenues and also there was a lot of problems with regards to oil because the sanctions were being ramped up by the and the revenue fell to 7.3 trillion Russian rubles which is the lowest out of all four years here and because of the exchange rate we saw a crash in the value of the ruble that actually reduced the total revenue in US dollar terms to 97 billion so you can see that that's basically half of what Russia earned in 2022 in US dollar terms and in 2024 the revenue in terms of rubles was 8.7 trillion which equated to 96 billion US dollars so less than it was in 2023 so interestingly even though the percentage was higher at 31% the actual income in US dollar terms was significantly lower because of what was happening with the exchange rate and we've talked a lot about the movements in the ruble if you follow the channel. Now clearly one of the biggest issues when you're putting together the budget for the Russian economy is what's going to be the price of oil because when it's equating to around 30% of all of your total revenue getting the price of oil right in your budget is really important and this chart shows the budgeted versus the actual price of Russian oil between 2021 and 2024 and also the forecast level for 2025 so back in 2021 and 2022 Russia was taking a conservative view and it was budgeting a price of around 44 dollars per barrel now interestingly in 21 the actual amount came in at 69 dollars and then in 2022 because of all of those factors we've just discussed it actually achieved 76 dollars so hugely above the 44 dollar budgeted figure so 2022 overall was actually quite a good year from Russia's perspective now in 2023 because they'd achieve 76 dollars in 2022 the Russian authorities set a budgeted level of 70 dollars per barrel however the actual price came in at 52 dollars now that was because of the impact of the financial sanctions and also as we saw the general price of oil drifted down so that pushed down the price of Russian oil as well now interestingly in 2024 despite the fact that Russia had only achieved 52 dollars on average in 23 they set the budgeted level again at 70 dollars and as you can see here the actual amount achieved was only 62 dollars so again significantly below the 70 dollars that have been set now for 2025 perversely the figure's been set at just under 70 dollars again so it's been at 70 dollars for the past three years despite the fact that in 23 and 24 the actual level came in significantly lower and as we saw from the data earlier the current price of euro's oil is trading at around 50 dollars so that's the lowest out of all of the years shown on this table and if it does come in at 50 clearly that is significantly less than the 70 dollars that have been budgeted and if the sales price of Russian oil does remain at 50 dollars this is the impact that it will have on the 2025 revenue figures so you can see that the estimated revenue for oil and gas would be 6.75 trillion Russian rubles which is significantly less than all the other years on this chart and is almost half of what it was in 2022 and that equates to 73 billion US dollars which once again is a lot less than Russia has earned on every other year and if that does happen then it would only provide around 25 percent of the budget for the whole of this year and this chart shows the potential impact of that on the Russian economy so what you can see here is the actual federal budget balance in each year between 2021 and forecasted for 2025 so you can see that before the war in Ukraine started Russia actually had a surplus in terms of its federal budget it's above the zero line that you can see towards the top of this chart however that surplus turned into a deficit of 2.3 percent in 2022 they managed to reduce that to 1.9 percent in 23 and 1.8 percent in 2024 however it was still a deficit so it was still running lower than it was expected to and if the oil price remains at 50 dollars per barrel for Russian oil it would come in at a budget deficit of three percent which would be the worst performance that Russia has seen in any of the last five years so what's the summary and conclusion today well i wanted to post this video because we've been talking a lot about Donald Trump and his global tariffs and the impact of that on the global economy and obviously it's been quite negative in terms of if you start applying tariffs to all of your imports it's going to increase the price of those products that's potentially going to push up inflation it could have a really negative impact not just on the US economy but on the global economy and on the flip side of that we've got lots of other countries who that's going to impact on all of those companies they'll report probably lower profits therefore they'll pay less tax and therefore GDP is likely to either grow at a slower rate for those countries or potentially those countries could find themselves in a recessionary situation so there are a lot of concerns kicking around at the moment and as a result of that we have seen the oil price going down because the oil price is a really good barometer as to what's happening in the global markets when things are going really well oil tends to be in high demand and therefore pushes the price up and when things aren't going so well the price tends to go down and that's what we've seen particularly over the last three months but also as you saw over the last 18 months to 24 months we've seen oil prices coming down from those elevated levels we saw following Russia's invasion of Ukraine and all of this is really bad news for Russia because Russia is still hugely dependent on oil it derives around 30 percent of all of its revenues from oil and in fact as we saw from the data that was over 40 percent back in 2022 so movements in the price of oil have a huge impact on the amount of money that Russia is pulling in and a one dollar movement is really significant so the movements that we've seen in the past three months whereby the price of Russian oil has fallen by around $15 is having a massive impact and what that means from Russia's point of view is that they don't really know what they're going to be able to achieve in terms of those sales prices therefore they don't know how much money they've got coming in so they can't really work out how much money they can spend and that's a major problem for any government not just from Russia's point of view so I wanted to make this video really just to highlight the fact that what Donald Trump is doing is having an impact on every country in the world including Russia despite the fact that they weren't included on that list of reciprocal tariffs that he held up outside the White House actually Russia is probably suffering more than most countries because we're seeing the oil price going down and what that means is that Russian oil prices are also going down that means that Russian revenue is going down lots of companies in Russia will be suffering as a result of that and the Russian state is also suffering because it derives the biggest chunk of its income out of all of its different industries from oil and gas so when oil prices go down that means that Russia is receiving less revenue it will have less money to spend and that's bad news for Russia and the Russian economy. 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