Russia's Oil Revenue Decline Leads to Tax Hike Patchwork... "Discussed at G7 Meeting"

The Russian government, whose finances have worsened due to Western oil price sanctions, has sought to compensate for losses by increasing taxes on domestic oil companies. Although the intention is to fill the fiscal gap through tax hikes, critics argue that this is a stopgap measure that will reduce the investment capacity of the domestic industry in the long term.

According to major foreign media on the 8th (local time), Russian President Vladimir Putin last month changed the tax base for domestic oil companies from Russian Ural oil to North Sea Brent oil. The plan is to raise national tax revenue by setting Brent oil, which trades at a higher price than Ural oil, as the tax base.

The Russian government expects to secure up to 600 billion rubles (approximately 10.2 trillion won) in additional tax revenue through this measure, which it believes will fill the fiscal gap caused by Western oil price sanctions.

It was reported that Russian oil companies, already struggling due to production cuts caused by Western sanctions, are now facing a double burden with increased taxes. One foreign media outlet pointed out that "(this tax increase) will take away profits that could be used for equipment, exploration, and investment in existing facilities, weakening the future production capacity of Russia's oil and gas industry," and criticized Russia for stealing the future of its industry to cover war costs.

There were also criticisms that this tax increase would have a destructive effect on the Russian oil industry. Officials from the Group of Seven (G7) criticized the measure as one that reduces the long-term investment capacity of the Russian oil industry, which has already been severely hit by Western sanctions. About half of Russia's finances depend on the oil and natural gas sectors.

The European Union (EU), the G7, and other Western countries have been implementing a price cap on Russian crude oil at $60 per barrel since December last year. As a result, Russia's oil export revenue in the first quarter of this year plummeted by 45% compared to the same period last year.

[Image source=EPA Yonhap News]

Russia is reducing production in response to declining demand. According to OilX from Energy Aspects, Russia's crude oil production decreased to 10.4 million barrels last month. Nikolai Shulginov, Russian Minister of Energy, announced in March after discussions with OPEC+ that "from this month, crude oil production will be reduced by 500,000 barrels per day."

He said, "Due to the restructuring of energy flows such as withdrawal from the European market, Russia's oil production is expected to decrease this year." If Russia reduces production by 500,000 barrels per day, it will cut about 5% of Russia's crude oil production and about 0.5% of global crude oil production.

Meanwhile, the upcoming G7 Finance Ministers' meeting in Japan next week is expected to discuss sanctions against Russia as one of the key agenda items. A G7 official said, "At this meeting, we will discuss measures to respond to the Russian government’s attempts to evade or weaken sanctions."

This content was produced with the assistance of AI translation services.