Russia’s oil and natural gas revenues have plunged amid a strong ruble and the impact of subsidies in the fuel sector despite surging oil prices, while Ukrainian drone attacks on refineries have affected production and exports.

Russia’s federal budget revenues from oil and natural gas dropped 17.2% year-on-year in January-September to 5.47 trillion rubles ($67.7 billion), resulting in a loss of around $14.1 billion in the energy sector, according to the Finance Ministry.

Total budget revenues climbed 10% to $367 billion over the same period, while non-energy revenues surged 18.8% to $299.3 billion, the data showed.

Energy revenues dropped while conflicts in the Middle East drove up energy prices. High prices could potentially boost the value of Russian exports, but the amount reflected in the budget is determined not solely by the sales price but also by the indicators used in tax calculations.

The average price of Urals, the country’s main export crude, exceeded $92 a barrel in September, rising from $56.8 in the same month last year to $92.1 a barrel last month.

While the 62% surge bolstered oil producers’ foreign currency revenues, this was not reflected to the same extent in the budget.

Russia prices oil exports primarily in foreign currencies, but production taxes and budget revenues are calculated in rubles. The ruble’s appreciation against the US dollar meant that the same amount of export revenue converted into fewer rubles. The decline in the average dollar exchange rate was cited as one of the reasons for the nine-month energy revenue shortfall.

The Russian Central Bank said the official dollar exchange rate stood at $1 as of Oct. 24, below the $1.14 per dollar assumption used in the 2026 federal budget.

The Finance Ministry expects the positive impact on the budget to become more obvious in the coming months due to the delayed reflection of recent increases in oil prices in tax collections.

Meanwhile, Ukrainian drone attacks on Russian plants and energy infrastructure disrupted processing operations.

Russia’s 32 major refineries have a combined daily capacity of around 6.5 million barrels, but this volume fell to 3.8 million barrels per day in June, according to the International Energy Agency (IEA).

The 30% annual drop marked the lowest level in over 20 years, the report showed on Sept. 17.

Russian refineries were reportedly affected by a drone attack every three days during the first eight months of the year. As of the end of August, only five of the 32 major plants had been unaffected by these attacks.

Gas production, on the other hand, also dropped around 20% year-on-year, while diesel production shrank 30% over the same period, the IEA reported.

Russian Deputy Prime Minister Alexander Novak recently said these attacks were ongoing, but the damage had been reduced through protective measures. He added that repairs had been accelerated and modernization schedules at some plants might have to be postponed.

Moscow extended restrictions on exports of gas and certain petroleum products until Jan. 31, 2027, with exceptions for diesel shipments under inter-producer and intergovernmental agreements.

While these restrictions limit the benefits firms can derive from high fuel prices in foreign markets, the Economic Development Ministry expects petroleum exports to decline from 125.8 million tons last year to 98.5 million tons this year. It also anticipates crude oil exports will rise from 230.8 million tons to 244.7 million tons.

The fuel damper mechanism Moscow implemented to cap domestic fuel prices provides payments from the budget to refineries during periods when global market prices are more favorable than domestic prices. The scheme encourages firms to sell their products domestically, but it also leads to higher public spending.

Some $3.78 billion was paid to oil firms under this scheme last month, exceeding the $2.44 billion paid in August. The figure hit its highest level since April 2022 and contributed to the decline in annual energy revenues, according to Finance Ministry data.

Oil and natural gas revenues for the first nine months fell below the baseline level set under the budget rule. While high oil prices supported public revenues, they failed to eliminate the pressure from the exchange rate and the subsidy mechanism.

This prompted the Finance Ministry to lower its 2026 estimates for oil and natural gas revenues from $110.46 billion to $93.87 billion, reducing the full-year forecast by $16.59 billion.

The Economic Development Ministry anticipates oil and gas condensate production will fall from 511.4 million tons last year to 494.2 million tons this year, before rising to 500 million tons next year.

As the Russian federal budget deficit widened to $64.27 billion in January-September, Moscow raised its year-end budget deficit forecast from 1.6% of national income to 3.2%.

The future trajectory of energy revenues will depend on oil prices, the exchange rate, the recovery of plant production and the amount paid in fuel subsidies.