Analysis of oil cycles in 2025-2026: Urals falling below $50, Brent rising above $120, and a new decline. How a 200 billion ruble cut in technology programs and the return of Iranian oil are affecting the diversification of Russia's economy.
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The global oil market experienced sharp fluctuations: from Urals falling below $50 in May 2025 to Brent rising above $120 after the closure of the Strait of Hormuz in March 2026. The temporary price spike created a brief window of opportunity for the Russian budget, however a potential US-Iran agreement could push prices back down. The key problem is that during periods of low prices, the state cuts precisely those technology programs that are critically important for economic diversification.
The global oil market has experienced a series of sharp reversals over the past 12 months. In May 2025, the price of Urals fell below $50 per barrel, reaching its lowest level since 2023.
The Russian government's response was predictable: financing the deficit through borrowing and reserves, raising taxes, and cutting spending. The first programs to face cuts were technology and industrial initiatives designed for long-term structural transformation of the economy.
This model has long been described in economic literature. It refers to the so-called "resource curse," and in its fiscal dimension—the "voracity effect," formalized by Jeffrey Sachs and Andrew Warner and further developed by Rick van der Ploeg and Anthony Venables. The mechanism is well known: resource revenues weaken incentives to invest in productivity, reduce the competitiveness of non-commodity exports through currency appreciation, and create a system in which resource sectors capture an ever-larger share of state resources regardless of their long-term returns.
Russia's experience over the past two decades is one of the most thoroughly studied examples of this model at work in a large economy. The purpose of this column is not to describe the mechanism anew, but to show how it has manifested during the latest oil cycle and to assess the limited opportunities it has temporarily opened for economic policy.
Oil shock and a brief window for growth
The situation changed dramatically with the Middle East conflict. The closure of the Strait of Hormuz in March 2026 was called by the International Energy Agency the largest supply disruption in the history of the global oil market. Brent prices rose above $120 per barrel.
For Russia, this proved a short-term but extremely timely windfall: the additional oil rent came during a period of maximum budgetary strain. The Carnegie Endowment for International Peace* noted in March 2026 that some of the windfall revenues could be directed toward increased investment in drilling and production growth. Moreover, the surge in oil revenues temporarily slowed the drawdown of the National Wealth Fund.
However, this window began closing quickly. By the end of May 2026, Brent prices had fallen from $115 to below $103 per barrel amid progress in negotiations between the U.S. and Iran. Analysts suggest that reopening the Strait of Hormuz could be part of a future agreement. In other words, the oil windfall—beyond Russia's control—is already reversing course.
The main question today is not whether Russia can weather another period of low oil prices—the experience of 2025 shows it can, albeit at the cost of significant budgetary pressure. What matters more is whether the current window can be used to accelerate technological development and economic diversification, which oil cycles systematically postpone.
The fiscal arithmetic of oil dependence
Table 1 shows the dynamics of oil prices and their impact on Russian public finances since 2024, including a baseline scenario following a potential Iran agreement.
Россия — График изменения цен на нефть, влияние на бюджет и ответные меры политики, 2024-2027 годы
Период↕
Цены Brent / Urals
Нефтегазовые доходы (г/г)
Ключевой фактор
Реакция бюджетной политики
2024 H2
Brent ~$75 / Urals ~$64
-8% г/г
Сокращения ОПЕК+; ужесточение санкций
Дефицит вырос до 3.1% ВВП; объявлено повышение НДС с 2026 года
Начало 2025
Urals ~$48.9 (минимум в мае 2025 г.)
-35% г/г (май–дек. 2025)
Тарифы Трампа; ослабление DXY; рост предложения ОПЕК+
Сокращения бюджета: авиация -22%, техпрограммы -46 млрд руб., робототехника -31%; дефицит повышен с 0.5% до 1.7% ВВП (прогноз)
Структурное фискальное давление: бюджет России на 2026 год основан на Urals ~$81.7; каждые $10/bbl снижения = ~$14 млрд потери доходов ежегодно
Источники: Центр NEST (февраль 2026 г.), Оксфордский институт энергетических исследований (февраль 2026 г.), Фонд Карнеги для "Международный мир" (март 2026 г.), "Отчеты МЭА по рынку нефти" (апрель–май 2026 г.), "В поисках альфы" (май 2026 г.), CNBC (май 2026 г.), "Курцио Ресерч" (май 2026 г.). Бюджетная оценка цены на нефть: Urals ~81,7 доллара за баррель на 2026 год (Oxford OIES, 2026).
The key feature of this dynamic is asymmetric vulnerability. During periods of high prices, the budget gains additional resources, but the incentive for reform simultaneously weakens. During periods of low prices, by contrast, the need for diversification becomes obvious, yet the resources to pursue it disappear: they are absorbed by closing budget gaps.
The year 2025 became a vivid illustration of this mechanism. Against the backdrop of falling oil and gas revenues, the state cut precisely those programs that were aimed at the long-term technological transformation of the economy.
A potential agreement between the US and Iran and the opening of the Strait of Hormuz could return Iranian exports to pre-conflict levels—around 1.5 million barrels per day. According to Curzio Research estimates, in March 2026 supplies had fallen to 1.14 million barrels, representing a loss of approximately 300,000–400,000 barrels. This volume could quickly return to the market. Additional restoration of Iran's export capacity could add another 400,000–600,000 barrels per day within a 12–18 month timeframe.
Taking into account production increases within OPEC+, supply-side pressure will push prices downward. Meanwhile, Russia's 2026 budget was formulated based on a Urals price of around $59 per barrel. According to the Oxford Institute for Energy Studies, a sustained $10 decline in Urals prices means losses of tens of billions of dollars in oil revenues annually. The specific amount depends on the ruble exchange rate and tax structure, but the scale of risks to the budget is obvious.
The diversification paradox: cutting what matters most
The budget's response to the 2025 oil shock revealed a structural contradiction. When revenues decline, the state first and foremost cuts programs that are critically important for the long-term diversification of the economy.
Table 2 demonstrates the key cuts of 2025 and their significance for technological and industrial policy.
Россия — Сокращение бюджета на развитие технологий и промышленности (2025) в сравнении со стратегической диверсификацией приоритетов
Программа / сектор↕
Сокращение бюджета (млрд ₽)▲
Сокращение (детально)
Стратегическая важность↕
Связь с диверсификацией
Оценка↕
Программа выпуска гражданских товаров
-66,9 ₽
-66.9 млрд RUB
Средняя—высокая — база гражданского производства
Отодвигает достижение цели по выпуску гражданской продукции на 40% к 2030 году
Контрпродуктивное сокращение
Высокотехнологичные отрасли (в целом)
-46,0 ₽
-46 млрд RUB
Критическая — лежит в основе цифровой трансформации
Ослабляет единственный несырьевой сектор роста с экспортным потенциалом
Стратегически дорогостоящее
Автомобилестроение
-35,0 ₽
-35 млрд RUB
Средняя — процесс локализации продолжается
Замедляет развитие внутренней цепочки создания стоимости
Высокая — направлена на решение проблемы нехватки кадров
Подрывает способность реагировать на дефицит 10.9M работников к 2030 году
Стратегически дорогостоящее
Источники: газета "Коммерсантъ" (май 2025 г.), цитируемая в Yahoo Finance (май 2025 г.); Центр NEST, Russia Economic Monitor(4 квартал 2025 г.); Прогноз Министерства труда России (июль 2025 г., цитируется в BOFIT, март 2026 г.); Прогноз BOFIT для России 2026-2028 гг. (март 2026 г.). Все цифры указаны в номинальных рублях; стратегическая оценка от RBCH.
The total volume of cuts amounted to approximately 200 billion rubles—funds were withdrawn from programs supporting technology, aviation, automotive manufacturing, robotics, and civilian production. In essence, this represents a partial rollback of years of industrial policy.
This is particularly striking against the backdrop of the "Made in Russia" export strategy, which envisions growth in non-commodity exports to $250 billion by 2030. Aviation, high-tech sectors, and robotics were supposed to be its key drivers—and these are precisely the areas that faced the largest cuts.
There is a counterargument. In 2024–2025, the share of non-commodity revenues in the budget structure did indeed grow thanks to VAT increases and corporate tax reform. This creates a more sustainable tax base and gives the Ministry of Finance grounds for cautious optimism (according to the Oxford Institute for Energy Studies). However, this does not resolve the fundamental contradiction.
First, the tax increases were a consequence of falling oil revenues. Raising VAT from 20% to 22% and expanding its application to small businesses increases revenues, but simultaneously suppresses consumer demand and investment activity.
Second, the cuts to technology programs occurred even as non-commodity revenues were growing. This means they proved insufficient to compensate for the shortfall in oil revenues and preserve priority spending.
A structural cycle that repeats itself
This paradox is no accident. Research on resource-dependent economies—from Sachs and Warner to van der Ploeg—describes precisely this dynamic: low prices create the need for diversification but strip away the resources to achieve it; high prices provide resources but weaken the incentives for change.
Russia has been caught in this cycle for three decades now. The problem isn't a lack of understanding, but rather that the conditions for solving it have never aligned in time.
An additional constraint in the current cycle is demographic. According to the Ministry of Labor's forecast, the economy will need another 10.9 million workers by 2030. The logical response would be robotization, yet these very sectors faced funding cuts of nearly a third in 2025.
The combination of fiscal and demographic constraints amplifies the overall effect and makes the current moment particularly significant for the economy's long-term trajectory.
The Current Window of Opportunity
The short-term oil spike triggered by the Middle East conflict has created a time-limited window of opportunity. The National Welfare Fund has partially recovered after a period of heavy withdrawals in 2025, temporarily expanding fiscal space.
However, by its very nature, the NWF is a stabilization tool, not a development instrument. This structure reduces budget volatility but entrenches a systemic imbalance: oil revenues more often go toward smoothing expenditures than toward investing in the future.
By comparison, Norway's Government Pension Fund model almost completely isolates oil and gas revenues from the current budget. In Russia, however, additional revenues more often become part of current spending.
To channel a portion of windfall revenues toward technology programs requires a separate political decision that goes beyond budgetary inertia. Yet the substantive foundation for such a move already exists: the period has repeatedly been called a window for structural transformation, though an institutional mechanism for its implementation remains absent.
Financially, the issue doesn't appear critical. Even a few weeks of high Brent prices could bring the budget additional billions of dollars. Restoring the cut programs in aviation, robotics, and high technology would require around 100–150 billion rubles—a comparable amount against the backdrop of additional oil revenues.
The Political Economy of Choice
The key question is not financial but institutional. Using the terminology of Acemoglu and Robinson, the issue is whether institutions are prepared to view resources as investments in economic transformation rather than as a reserve for stability.
Three competing logics clash within the system:
The Finance Ministry is focused on fiscal sustainability and reserve accumulation;
sectoral ministries are interested in restoring programs but have limited influence;
the defense-industrial complex remains the main competitor for resources.
It's the balance of these interests, not the availability of funds, that will determine whether this window of opportunity is used.
How a U.S.-Iran deal would change things
A potential U.S.-Iran agreement would alter the situation in several ways.
First, a major exporter would return to the market, increasing supply amid an already emerging glut.
Second, the reopening of the Strait of Hormuz would reduce the geopolitical premium in oil prices.
For Russia, this means intensified competition in key sales markets—primarily China and India. Iran and Russia compete for similar oil grades, and the return of Iranian exports would increase price pressure on Urals and ESPO.
An additional risk is a widening discount to Brent. Until now, it has fluctuated in the $13–25 per barrel range. Iranian suppliers, with lower transportation costs and established sales channels, can offer buyers more attractive terms.
That said, the agreement doesn't change the fundamental issue: the need to diversify the Russian economy remains.
The trend toward supply surplus formed long before the Middle Eastern conflict and is linked to rising OPEC+ production, Iran's return, slowing global demand, and the development of electric vehicles. The conflict merely temporarily distorted the market's trajectory.
Technology and diversification as a priority
The study's conclusion is not particularly new: reducing dependence on commodity revenues requires sustained investment in technology, human capital, and industry even under budgetary pressure.
What's novel about the current moment is the combination of factors. A temporary rise in oil revenues has coincided with a predictable market reversal downward, creating a limited window to restore curtailed programs.
Key priorities are as follows:
Robotics and automation — as a response to labor shortages and a tool for modernization.
Civil aviation — a key element of import substitution; funding cuts have only postponed, not eliminated, the problem.
Digital sector and high technology — industries with cumulative effects, where interrupting investment is particularly costly.
They share one thing in common — the time factor. The window of opportunity is narrowing as Iranian oil returns and prices decline.
Conclusion
For three decades, oil cycles have remained a key factor in Russian economic policy. Their logic is unchanging: high prices provide resources but weaken reforms; low prices intensify the need for change but strip away the means to achieve it.
The events of 2025–2026 compressed this cycle into a brief period, making it particularly visible. The temporary price spike merely postponed, but did not eliminate, structural constraints.
A potential U.S.-Iran agreement doesn't create new problems—it simply ends a short reprieve.
Under these conditions, a rational strategy would be to treat current windfall revenues not as reserves, but as an opportunity to invest in economic diversification. The reduction of such spending in 2025 demonstrated just how costly it is to subordinate long-term policy to short-term budget logic.
The window of opportunity is open, but not for long. Oil prices will change again—the only question is what Russia will manage to accomplish before that moment arrives.
*Carnegie Endowment for International Peace (an organization whose activities have been deemed undesirable on the territory of the Russian Federation).
