Russia Considers Brent-Based Oil Tax To Limit Its Losses

Russia is considering taxing its oil firms based on the price of Brent – instead of its flagship grade Urals – to limit the fallout on the Russian budget revenues due to the widening discount of Urals to Brent, Russian daily Kommersant reported on Friday, quoting sources.

Russia is looking at ways to reduce the steep discount on Urals and to stabilize the oil revenues. At the end of January, Russian President Vladimir Putin ordered the government to submit within a month proposals to change the methodology for calculating the taxes from oil, Kommersant’s sources said.

The price of Urals has slumped to a discount of nearly $40 per barrel to the price of Brent Crude, which reduces Russia’s budget revenues from oil export taxes. Since the start of the EU embargo on crude oil imports from Russia and the G7 price cap, the per-barrel crude export duty for the Russian state has shrunk due to the plunge in the price of the Urals grade.

Urals crude traded at $49.48 per barrel in January, with rising transportation costs compounding a discount that has seen the country’s flagship crude price plunge year over year. The average price of Urals in January, at $49.48 per barrel, was 1.7 times lower than in January 2022, when it averaged $85.64 per barrel, Russia’s Finance Ministry said earlier this week.

The lower the price of Urals is, the lower the export duty on crude and petroleum products is, thus reducing revenues for the Russian budget.

So, seeing a threat to the most important budget revenue stream – oil, Russian authorities are now considering amendments in the tax legislation, according to Kommersant. The leading idea is to tie the calculation of the export duty to the price of Brent instead of Urals.

The price cap hasn’t impacted materially Russia’s crude oil export volumes, yet, but it has impacted revenues, due to the hefty discount of Urals to Brent. Per Russian finance ministry’s data cited by Kommersant, the tax collected from companies fell by 10% in December compared to November, to $6.75 billion (474.8 billion Russian rubles).

By Tsvetana Paraskova for