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Thanks to a windfall tax paid by Gazprom, Russian President Vladimir Putin has announced that there will be “no limitations” on spending for the military’s war in Ukraine, as Western sanctions and price caps hope to crush war coffers, Bloomberg reports.
“The country and government is giving everything that the army asks for--everything. I trust that there will be an appropriate response and the results will be achieved,” Putin told top military officials at the Defense Ministry’s annual meeting in Moscow on Wednesday.
Defense Minister Sergei Shoigu told Putin that Russia should expand its armed forces to 1.5 million troops, including 695,000 professional contract soldiers from the current 1.15 million in a bid to bolster security. Shoigu, however, has not explained where the additional recruits would be found with the latest mobilization drive deeply unpopular inside Russia.
Putin’s bluster and show of defiance will, however, be put to the test in the coming months as revenue from energy exports comes under pressure following price restrictions imposed by the U.S. and its allies. Whereas Russia is running a record current-account surplus for the current year, cash flows are expected to weaken considerably in 2023 as oil and gas sales to Europe plunge. Ukraine’s Ministry of Economy says it expects that the EU embargo on Russian oil and petroleum products should cut Russia’s profits by at least 50%.
"We expect the collapse of profits from oil and gas exports to be at more than 50%, precisely because of the introduction of the EU embargo on oil and petroleum products and the introduction of price restrictions. Oil and gas account for 60% and 40% of federal budget revenues. We expect that Russia's revenues will fall below the critical level of $40 billion per quarter," Yuliya Svyrydenko, First Deputy Prime Minister and Minister of Economy of Ukraine has said. She has expressed hope that plunging profits will make it more difficult for Russia to continue waging an expansive war.
By Alex Kimani for Oilprice.com
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Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com.