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 Oilprice.com
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Comments
Long before the Ukraine conflict, Russia’s Urals crude has always traded at a lower price than the much lighter Brent crude.
By considering taxing its oil firms based on the price of Brent – instead of its flagship grade Urals to limit any possible fallout on the Russian budget revenues, Russia is acting in no different way from Western countries. This is the very reason why the United States and the EU are charging their oil companies a windfall tax on their profits in order to reduce the deficit in their budgets.
And though Russia offers preferential prices to its loyal customers, nobody knows what the preferential prices are. This is a secret nobody other than Russia is privy to. Therefore the claim that Russia offers a discount of $38.77 a barrel on Urals crude is at best guess work and at worst wrong and a deliberate Western disinformation ploy.
Russia wouldn’t have been able to end 2022 with a current account surplus of $228 bn and a trade balance surplus of $290 bn if it was offering such ludicrous discounts. Moreover, Russia exported on average in 2022 7.8 million barrels a day of crude and petroleum products or 98% of the pre-Ukraine export level despite the sanctions, the bans and the oil price cap.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert