The Russian government is struggling to sustain revenues from the oil sector as planned reductions in crude production translate into lower oil exports and declining tax payments.

Government revenues from direct taxes on the oil and gas sector in February were lower than those levied before Russia’s invasion of Ukraine a year ago but up slightly against January’s figures as Russian producers increased their oil shipments to India, China and countries in Asia and Africa to make up for the heavy discounts that Urals crude is carrying against the Brent benchmark.

The increase in shipments seen in February is likely to tail off due to the reductions in domestic crude output that Moscow has flagged for this month.

According to the Russian Finance Ministry, oil producers and state-controlled gas giant Gazprom paid just over 521 billion rubles ($6.9 billion) in taxes in February, compared with 426 billion rubles in January.

The February figure was 149 billion rubles lower than budgeted, while the amount of taxes levied on oil and gas companies for the first two months of this year was 46% below the same period in 2022, the ministry said.

The ministry also revealed that February 2023 oil revenues rose mostly as a result of an increase in the tax burden for oil and gas producers, while oil export taxes remained broadly stable.

The ministry said Russian producers shipped crude from the country’s European-orientated export ports at an average price of $49.6 per barrel in February, almost unchanged from January and below the G7-approved price cap of $60 per barrel for Russian oil.

Because the crude is sold officially below the G7-approved price cap, Russian oil producers are relieved from the obligation ofmonitoring their export cargoes and reporting any cargoes re-sold under the price cap mechanism.

Production cut questioned

Russian Deputy Prime Minister Alexander Novak has repeatedly promised a cut of at least 500,000 barrels per day on the country’s producers from 1 March, but some well-placed industry players are unsure if the country’s oil industry will adhere to the reduction.

Torbjorn Tornqvist, chief executive at Gunvor, a big commodity trader that had strong links with Russia, said there may even be more Russian oil on the market now than before the war, according to a Reuters report from S&P Global’s CERAWeek event in Houston.

Tornqvist said price caps on Russian oil and products had been effective in keeping Russian supplies flowing while reducing the prices that buyers are paying for Russian crude.

Russia’s Finance Ministry has said that a new law increasing Russian oil export taxes will foster a “gradual recovery of oil and gas revenues, especially in the second half of this year”.