Putin regime relies on high oil prices

Part 2: Russia’s Aggressive Oil Tax Regime—the Mainstay of State Finances

As oil prices rise above $25 a barrel, 80% of each incremental dollar goes to the State

Taxation of export oil has long been the mainstay the Putin regime. This is possible because Russian oil is cheap to produce and the Russian government taxes oil aggressively. Industry costs have been creeping up in recent years as declining, low-cost fields are replaced by more expensive new ones. Nonetheless, Russia’s full-cycle costs remain mostly in the range of $20 - $25 (these are the costs to find, develop, produce and move a barrel of oil).

Russian oil taxes are closely tied to the oil price. Taxation begins as prices rise above $15 a barrel. As prices rise above $25, the marginal tax rate rises to near 80%. This means for every incremental dollar in the oil price above $25, the state takes 80 cents. At today’s Urals blend price of $80, for example, the Kremlin is collecting $55 for every barrel exported (Figure 7). The remaining $25 goes to the producer to cover costs. Some tax relief is available for certain projects, such as greenfield developments.