Putin's war economy can't escape Trump's trade blitz

Russia dodged "Liberation Day" tariffs, but Moscow is still perilously exposed to President Trump's trade war for one reason: oil.

- Georgi Kantchev & Alan Cullison

The industry is both the engine of the Kremlin's economy and its primary source of vulnerability; oil and gas make up around a third of state-budget revenues.

Global crude prices slumped this month and remain volatile after tariff-fueled recession fears gripped the market. Russia's benchmark Urals blend is hovering under $55 a barrel, far below the target in this year's budget of around $70.

Analysts say that if prices remain low, the Russian economy will face a hard landing, in which case they project the budget deficit would nearly double this year.

The downturn comes at a precarious moment for Moscow: Its economy was already slowing before the collapse in the price of oil, and the Kremlin is engaged in negotiations with the U.S. over a cease-fire in Ukraine.

Moscow has been slow-walking the peace talks, calculating that battlefield gains give it more leverage for maximum concessions in those discussions.

While current oil prices aren't likely to push Russian President Vladimir Putin to abandon his military campaign, a deeper fall could alter his calculus.

Meanwhile, the oil squeeze will leave the Kremlin with painful choices, analysts say.

"If the oil price stays down, they will feel the pinch, and they are already beginning to feel the pinch," said Elina Ribakova, a nonresident senior fellow at the Washington-based Peterson Institute for International Economics.

"If this continues, they will face a guns versus butter situation."

Analysts at J.P. Morgan wrote in a note to clients this week that despite Moscow becoming more insulated from global trends because of sanctions and severed international ties, "the tsunami generated by U.S. trade policy is unlikely to leave Russia unscathed."

Putin's national-security state is in many ways built on oil wealth.

A catastrophic fall in the oil price in the 1980s contributed to the dissolution of the Soviet Union.