The pressure on Russia’s finances has grown so acute that even a sustained surge in oil prices driven by turmoil in the Strait of Hormuz will not be enough to plug the widening deficit.

Even as oil prices climb, the Kremlin is moving quickly to tighten fiscal policy. President Vladimir Putin’s technocrats have begun a new cycle of localized budget cuts, stricter conservation of dwindling reserves and increased creative accounting on his orders.

The shift began quietly. Three days before the United States and Israel launched their campaign against Iran, Prime Minister Mikhail Mishustin addressed the lower-house State Duma and hinted at a sharp, and likely unpopular, change in economic policy.

He did not announce it outright. Instead, in the carefully coded language of the Russian system, he framed it as an answer to a question from Andrey Makarov, a loyal lawmaker often used to pose uncomfortable questions on cue.

Makarov asked how the government planned to deal with the deficit. Mishustin replied that he and senior officials had spent “many, many hours” in discussion with the president searching for the best solution.

Such remarks are never casual. In Russia, even the fact of a meeting with the president is tightly controlled information. Mishustin’s apparent openness showed a difficult decision had already been made, approved at the highest level and thus no longer subject to debate.

Days later, the details emerged that the government had suspended its so-called budget rule.

The budget rule was designed to stabilize the ruble and insulate the federal budget regardless of fluctuations in oil prices. If, for example, Russia’s Urals blend sold below the cutoff price (around $60 per barrel), then yuan and gold would be taken from the National Wealth Fund, sold on the open market and the proceeds would be used to plug the budget gap.

For most of this year, that is exactly what they had been doing. Oil prices were low in January and February, so oil and gas revenues totaled only 0.8 trillion rubles ($9.6 billion), half the figure in........

© The Moscow Times