Russia's crude oil production fell in May to its lowest level in a year, with Ukraine's record-setting drone campaign against oil infrastructure playing a major role, Bloomberg reported. The decline, now running for half a year, cuts into the mineral extraction tax — the main channel through which oil fills the federal budget that finances the war, the Russian-language Moscow Times noted.

Output slides for half a year, far below the OPEC+ quota

Russia averaged 9.009 million barrels of crude a day in May, OPEC's monthly report shows. Daily output last peaked in November at 9.38 million barrels and has shrunk every month since, losing roughly 370,000 barrels, the Moscow Times wrote. The May figure sits 690,000 barrels a day short of what the OPEC+ deal obliges Russia to pump, Bloomberg calculated. The data excludes condensate, and April's level was revised slightly lower.

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All three Rosneft Samara refineries now offline or reduced as drones halt Kuibyshevsky operations yesterday

The Ukrainian strikes have been disabling oil storage and transportation capacity. That shortage, combined with underinvestment, reduces the volume of crude Russia extracts. Bloomberg observed that while the latest monthly drop marks a slowdown against previous months, it will likely keep weighing on oil markets. Oil prices stay elevated amid the continuing Middle East conflict, and Russia ranks among the world's three biggest crude producers whose barrels bypass the Strait of Hormuz, shut in practice since the Iran war erupted.

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Russia’s fuel crisis jumps from 15 to 25 regions in five days—plus six occupied Ukrainian areas

A record month of strikes crushes refining

Ukraine sharply intensified its May campaign against Russian oil sites, logging at least 31 strikes on refineries, seaborne export terminals, and pipelines, Bloomberg counted — the highest monthly count since the full-scale invasion, as Kyiv works to cut the Kremlin's income from elevated crude prices. Because most strikes targeted fuel-producing facilities, Russian refining collapsed to its 2009 level in May. So far this month, Russia's refining runs have fallen to a two-decade low, EA Analytics, part of consultancy Energy Aspects, estimates.

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Russian crude reaches the sea through tunnels under a mountain ridge—and Ukraine hit the storage end near Novorossiysk

Exports rise while the budget's tax base shrinks

The gasoline shortage behind the fuel crisis in a number of Russian regions led producers to redirect more crude to export markets. The Baltic and Black Sea ports damaged in the first two months of spring have been repaired. Seaborne crude exports averaged 3.64 million barrels a day over the four weeks ending 31 May, Bloomberg's tanker-tracking data show. That compares with 3.17 million barrels daily over the four-week stretch to 17 April, when Ukrainian forces actively bombed ports and export terminals.

The Moscow Times notes that the export shift allows companies and intermediaries who retain significant sums from sales abroad to raise their incomes. The federal budget that pays for the war, though, is filled above all by the mineral extraction tax, so falling production hits government revenue directly.

Russia's Federal Tax Service has pushed regional governments to consider higher taxes on residents and businesses as local budgets sink to record deficits, The Moscow Times reported. The move follows President Vladimir Putin's drive to shrink regional shortfalls, and it shows the financial strain Russia's war against Ukraine is placing on its provinces. Independent analysts expect the squeeze to deepen as the economy slows.

Tax service tells regions to find more money

The Federal Tax Service (FNS) instructed regional authorities to work out where they could raise taxes, The Moscow Times reported, citing RBC. The recommendations answered Putin's directive to cut regional deficits, and governors had to submit their proposals in early June.

The advice told regions to:

• expand the list of real estate taxed at cadastral, or market, value;
• raise transport-tax rates to the maximum;
• revise the benefits and rates on land tax and personal property tax.

To collect more, regions were also told to inventory real estate and to look for land used off-purpose, where the tax can rise several times over.

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Russian refining output fell 9.2% in April as Ukrainian drone strikes hit fuel plants

A record hole in regional finances

Last year, Russia's regions closed with a combined deficit of 1.538 trillion rubles ($20.8 billion). The gap grew fivefold from 2024 and almost eightfold from 2023. Four regions ran deficits above 30% of their own revenue — Kemerovo, Vologda, Arkhangelsk, and Tyumen oblasts — and six more topped 25%.

Profit-tax revenue fell in 55 regions. It collapsed by half in the Komi Republic, dropped 40% in Orenburg Oblast, and fell 39% in Yamalo-Nenets. Overall, regions collected 9% less profit tax than in 2024 and 13% less than in 2023, according to the rating agency ACRA. The pattern fits a war economy that has turned predatory toward once-wealthy provinces.

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Russia’s four-month budget deficit hit $75.4 billion — 50% above what Moscow planned for entire year

Reserves drained, debt climbing

To cover the shortfalls, regional governments spent every third ruble of their bank reserves — 1 trillion of 2.9 trillion rubles ($13.9 billion of $40 billion). They financed the rest with borrowing that pushed combined regional debt to 3.5 trillion rubles ($48.6 billion), ACRA reported — the highest in 15 years by Expert RA's earlier count. Expert RA projected the slowdown will continue this year, dragging revenues lower and lifting both the deficit and the debt burden.

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$7 billion lost from Russia’s war economy this year through Ukraine’s “long-range sanctions” on oil sector – Zelenskyy

Russian Finance Minister Anton Siluanov earlier projected the regional gap could widen to 1.9 trillion rubles ($26.4 billion) in 2026. The crunch mirrors a federal budget that has run far ahead of plan as Ukrainian strikes cut into Russian refineries and oil income.

Moscow raised VAT in January and prepared a windfall levy on big business, both breaking Putin's 2024 pledge of no tax changes before 2030. Smaller firms have been squeezed first even as the Kremlin's own spending keeps climbing

Russians pulled a record 381.2 billion rubles (approximately $5.2 billion) in cash from the banking system in May 2026. It is the largest May cash outflow since the Russian Central Bank began publishing such data in 1995, The Moscow Times reports, citing RBK's analysis of Russian Central Bank data. 

The 30-year record adds to a sustained 2026 pattern of Russians pulling cash from banks: April saw $9.2 billion in cash outflows, and March saw $4.1 billion.

The cumulative $14.8 billion in banknotes added to circulation since January reflects what Russian financial analysts describe as a confluence of geopolitical and macroeconomic uncertainty, internet outages limiting access to online banking, and the Central Bank rate cuts that have made deposits less attractive.

The Central Bank itself responded on 1 June by tightening controls on ATM cash withdrawals, with banks now able to track monthly withdrawal limits and may suspend "suspicious" operations, such as large withdrawals after long pauses or multiple operations in short timeframes.

2026 cash-flight progression

The monthly Russian cash-circulation data published by the Central Bank of Russia shows a sustained increase in cash held outside the banking system across 2026. Lead analyst Natalia Milchakova of Freedom Finance Global, quoted by The Moscow Times, explained that Russians are increasingly choosing cash due to uncertainty and a desire to have money for unplanned expenses "here and now."

Milchakova also warned that the cash shift may signal small and medium businesses moving into the shadow economy. The Central Bank itself identified business adaptation to the new 2026 tax rules as a primary driver, alongside internet outages. Sberbank's deputy chair, Aleksandr Vedyakhin, said Russians worry that digital transfers make their transactions visible to tax authorities.

Internet outages and the banking system

Russian internet outages have played a significant role in the cash-flight pattern, depriving Russians of access to online banking and cashless payment systems, Milchakova said.

The outage pattern is part of a wider disruption to Russian mobile internet across 2025-2026, in which Russian authorities have repeatedly shut down regional mobile internet.

Those shutdowns cut Russians' access to banking apps, fuel purchases, navigation, and messaging, with watchdog estimates of economic losses of $290 million in July 2025 alone. Russian Central Bank rate cuts also factor in: lower deposit rates have reduced the attractiveness of leaving money in banks, pushing households toward cash holdings as a default.

Central Bank's response

The Russian Central Bank's 1 June 2026 tightening of ATM withdrawal controls marks an acceleration of Russia's wartime capital controls. Under the new rules, Russian banks will track each customer's monthly cash withdrawal limit. "Suspicious" operations, defined to include large withdrawals after extended pauses, or multiple withdrawal operations conducted in short timeframes, may now be blocked or suspended pending review. Such administrative friction on cash withdrawals is being deployed at the same time the central bank is cutting interest rates, suggesting the regulator's primary concern is bank-system stability rather than monetary tightening.