Russia's flagship Urals crude has fallen to price levels last seen before the conflict in the Middle East, adding pressure to Kremlin finances already strained by the ongoing war in Ukraine.

According to data from Argus Media, the Urals grade averaged $41.66 per barrel at Russia's western ports during the first three days of July, less than half the level recorded at the peak of oil market turmoil in April, The Caspian Post reports, citing Bloomberg.

Russia's Finance Ministry uses the data to calculate oil tax revenues.

The decline marks a setback for Moscow, which had benefited from higher oil revenues during the Middle East conflict. Russia emerged as one of the main beneficiaries after disruptions in the Strait of Hormuz curtailed Persian Gulf oil supplies, while U.S. sanctions waivers boosted demand for Russian crude.

Since March, Urals crude had averaged above the $59 per barrel price assumed in Russia's 2026 budget, including an average of $60.92 per barrel in June, when shipping through the Strait of Hormuz increased after Washington and Tehran signed an interim agreement to reopen the key waterway.

The surge in oil revenues enabled Russia, which relies on oil and gas for about one-fifth of its budget income, to resume replenishing its sovereign rainy-day fund for the first time in nearly a year and postpone cuts to non-priority spending.

If oil prices remain below the budget benchmark for an extended period, however, it could further complicate the Kremlin's efforts to contain its growing budget deficit as military spending linked to the war in Ukraine continues. During the first five months of this year, Russia's fiscal deficit widened to 6 trillion rubles ($77 billion), or 2.6% of GDP, exceeding the full-year 2026 target by about 60%.

Because Russia calculates oil taxes with a time lag, the decline in crude prices in July is expected to affect state budget revenues in August.

The $41.66-per-barrel Urals price does not include shipping costs. According to Argus Media, the grade's average discount to the global Dated Brent benchmark widened to $27.35 per barrel on Friday. By the time Russian crude is delivered to India, the discount narrows to $8.55 per barrel, although it remains unclear whether the difference between export and delivered prices ultimately benefits Russia.