Russia is selling Urals crude at record discounts

By Matthew Parish, Associate Editor

The discount of Russian Urals crude against the global benchmark Brent reached about US$19.40 per barrel at the ports of Primorsk and Novorossiysk on 10 November 2025. 

This discount rose from about US$13-14 per barrel earlier in the month. This surge in discounting is no doubt related to fresh United States sanctions targeting major Russian energy firms (Lukoil and Rosneft and their subsidiaries) and to major buyers (such as India and China) gradually reducing their Russian imports. 

While greater discounts were seen earlier (for example up to US$30 per barrel in 2022-23) those occurred when crude prices globally were much higher. 

Russia is being forced (or at least is finding it necessary) to accept a larger discount on its benchmark export grade than earlier in 2025 — signalling stress in its export pipeline, market access or bargaining position. The latter is presumably by reason of substantial Indian withdrawal from Russian crude purchases under pressure of US sanctions, leaving the remaining Chinese market with leverage to demand still lower prices even during a period of low global crude prices (not seen this low since April 2021). At the same time, JP Morgan has estimated that almost one-third of Russian oil exports are currently stuck in tankers, immobile, by reason of sanctions compliance issues connected to banks, insurers and other intermediaries in the global crude oil trade.

Economic consequences for Russia

The fact that Russia must sell its crude at deeper discounts imposes direct revenue losses per barrel. Even a “merely” US$19.40 discount is significant when multiplied by millions of barrels. Lower revenue in turn impacts the Russian budget, government transfers, oil-company profits, investment in upstream production, and ultimately the capacity to finance both civilian and military spending.

Academic modelling of forced discounts on Russian oil (from earlier phases of the war) suggests that price‐discount policies are more damaging to Russia’s revenues than simple reductions in export volumes. In one study a 20% forced discount produced losses equivalent to 3% of GDP and 85% of military spending in the short-term. That study has older data and different conditions, but it underscores the principle.

Russia’s subordinate export grade (Urals) trading significantly below Brent or other crudes reduces her export earnings, and over time will tend to reduce upstream investment and production reinvestment. More subtle but important is the signal it sends to investors and partners that Russia’s oil is less attractive, less secure, and more exposed to sanctions and market concerns.

Further, Russia’s domestic tax and duty regime on oil often presumes a certain price; a lower export price will reduce export duties and mineral extraction taxes, worsening the revenue picture for the state. The discount also erodes Russia’s capacity to deploy “windfall” revenues in high-price years and thus build buffers for future downturns.

Another economic effect is this: if buyers expect heavy discounts (or instability of supply) they may defer contracting, allocate smaller volumes or shift to alternate suppliers — reinforcing the downward price pressure and volume reduction. The article notes that major Indian refiners “have not placed orders for Russian oil for December”. That means not only lower price but weaker demand/volume, compounding the problem.

In aggregate, Russia’s oil-export model is coming under stress: falling price, potentially falling volumes, and rising costs (logistics, insurance, sanction circumvention). All this tends to reduce net export earnings and thereby hamper the fiscal base of the Russian war economy.

Geopolitical and strategic consequences

For Russia’s partners and buyers

One direct consequence of the discount is that Russian oil becomes more attractive to those actors willing to tolerate the risks or navigate between the sanctions. A deeper discount may entice buyers that otherwise would not purchase Russian crude or might purchase less. However recent analysis suggests the reverse is occurring: major buyers, in particular India but also China are gradually reducing their imports amid new sanctions and pressure. Thus Russia finds herself in the paradoxical position of offering deeper discounts yet losing volumes and buyer confidence. No doubt the latter is causative of the former.

For states that continue to import Russian crude, the discount may represent a favourable deal – yet they must weigh the sanction-risk, insurance/shipping complications, potential quality or logistic issues, and the broader commercial reputation risk. Non-Western buyers might gain a temporary positional advantage but also expose themselves to secondary effects (reduced insurance options, older tankers, logistical shadows and secondary sanctions imposed by various Western countries with whom they wish to continue doing business). Additionally such deals may increase dependence on Russia and thereby create strategic vulnerability.

For Western energy and sanctions strategy

The discount dynamic is important for the design of Western sanctions and for monitoring their efficacy. One goal of Western sanctions (including price-caps) has been to reduce Russia’s oil export revenue without causing major global supply disruptions. The fact that Russia is forced to export at deeper discounts suggests that sanctions and market responses are working in part — Russia cannot command the same premium as before.

But the deeper discount also poses a risk: if volumes fall too sharply or supply to particular buyers collapses, global oil prices may rise (especially given geopolitical fragility), which could rebound to Russia’s benefit. In other words, there is a delicate balancing act: reducing Russian revenue while keeping global supply stable. The current scenario suggests Russia is paying a price, but market distortions remain.

At this juncture the sanction architecture (e.g. price-caps, insurance restrictions, shipping sanctions) is being stress-tested. Russia’s turn to non-traditional customers, shipping routes, older tankers and shadow fleets indicates adaptive responses. Nevertheless no such responses can be a substitute for the fact that oil prices appear to be kept stable by the United States in cooperation with her Middle Eastern partners. For as long as oil prices are kept low through the United States’ “energy dominance” policies, the pressure on Russian hydrocarbon revenues will be maintained without knock-on consequences for Western energy policy or prices.

For global energy markets

From a market perspective, increased discounting of Russian crude alters the global pricing structure: if a significant volume of crude trades at a large discount, this affects benchmarks, arbitrage flows, commodity spreads, the economics of refinery procedures and regional trade flows. Refineries in Asia, for instance, that can accept crude with fewer Western compliance constraints may benefit, but they also assume higher risk.

The discount also reflects a broader shift in supply dynamics: Russia’s ability to supply Western markets has been curtailed, its sea-borne exports are falling, and buyers are more selective. At the same time, other suppliers (Middle East, US, Africa) may fill gaps, which over time compresses demand for Russian crude and further lowers its value. This is a feedback loop.

In addition if Russia begins to prioritise specific markets at deep discounts, this may re-shore or re-configure global refining and trade patterns — with implications for shipping lanes, tanker markets, insurance markets, and environmental/regulatory regimes (older tankers, no AIS, ship-to-ship transfers). These structural changes will have longer-term import for global energy supply resilience. The oil trading world will be divided in two: those willing to abandon international standards of regulation and sanctions compliance, and deal in Russian oil; and those not prepared to do so, who will be forced out of Western trading networks.

Implications for the war in Ukraine and for Russia’s strategy

The discount and reduced export revenue have direct implications for Russia’s capacity to finance her war in Ukraine. The war effort relies significantly on energy export earnings to fund military production, logistics, personnel and materiel. Thus a sustained reduction in revenue may eventually degrade Russia’s ability to sustain high-tempo operations, procure high-end platforms, or maintain large force structures.

At the same time, Russia may compensate by cost‐cutting, reassigning resources from civilian to military sectors, raising taxation, or increasing borrowing (domestic or international). But these options have limits, especially given already high Western pressure, inflation, rouble weakness, and capital flight.

For Ukraine the Russian discount is encouraging: it indicates pressure on the Kremlin’s economic base, and thus may increase Ukraine’s bargaining leverage in any future negotiations (especially if Western allies combine sanction and market pressure). It also strengthens the case for continued Western support and sanctions enforcement as a strategic component of the war effort.

Furthermore the fact that major buyers are reducing purchases suggests a tightening of Russia’s global energy network — meaning fewer options for revenue and perhaps increased isolation. That in itself is a strategic shift.

However there are risks: if Russia responds by cutting production (to reduce the volume and support prices) it may trigger global oil‐price increases (unless the United States and her partners step in to compensate with higher production sourced elsewhere); or Russia may pivot still more strongly to low-cost, high-volume customers (e.g. India or China) willing to absorb discounted crude, thereby circumventing Western pressure. In that scenario the discount may increase rather than shrink in order to maintain those customers in the face of sanctions pressure, and Russia’s ability to sustain revenues to maintain the war will be hard to predict.

Broader third-party state and institutional consequences

The discounting of Russian crude imposes consequences on importing states, international financial and insurance institutions, and global energy governance frameworks.

Countries that previously imported Russian crude under favourable terms may now need to negotiate new deals, face higher shipping/insurance risk, or shift supply sources. Some may gain by buying discounted crude, but they also assume risk (secondary sanctions, logistic uncertainty, reputational issues). This opens opportunities for diversification (Middle East, Africa) but also creates adjustment cost and vulnerability.

The deeper discounts reflect increased logistics cost or risk premium for Russian crude (e.g., older tankers, “shadow fleet”, sanctions avoidance). This raises the cost of compliance and may inflate costs for importers and traders. It may also incentivise the growth of non-transparent shipping practices with attendant environmental and accident risk (older vessels, less oversight).

The scenario underscores the importance of the oil-price cap regime, sanctions enforcement and sanctions avoidance mechanisms. Institutions (G7, EU, OFAC) may now monitor tighter, sanction more vessels or traders, or expand price-cap mechanisms. The discount may be interpreted as a sanction-success signal, but only if sustained and coupled with volume declines.

Third-party states with exposure to Russian energy (for example, states in the Balkans, Eastern Europe, Central Asia) may look at the Russian discount phenomenon and reassess their dependencies. If Russian energy becomes cheaper but less secure, they will weigh cost versus risk, perhaps accelerating diversification or energy security strategies.

Conclusion

Russia’s energy export model is under significant pressure. From the Russian standpoint, this signals weaker bargaining power, reduced revenue, rising logistic and compliance costs, and potential strategic vulnerability in the long run.

For Western states, particularly those supporting Ukraine, the discount is an indicator of sanction efficacy and a potential lever in the broader economic-warfare campaign. For importing states and global energy markets, the discount presents both opportunity (low-cost crude) and risk (logistic/sanction uncertainty, volatility).

In the broader context of the war in Ukraine, this dynamic strengthens Ukraine’s economic and diplomatic position: fewer customers for Russia, lower revenues for Moscow, more leverage for Kyiv and its backers. However the outcome is not predetermined. Russia retains options to adapt (volume pivot, production cuts, price recovery) and global energy markets remain fragile.

The discount phenomenon is an important data-point signalling pressure on Russia’s energy revenues and export apparatus. If sustained, it may contribute meaningfully to the weakening of Russia’s capacity to project power, maintain large-scale military operations and fund her war economy. If not sustained, it may instead herald a strategic adaptation by Russia, a reshaping of global energy flows and possibly a new equilibrium of lower-price, higher-risk oil trade. Only time will tell.