Russia Slows Oil Drilling as Funds under Pressure

Russia’s oil producers reduced the pace of drilling in 2025 to the lowest level in three years, dimming the outlook for output growth this year as Western sanctions and a strong ruble undercut revenue.

Rigs drilled about 29,140 kilometers of production wells in the country last year, down 3.4 percent from 2024, according to industry data seen by Bloomberg News. After reaching record rates in the first months of 2025, activity started to slow in June and slumped about 16 percent in December from a year earlier, the data show.

The slowdown comes as Russian producers are under pressure from lower global oil prices, deeper discounts on their barrels due to tighter Western sanctions and a stronger ruble that made exports less profitable. Meanwhile, the Organization of the Petroleum Exporting Countries and its allies are reviewing how much its members are capable of producing years ahead, in an effort to align output quotas more closely with members’ actual abilities. 

Production in Russia, a de-facto leader of OPEC+ along with Saudi Arabia, has already fallen for two consecutive months amid export constraints, and lower drilling could add further pressure as the alliance weighs its next steps in supply policy.

“Russian production is quite similar to the US shale, with output growth and decline looking like an echo of drilling amount several months prior,” said Sergey Vakulenko, who spent a decade as an executive at a Russian oil producer and is now a scholar at the Carnegie Endowment for International Peace. 

Russia’s Energy Ministry didn’t immediately respond to Bloomberg request for a comment.

A decline in drilling rates in the second half of the year is “a rational reaction of companies to a collapse in profitability,” said Gennadii Masakov, former director of the research and insights center at Yakov & Partners and currently an independent energy expert. “Companies have switched to cash saving mode.”

The price of Urals, Russia’s main oil-export blend, shrank to $39.18 a barrel in December for tax purposes, a 42 percent drop from January. After the US blacklisted top producers Rosneft PJSC and Lukoil PJSC, the discount on Urals to the Brent benchmark widened to about $27 a barrel at the point of export in December – more than double from the start of 2025 – as buyers sought a bigger financial incentives to continue purchases. 

At the same time, the ruble appreciated by almost a quarter against the US dollar as Russia’s key interest rate remained near a record high.

“All these effects reduce the ruble-based net present value of a prospective well, making the companies drill less,” Vakulenko said.

What’s Next?

Usually it takes several months from drilling a well to starting pumping oil from it, so the recent slowdown is yet to be felt. The drop in the country’s crude production in December and January was caused mostly by US sanctions and President Donald Trump’s pressure on India to halt purchases of Russian crude as part of a campaign to end the war in Ukraine that’s set to enter its fifth year, analysts say. 

As it takes more time to find buyers for Urals, the amount of Russian crude held on tankers increased to about 140 million barrels, compared with about 100 million in early October. Ukraine’s repeated attacks on Russian oil fields in the Caspian Sea in December and January also contributed to the drop in output.

“The real effect of the drop in drilling hasn’t yet become evident and will be visible in production in the second or third quarters of 2026,” Masakov said. 

With many fields in natural decline, Russia needs to drill 26,000 to 29,000 kilometers of wells every year to maintain daily crude output at about 9.2 million to 9.4 million barrels, according to Masakov’s estimates. “Any further decline below this level will inevitably lead to a decline in production,” he added. 

In January, Russia’s crude-only output averaged 9.246 million barrels a day, or 328,000 barrels below the nation’s quota for the month within the OPEC+ agreement. If Russia’s production continues to fall, the nation risks losing global market share to OPEC+ allies. Some members of the alliance see scope to resume supply increases in April after the group agreed to keep output steady in the first quarter. 

This year, Russia’s crude-only production will decline slightly, but higher output of a light oil called condensate will offset that, bringing the total figure to 2024 levels, when output was 516 million tons, according to estimates from Moscow-based Kasatkin Consulting. That’s equivalent to 10.36 million barrels a day based on a 7.33 barrel-per-ton conversion rate, and compares with 10.28 million barrels a day last year. 

Russia is capable of producing 10.5 million to 11 million barrels a day of crude and condensate, and to maintain that level for a decade or more, according to Ronald Smith from Emerging Markets Oil & Gas Consulting Partners LLC.

“In theory, Russia’s potential to increase output is very high, but everything depends on the economy, OPEC+ agreements, as well as domestic constraints – the central bank’s key rate, personnel, technologies and operational efficiency – and external restrictions on marketing and delivering the nation’s crude to clients,” Dmitry Kasatkin, a managing partner at Kasatkin Consulting, said. “Changes in any of these factors will alter the actual production potential.”