The Russia Oil Surcharge: Anticipating the Benefits and Challenges

Clayton Seigle

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This Commentary builds on the previously proposed surcharge mechanism designed to drive Russian oil revenues lower. In short, the U.S. government would impose a fee on Russia’s oil customers, like India, in exchange for waiving strong new secondary tariffs.

This approach is designed to isolate Moscow’s revenues in isolation: without trying to sink global oil prices (bad for U.S. industry economics) and without removing large Russian volumes from the market that would risk a price spike (bad for the fight against inflation).

This analysis addresses three key considerations arising from our proposal to maximize U.S. leverage to end the war in Ukraine.

Consideration 1: Eroding Russia’s Spending Power to Pressure Putin

With 7.3 million barrels per day (mb/d) of oil exports and prices around $64 per barrel, Russia earned about $467 million per day, or $14 billion from its oil sales during the month of July. How much of a revenue reduction is needed to change behaviors in Moscow?

A new shortfall of $40–50 billion will apply significant stress to Russia’s remaining financial sources and erode its current account surplus. An initial $20 per barrel surcharge that effectively caps Russian revenues around $45 could achieve this target. Here’s how:

Russia faces a mushrooming budget deficit—during the first seven months of 2025, it had already reached $61.1 billion, exceeding the full-year budget by a quarter, as wartime spending continues apace and oil revenues have come in below expectations. Western policymakers should target a further revenue cut of about $50 billion to further widen the deficit and apply stress to Moscow’s financial coping mechanisms.

Russia’s budget has two important lifelines to supplement oil and gas revenues: the National Welfare Fund (NWF) and debt issuance. Faced with low oil revenues, Moscow has resorted to both sources to preserve adequate war funding. The more Washington and its allies can reduce Russia’s oil revenues, the more Moscow will be forced to drain the NWF and increase indebtedness to perpetuate military spending—and these lifelines are not without limits.