Russian oil is being sold at the steepest discount on record in a hammer blow to Vladimir Putin’s war machine.

Urals crude, as Russian exports are known, dropped to an average of $37.50 a barrel in January as the Kremlin faced US sanctions and a more difficult trade relationship with India.

Robin Brooks, a former chief economist at the Institute of International Finance, said Urals was now 42pc cheaper than Brent crude oil, which was $67 a barrel on Friday.

The decline is a significant hit to Putin as he seeks to fund his war efforts against Ukraine using money from selling oil.

Until now, Russian oil exporters have largely found ways to circumvent Western sanctions to prop up the economy and pay for the war.

But after Donald Trump imposed sanctions on Russian oil giants Rosneft and Lukoil in October, the situation changed dramatically, say analysts.

“If this continues, it poses big problems for Putin, as a key part of the strategy to keep the domestic economy afloat is the use of strong oil export revenues,” said Steffen Dietel, from Altana Wealth.

“This has led to significantly lower oil revenues for the Russians, so the repercussions for the war in Ukraine are potentially significant.”

In addition, the US president said earlier this month that India had agreed to stop buying Russian oil in exchange for cuts to tariffs.

The International Energy Agency said this week that Moscow’s oil supplies declined by a “sizeable” 350,000 barrels per day in January “under increased pressure from Washington and broader EU sanctions”.

The Paris-based body said tanker tracking data showed Indian imports of Russian crude dropped to 1.1 million barrels a day during the month, the lowest since November 2022.

“Shipments to India have been hit particularly hard as fresh EU restrictions on imports of petroleum products derived from Russian crude prompted key export refineries to look for alternative supplies,” it said.

The EU this month launched its 20th package of sanctions against the Kremlin since the invasion of Ukraine four years ago. The measures shift from a price cap from G7 nations to a full maritime-services ban on Russian crude.

In the face of dwindling oil revenues and sanctions, Russia’s central bank sought to boost the economy by lowering interest rates for the sixth time in a row on Friday. The half a percentage point rate cut to 15.5pc came despite inflation rising to 6.3pc, well above its 4pc target.

Hamad Hussain, a commodities economist at Capital Economics, said the wide discount on Urals crude oil has “added to Russia’s fiscal strains”.

“If India were to significantly reduce imports of Russian oil, this would force Russian oil exporters to sell their crude at a cheaper price to incentivise greater demand from China,” he said.

He expects Urals prices will probably still fall over the rest of this year “due to fundamental drivers that would lead to oil prices falling globally”.

However, he warned: “The current fiscal situation in Russia doesn’t appear to be severe enough to force Putin into scaling back the war effort in Ukraine.”

Mr Brooks, who calculated the drop in crude using data from Havers, said the decline in Urals price correlated with Russia’s oil tax receipts.

He urged the West to use “shock and awe” tactics on Moscow to squeeze Putin further as President Trump seeks further negotiations to end the war in Ukraine.

He said: “What matters is to do something sudden that shocks people in Moscow.”

Mr Brooks added: “I think the 20th EU sanctions package with the ban on Western maritime services is a good step forward, combined with US sanctions on Rosneft and Lukoil, which have had a huge impact in scaring people off buying Russian crude.”

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