Russia’s energy sector has been hit hard as the Kremlin has been forced to increase taxes in response to the country’s economic struggles. The move comes as Russia faces a number of economic challenges, including sanctions imposed by the West and a decline in oil prices.

The tax hike, which was announced on Monday by Russian President Vladimir Putin, will see the mineral extraction tax for oil and gas companies rise by 20% from July 1. The tax is the main source of revenue for the Russian government’s budget and is expected to bring in an additional 600 billion rubles ($8.5 billion) in 2021.

The announcement has already sent shockwaves through Russia’s energy sector, which has been struggling to maintain profitability amid declining oil prices and rising production costs. Many industry experts predict that the tax hike will lead to reduced investment in the sector, as companies will have less money to spend on exploration and development.

The Russian government, however, has defended the tax hike as a necessary measure to support the country’s economy in the face of external pressures. In a statement, Putin said that the tax hike would help “maintain the stability of our economy, ensure the social obligations of the state, and support the implementation of national development goals.”

Despite the government’s assurances, the tax hike has been met with criticism from some quarters. Mikhail Krutikhin, an analyst at RusEnergy, told the BBC that the move was “bad news for the Russian economy” and that it would make it more difficult for the country to attract foreign investment.

The tax hike is just the latest in a series of economic challenges facing Russia. In addition to sanctions and falling oil prices, the country has also been hit hard by the COVID-19 pandemic, which has led to a sharp drop in demand for energy products.

As Russia’s energy sector faces mounting challenges, it remains to be seen how the tax hike will impact the industry and the wider economy. One thing is clear, however: the Kremlin is willing to take tough measures to keep the country afloat in these difficult times.