Russian energy sector is taking one hit after another: 2024 in review & 2025 outlook

Energy is the “cash cow” of the Russian economy. But over the past three years, the sanctions have done their job - what used to be a massive stream of income is experiencing a significant slowdown. For all sectors of Russian energy production but oil, 2024 was a year of falling profits, and 2025 promises to further diminish these key funding sources for Russia’s war machine.

▪️Russian coal industry is in freefall. The EU’s total embargo has decimated exports, pushing companies toward bankruptcy and delaying salaries for months. In Kuzbass, one of the world’s largest coal-mining regions, workers have staged intermittent strikes, demanding long-overdue wages.

Russian coal producers ended the year with a loss of about USD 770 million – due to a combination of ever-stricter sanctions, fall in exports to China, and logistical issues on the Russian Railways and naval transport. The International Energy Agency (IEA) is projecting that the sector will keep shrinking in 2025 – by the most modest estimates, a 3% decrease can be expected.

▪️Electricity generation is also under pressure. Despite official claims as recently as July 2024 that electricity exports to China would continue to grow, year-end reports revealed a decline, driven by rising domestic demand in the Russian Far East. Overall, profits in the electricity sector dropped by 42%. Looking ahead, the domestic situation is set to worsen in 2025, with electricity bills for Russian households expected to rise by at least 12%.

▪️Oil and gas stand out as outliers in the broader picture of falling profitability. Despite sanctions, Russian oil trade recovered and was 56% higher year-on-year than in 2023 as of August. Overall Russia’s oil and gas industry showed very good profitability –over USD 41 billion as of Q3 2024. 

However, not everything was well in the “blood oil” kingdom:

▪️The oil profits took a hit in October-November 2024, when the price of crude oil fell. Russia is very dependent on the high price of crude; Central Bank sees trouble if it falls below USD 60 per barrel, while a lower price at USD 40 could cripple the whole industry, as it would barely allow Russian production to break even. Trump’s campaign declarations, as well as troubles with OPEC+ deal, which risks falling apart, if realized, could create a very problematic scenario for Russian oil trade. 

▪️Oil refining, unlike crude oil production, is in crisis. Several companies have cut down on production due to a combination of factors – high cost of crude, sky-rocketing interest rates in Russia, as well as export restrictions. Some of them could face closures purely due to economic reasons. Ukraine’s attacks on Russian oil refineries also left their mark. The successful strikes on key infrastructure and sanctions-induced difficulties in repairs, as well as economic troubles, have led to a 21% decrease in profits for the sector, and this trend will persist in 2025.

▪️The Jan 1 closure of gas transit through Ukraine will be a major hit for Russian gas sales. The EU was still the biggest importer of Russian pipeline gas in 2024, and Ukraine’s transit system was the main trade route; with the loss of a lion’s share the European market, the profits of Gazprom will plummet in 2025. 

Though the outlooks for Russian energy sector look somewhat bleak, without strict enforcement of sanctions and expansion of restrictions against the shadow fleet, Russia will still make do.