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The attack on Ukraine and Western sanctions are driving the Russian energy giant Gazprom into crisis. Putin has few options left.
Moscow – Bad news for Russia’s economy: an important source of income is in danger of collapsing. For Vladimir Putin, gas deals are an essential source of money to expand his war chest. But the war in Ukraine and Western sanctions are reducing its income: the energy giant Gazprom has not recorded a profit for the first time since 1999 and is in the deep red – with devastating consequences for Moscow.
Losses for Russia’s economy: Putin’s energy giant is sliding into billions in losses
In the second year of the war of aggression against Ukraine, the Russian energy company Gazprom recorded a net loss of around 629 billion rubles (equivalent to 6.4 billion euros). According to Russian media reports, this is Gazprom’s first net loss since 1999. The massive slump can be explained by the low volumes of gas delivered to Europe.
In protest against Western sanctions, Moscow itself largely stopped deliveries in the summer of 2022 Handelsblatt So far, only a third of Gazprom’s gas has gone to Europe. However, the group generated two thirds of its profit with this amount. In addition, European countries are more successful in finding alternative gas sources: According to EU data, Russia’s share of European gas imports fell from 40 percent in 2021 to eight percent in 2023, it is said Financial Times.
The collapse in the gas business is reducing the revenues of the Russian economy
Experts believe that in the long term the Russian economy will not reach the level of Putin’s gas deals before the Ukraine war. Gazprom is not in a position to make a profit, the weekly writes The Economist. In 2021, Gazprom exported over 174 billion cubic meters of natural gas to European countries. In 2023, Gazprom’s natural gas deliveries to Europe amounted to only 28.3 billion cubic meters, according to the news agency’s calculations Reuters Show (as of January 2024). According to Andrey Klepach, chief economist at the Russian state credit institution Vneshekonombank (VEB), it is unrealistic to restore lost export volumes in the next decade.
If Russia’s economy wants to compensate for the decline in gas exports, the calls will be loud The Economist two options: a massive expansion of gas pipelines or an increase in LNG exports. But increasing LNG exports in particular would be a very ambitious project.
The LNG is according to the ARD-Politics magazine Monitor is now almost as important for the Kremlin as the remaining income from pipeline deliveries. Experts currently estimate that the amount of LNG transported to and through Europe is worth around twelve billion euros annually. Putin even wants to triple the business in the next few years.
Putin needs to boost gas exports for the Russian economy – but will he succeed?
However, it is difficult to say whether Putin will succeed in expanding his gas business. Putin’s LNG-2 project has stalled due to sanctions and Nowatek, Russia’s largest liquefied natural gas (LNG) producer, has had to temporarily halt production for the Arctic LNG-2 project. In addition, demands, including from Economics Minister Robert Habeck (Greens), for sanctions against Russian LNG are becoming increasingly louder. This could once again massively restrict Putin’s LNG business.
The future of the Russian economy looks bleak as gas exports continue to decline. After all, Russia is considered one of the world’s largest gas exporters. There is no doubt that Putin is economically dependent on profits from trading Russian gas and LNG.
