Russia’s economic prowess has always been bound to its vast energy reserves. With oil and gas revenues fueling both state coffers and geopolitical ambitions, the Kremlin’s strategic calculus has long been shaped by the ebb and flow of global commodity markets. However, with Western sanctions tightening the noose and alternative suppliers stepping in, the once-unassailable Russian energy complex is facing an existential crisis.
The latest round of U.S. sanctions, targeting key Russian oil producers Gazprom Neft and Surgutneftegaz, has had immediate repercussions. The so-called “shadow fleet” of aging tankers, crucial for circumventing restrictions, is now effectively crippled. Fearing secondary sanctions, buyers that once eagerly lapped up Russian crude are reconsidering their options. Oil shipments destined for India and China have been left idling offshore, awaiting an uncertain fate.
The implications for Moscow are severe. Russia’s economic resilience has always hinged on its ability to monetize hydrocarbons, yet its long-cherished lifelines are fraying fast.
From Gazprom to gasp: The collapse of Russia’s gas hegemony
For decades, Gazprom was the Kremlin’s prized asset—its dominance in the European gas market cemented by an intricate network of pipelines. In 2008, at the height of its global influence, the state-controlled behemoth was on the brink of becoming the world’s most valuable company. It wielded its gas supplies as both a financial and political weapon, ensuring compliance from its European clientele.
That golden age is now over. The decisive moment came at the end of 2024, when Ukraine shut down the transit of Russian gas through its territory, severing a route that had generated $5–6 billion annually. With no viable alternatives to offset these losses, Gazprom’s financial health has deteriorated dramatically.
The company’s share price has collapsed by 70% since before the full-scale invasion of Ukraine in 2022, plunging it to levels unseen since the 2008 financial crisis. As the once-opulent St. Petersburg headquarters prepares for mass layoffs, Gazprom’s former aura of invincibility has vanished.
Domestically, the situation is no better. Gazprom’s role in subsidizing Russian industries—particularly aluminum production—has left it struggling to sustain profitability. Historically, losses from these domestic obligations were offset by lucrative European exports, but with that revenue stream drying up, the company is in dire straits. The Kremlin now faces the unenviable task of either bailing out its former energy crown jewel or allowing it to flounder in a drastically altered global landscape.
Oil: The Kremlin’s last financial crutch
While gas exports once provided strategic leverage, oil has always been the primary source of hard currency for Russia. Accounting for more than half of total exports, crude oil has dictated every major macroeconomic trend in the country. The boom years of Vladimir Putin’s early presidency were underwritten by skyrocketing oil prices, delivering windfall revenues that reshaped Russia’s economic fortunes.
But as history has shown, oil riches are fickle.
Western sanctions, once dismissed as symbolic gestures, have begun to bite. Initially, the measures were calibrated to avoid severe disruptions—European leaders hesitated to impose restrictions that would drive up global prices. Even as Russian crude was subjected to a price cap of $60 per barrel, loopholes remained, and enforcement was weak.
That reluctance is now fading. The Biden administration’s decision to crack down on Russia’s shadow fleet has introduced a genuine logistical hurdle. Meanwhile, an anticipated surge in U.S. oil production—if encouraged under a new administration—could depress global prices further, compounding Russia’s woes. With fiscal reserves dwindling and the budget deficit widening, the Kremlin’s room for maneuver is rapidly shrinking.
Western hypocrisy and Russian endurance
Despite the moral posturing, Western actions have often betrayed a reluctance to fully sever energy ties with Russia. Following the 2022 sabotage of the Nord Stream pipelines, Europe continued to purchase Russian gas through alternative routes. Liquefied natural gas (LNG) shipments from Russia’s Yamal Peninsula even increased, as European buyers sought to mitigate supply disruptions.
In a particularly stark illustration of policy contradictions, U.S. LNG exports to Europe were temporarily “paused” by President Biden in early 2024. The result? A surge in Russian LNG sales. By January 2025, EU imports of Russian LNG hit record levels, surpassing the previous year’s figures.
Such inconsistencies underscore the West’s ongoing struggle between economic pragmatism and political posturing. But with Russian energy infrastructure now under siege from multiple angles, even these unintended lifelines may not be enough to stave off long-term decline.
Scenarios for Russia’s energy future
Further restrictions cripple the Russian oil and gas industry
A hardening of Western sanctions, combined with increased hydrocarbon output from the U.S. and Saudi Arabia, could deal a decisive blow to Russia’s export revenues. Incoming U.S. Treasury Secretary Scott Bessent has indicated strong support for escalating sanctions, particularly on Russian oil majors.
Gazprom has already lost its European pipeline market, leaving only limited avenues in Turkey and China. Russia’s last hope—its LNG exports—could also be targeted. If European ports cease servicing Novatek’s Arctic LNG shipments, Russia’s ability to monetize its gas reserves will be crippled.
With fiscal reserves nearing depletion, the Kremlin will face mounting economic pressure. While the short-term consequences may not force an immediate shift in policy, the long-term erosion of Russia’s energy revenues could significantly weaken its ability to sustain the war effort.
Restrictions on Russian oil and gas loosen
A negotiated settlement to end the war could pave the way for some sanctions relief. Certain European states—Hungary, Slovakia, and possibly Turkey—might push for renewed Russian gas transit. China could accelerate plans for the Power of Siberia 2 pipeline, boosting Russian gas exports to Asia. However, the probability of this scenario remains low. Given the political costs of appearing lenient toward Moscow, Western governments are unlikely to ease restrictions substantially. Even if some Russian energy exports find new routes, the days of easy profits and market dominance are gone.