russia’s Energy Strategy Falters: Oil & Gas Exportsโข Failโ toโ Deliver Promised Leverage
WASHINGTON D.C. – Despite positioning itselfโ as a key global energy โคsupplier,Russia has failed to โleverage its oil and gas exports into the politicalโ influenceโ sought by Vladimir putin,accordingโค to a โคnew analysis of the country’s energy economy. While Moscow has foundโ some resilience throughโ trade with โขnations like China and India,a combinationโค of shifting markets,Western sanctions,and unfavorable contract terms are undermining the Kremlin’s energy strategyโ and contributing โฃto economic stagnation.
For years,โข Russia supplied approximately 155 billion cubic metersโ (bcm) of natural gasโฃ to the European Union annually, a figure โขthat dwarfed projected future exports. Though,โ with theโฃ EU actively reducing its relianceโข on Russianโ energy, the anticipated leverage has evaporated. The forthcoming Power of Siberia 2 pipeline, intendedโข to redirect gas flows โคto China via Mongolia, is expected โto deliver a volume “far below”โข the previous โEU imports.
Beijing is also negotiating aggressively on price and commercial terms, โforcing Russia to โขaccept less favorable conditions. โค Moscow is likely โto finance the pipeline’s construction with aโ Chinese loan and receiveโค payments in yuan, further solidifying its economic dependence on China – a situation the Kremlin resisted for years, only โขconceding to Beijing’sโ demands after theโ annexation of โCrimea.
The shift away from european markets is taking a financial toll.Gazpromโ reported โคlosses โof โฃ$6.9 billion in 2023 โขand โข$12.9 billion in 2024. โโ Domestically,gas pricesโข have risen โroughlyโฃ 30 percent since the start of the war,contributing toโ inflationary โฃpressures and forcing the Russian government to increase spending from the state budget to maintain stability. Investment in newโฃ energyโ fields and infrastructure remainsโ stagnant due toโข limited funds โand restricted โaccess to internationalโ investment and technology.
Despite remaining aโ significant global energyโ producer -โ accounting forโฃ around 10 percent of global oil production and 15 percent ofโ globalโ natural gas production โค- Russia’s economic model is increasingly reliant on what analysts term “military Keynesianism,”โค funneling commodity revenuesโค into โdefense, state sector salaries, and welfareโข programs. However,thisโ approach isโ “running its course,” and the Russianโฃ economy is showing signs of strain. โ
The World Bank projects russia’s economic growth will โfall from 4.3 percentโ of GDP to betweenโ 1-1.3 percentโ in 2025 and 2026. โ New Western energy sanctions are exacerbating these challenges,โข contributing to long-term stagnation.โ
Ultimately, โฃRussia’sโ attempt to wield energy โคas โa tool of coercion proved ineffective. The threat of price spikes failed to deter Western sanctions, and the international oil marketโฃ remained stable followingโค OPEC+’s decision to increase output. While โฃhydrocarbons once facilitatedโค favorable trade relationships, Moscow hasโข discovered that energy consumers possessโค as much power as producers.
