Despite Moscow’s Bravado, Russia Faces Mounting Problems With Oil and Gas Exports

Publication: Eurasia Daily Monitor Volume: 21 Issue: 2

(Source: Maxim Blinov/RIA Novosti)

Moscow continues to claim that it has more than fully compensated for its lost access to oil and natural gas markets in the West due to sanctions by expanding sales to China, India, and other countries in the East (Politicheskiy Kaleidoskop, January 1). A closer examination, however, suggests that the Kremlin has not come close to replacing these losses. The country faces many more problems with energy exports and will likely be unable to overcome them anytime soon. Moscow lacks the resources to quickly build pipelines or additional ships for carrying oil and gas supplies. Russia’s new customers, sensing the country’s difficulties, are demanding discounts and other arrangements that undercut profits. In the case of pipelines, transit countries are demanding ever-higher fees from Russian companies. These troubles cast doubts on the Kremlin’s bravado and reflect ongoing problems for Russia’s oil and natural gas exports.

Problems in the Russian North have already forced Moscow to cut back on promised deliveries of liquid natural gas (LNG). The Houthi attacks on shipping in the Middle East are slowing Russian deliveries to the point that the Kremlin is losing out to other suppliers in emerging markets. Additionally, Moscow’s decision to make up for the discounts it has given China and other countries by raising gas prices within Russia sparks outrage among the domestic population—many now living in the cold and the dark.

Due to Western sanctions, Russia has lost access to most of the European market for its natural gas exports. This market accounted for 80 percent of the country’s gas exports and, as recently as two years ago, two-thirds of Russian gas giant Gazprom’s profits. Compared to the last pre-war year, Russian gas sales in 2023 fell by half to their lowest level since 1985. Russian President Vladimir Putin called on Beijing to make up the difference by purchasing 100 billion cubic meters of gas. Still, no Russian pipelines or natural gas plants have the capacity to supply that amount of LNG to China, and Russia cannot afford to build additional energy infrastructure. Beijing has said it will only agree to this arrangement if it receives substantial discounts on Russian oil and gas and possibly more concessionary arrangements within Russia. As a result, Russian experts say Putin’s plans are unlikely to be realized before 2030 (South China Morning Post, November 24, 2023; Kommersant, December 28, 2023;, December 29, 2023; The Moscow Times, December 31, 2023).

Gazprom’s declining profits provide a strong indicator for Moscow’s problems. The Russian energy giant is not in a position to build more pipelines or even more LNG processing facilities anytime soon on its own (Kommersant, April 17, 2023;, April 17, 2023). It lost $10 billion during the fiscal year ending on June 30, 2023, and was forced to use almost two-thirds of its cash reserves to continue operating (The Moscow Times, August 30, 2023). Some analysts predict the company will lose another $10 billion in 2024 despite the Kremlin’s upbeat messaging (The Moscow Times, November 7, 2023).

Gazprom and other Russian energy companies face additional problems with shipbuilding, the only alternative to pipelines. Russia possesses only 75 percent of the classes of ships necessary for carrying oil and gas supplies. Growing problems at the country’s shipyards mean that Moscow will be unable to compensate for that gap this decade (Fond Strategicheskoi Kul’tury, December 15, 2022). The shortage of ships highlights Russia’s mounting problems and may be exacerbated by the war in the Middle East, where attacks by Houthi militants on ships in the Red Sea have forced many countries to reroute their ships. Russia has not done so due to fears that, if it takes longer to deliver to India by sailing around the Cape of Good Hope, other countries along the route will decide to source their gas from elsewhere or demand greater discounts (BFM.RU, December 20, 2023; Akcent, December 30, 2023). In addition to these difficulties, Moscow has had to shamefacedly confess that it cannot meet construction deadlines on the planned LNG facility in the Arctic and thus cannot meet promised deliveries of LNG given new sanctions and rising tensions in the region (see EDM, July 21, 2021; Kommersant, December 21, 2023; The Barents Observer, December 26, 2023; Fond Strategicheskoi Kul’tury, January 5).

Moscow faces additional problems with its oil and gas sales abroad. For example, it has allowed consumers such as India to insist that Russia not repatriate profits coming from New Delhi for oil and gas supplies, except through purchasing Indian products. This has forced Moscow to retain billions in Indian banks where profits are not available for the Kremlin’s use (IA Realist, January 2). Meanwhile, the countries serving as transit routes for Russian oil and gas exports sense Moscow’s desperation, prompting many to raise their rates and further reducing Russian prospects and profits. Among the most significant of these moves has come from Kazakhstan, which increasingly enjoys an upper hand in Russian petroleum sales to China. On January 1, Astana boosted its transit fees for Russian shippers (Kommersant, January 1; Stan Radar, January 2). Other countries in Central Asia and the South Caucasus will likely follow suit, complicating Moscow’s hopes of boosting oil and gas sales to China and other Asian countries.

The most serious impact of Moscow’s energy difficulties may be felt most acutely at home. As part of efforts to stem its losses, Gazprom has raised domestic prices for gas by 11.2 percent over the past six months and has announced plans to increase them by another 8.2 percent during 2024. That outlook is especially infuriating to the tens of thousands of Russians who are now living without heating and light because of critical infrastructure failures and because some heating facilities are unable to pay for the gas they need (The Moscow Times, September 22, 2023; Novye Izvestiya, January 7). Such problems and the fact that the Kremlin is ultimately responsible for the price increases and infrastructure failures clearly highlight that Putin’s war against Ukraine is coming home.

Perhaps even more than that, these indicators are a sign that the Kremlin is prepared to sell out the Russian people to satisfy Beijing. This hits Russian sensibilities especially hard and sparks bitter anecdotes that Putin has “already sold Russia to China” (, December 28). For many Russians, that is even more of a sore point than the war in Ukraine and yet another reason why Moscow’s inability to compensate for Western sanctions is likely to have a serious impact on the thinking of the Russian public and Russian elites in 2024.