Economic foundation of Putin is showing signs of breakdown

The Russian oil sector has faced a challenging first half of 2025, with major oil producers experiencing significant profit declines. According to reports by The Moscow Times, the sector as a whole lost 50.4% of its profits, amounting to a consolidated financial result of 1.264 trillion rubles for the January-June period.

Lukoil, one of the country's major oil producers, saw its profit plummet by half, while Rosneft, another significant player, witnessed a third of its profit attributable to shareholders disappearing. Surgutneftegas, the fourth-largest producer, became unprofitable, losing 452.7 billion rubles during the same period.

Russneft's profit fell by 3.2 times to 11.8 billion rubles, and Gazprom Neft's profit decreased by 54%, despite a 5% increase in oil production and a 4% increase in oil refining. Tatneft's profit also took a hit, decreasing nearly threefold to 54.2 billion rubles.

The decreased profits can be attributed to several factors, including a drop in oil prices, increased production by OPEC countries, and an expansion of discounts on Russian oil due to tightened EU and US sanctions. Igor Sechin, the CEO of Rosneft, highlighted these issues in a recent statement.

The tightening of sanctions against Russia's energy sector has created additional barriers to production and exports. An embargo on "oil" from G7 countries is in effect, and sanctions have been imposed on shipping and logistics through the blocking of the "shadow fleet". These measures have led to a 12% decrease in Russia's oil exports to China in the first half of the year, both in physical volume and monetary terms.

Moreover, the strengthening of the ruble has devalued Surgutneftegas's massive "currency cushion" of around $70 billion. The technological embargo and financial restrictions in the form of blocking dollar payments, as well as increasing pressure on banks in third countries, have further compounded the sector's challenges.

In the Khanty-Mansi Autonomous Okrug, the main oil-producing region, the oil industry operated at a loss of 506.3 billion rubles. As a result, 45% of companies ended the half-year with a loss, totalling 749.5 billion rubles.

Despite these challenging circumstances, Rosneft and Lukoil remained the Russian oil companies with the highest profit returns during the January-June 2025 period. The sector's struggles underscore the far-reaching impacts of geopolitical tensions on global energy markets.