Russia’s second largest oil producer has seen its profits crash by a staggering £10 billion, as the economic crisis intensifies in the country. A lethal combination of spiralling inflation and high interest rates has hit Russian businesses and consumers hard.
The Central Bank has been forced to hold its key interest rate at 21% – a record high in recent years – as it attempts to bring inflation down from 10.10%. Many firms with high exposure to bank loans are struggling to pay back their debt as they fight to stay afloat. Retail and construction firms are just two sectors to feel the full force of the growing crisis, with shopping malls on the brink of mass closures.
Meanwhile, Russian shoppers have been left out of pocket as grocery prices rocket well above the official inflation rate.
Over the last year in Russia, the cost of milk and apples have gone up by approximately 20%, cucumbers by 22%, beetroot by 32%, butter by 35%, cabbages by 42%, onions by 46% and potatoes by a whopping 90%.
And the economic crisis shows no sign of abating any time soon, despite ongoing peace talks between the US and Russia that could lead to sanctions relief for the beleaguered Kremlin.
The latest sector to be battered by the chilly winds of the growing economic storm is the oil industry – a major revenue earner for the Kremlin.
Lukoil reported a stunning 26.5% drop in net profit for 2024, citing asset impairment losses and increased deferred taxes.
The company posted a net profit of 848.5 billion rubles ($10.1 billion) last year, down from 1.1 trillion rubles ($13.7 billion) in 2023.
“The group recognised an impairment loss of 93.3 billion rubles in fixed assets – 50.4 billion rubles related to exploration and production assets and 31.1 billion rubles in processing, trade and sales assets abroad,” Lukoil said.
Shares in the company fell by nearly 1% for three consecutive days on the Moscow Stock Exchange following the publication of its earnings results.
In a further blow to the Kremlin, exports of key commodities look set to continue their downward trend.
Russian wheat exports are predicted to decline to 47 million tonnes in 2025, down from 59 million tonnes last year – according to the ship broking house Howe Robinson Partners.
While coal exports are also forecast to fall, as the industry continues to struggle from the impact of sanctions and diminishing profitability.
Howe Robinson Partners say coal exports are likely to reach only 164 million tonnes this year, marking a 6.1% year-on-year reduction.
