Russia economy crisis as internal documents reveal 3 huge fears | World | News

Internal documents prepared by Russia’s economy ministry and central bank reveal the significant economic challenges Russia is facing as it continues to grapple with the impact of its invasion of Ukraine.

The documents identify three key risks: lower oil prices, rising corporate debt, and a constrained federal budget. Such concerns are compounded by the potential for a sharp increase in US and OPEC oil output, which could severely undermine Russia’s fiscal stability.

Although Vladimir Putin and other Russian officials have frequently emphasised the country’s resilience in the face of Western sanctions, these reports show that deepening economic pressures threaten to derail Russia’s long-term growth prospects.

One of the most pressing issues highlighted in the reports is the danger of lower oil prices, which would create significant difficulties for Russia’s federal budget.

The central bank’s report, which has been seen by the Reuters news agency, notes the “significant risk” of lower oil prices should the US ramp up its production and flood the market, a scenario which could exacerbate the country’s budgetary woes.

OPEC’s free production capacity, which is near record highs, is also an alarming factor, as it could match Russia’s crude oil exports. Russia’s reliance on energy exports, particularly oil and gas, has long been a central pillar of its economy, accounting for a substantial portion of its budget revenues.

Any sharp decline in global oil prices could put enormous strain on Russia’s fiscal position, which has already been battered by the war in Ukraine and the sanctions imposed by the West in response.

Alongside concerns about oil prices, the reports also shed light on the growing challenges posed by high interest rates, which are expected to remain at 21%.

Such elevated rates are making it difficult for businesses to secure loans and for investments to grow, stalling Russia’s economic recovery and risking a technical recession.

The economy ministry’s report highlights that this lack of investment now will translate into lower GDP growth over the next two to three years, adding to the long-term economic strain. High interest rates are also linked to widespread cost increases for Russian companies.

Companies are therefore set to face a cumulative cost increase of 14.8 trillion roubles (£130 billion) in 2025, a massive 45% increase from private investment in fixed assets in the previous year.

With declining domestic demand and unfavorable external conditions, Russian firms are finding it increasingly difficult to pass these rising costs onto consumers, further squeezing their profit margins and destabilising the corporate sector.

The threat of a growing corporate debt crisis looms large, with the economy ministry and central bank flagging the risk of bad debts building up in the financial system.

Companies are struggling to manage higher costs while facing reduced revenues due to weak consumer spending and sluggish growth.

This has led to fears that growth in supply may not be sufficient to meet the slowing demand, especially in critical sectors such as agriculture.

Price rises in these sectors are expected to persist in 2025, further exacerbating the challenges for companies already under pressure.

Nevertheless, Russian officials and state media took a triumphant tone on Thursday after President Donald Trump jettisoned three years of US policy and announced he would likely meet soon with Russian President Vladimir Putin to negotiate a peace deal in the almost three-year war in Ukraine.

Kremlin spokesman Dmitry Peskov said the “position of the current (US) administration is much more appealing.”

The deputy chair of Russia’s National Security Council, Dmitry Medvedev, said in an online statement: “The presidents of Russia and the US have talked at last. This is very important in and of itself.”

Politician Alexei Pushkov said the call “will go down in the history of world politics and diplomacy.”

Referring to Ukraine’s President, the pro-Kremlin Russian tabloid Komsomolskaya Pravda gloated: “Trump signed Volodymyr Zelensky’s death sentence.”