Russia’s oil sector, one of the country’s economic cornerstones, is under significant strain, new data has revealed. This threatens to undermine the Kremlin’s financial stability, in another major blow for Vladimir Putin. State oil giant Rosneft’s quarterly report has exposed the depth of the sector’s struggles, with a dramatic collapse in profits and a nine-year low in production levels.
Rosneft reported a dramatic 57.4% collapse in net profit for Q1 2025, falling to 170 billion rubles (£1.6 billion) from 2024’s 400 billion rubles (£3.8 billion). This decline coincided with a 30% drop in earnings before interest, taxes, depreciation, and amortisation (EBITDA) to 598 billion rubles (£5.8 billion) and a 12% revenue decrease to 2,249 billion rubles (£21.6 billion), according to IFRS data shared by energy analyst Evgen Istrebin. However, most concerning is the drop in Rosneft’s oil production, which has plummeted to a nine-year low.
This huge drop of 44.6 million tons poses a significant threat to Russia’s long-term energy strategy and reflects broader systemic challenges across the country’s energy landscape, argued Kyiv Insider.
This production shortfall comes at a time when the Kremlin desperately needs energy revenues to fund its extensive military operations.
Energy exports have historically formed the bedrock of Russia’s fiscal policy, with oil and gas revenues constituting a substantial portion of federal budget income. Before the start of the Russia-Ukraine War, Gazprom alone contributed over 7% of federal revenues in 2021. However, by 2023, this appears to have roughly halved, as sanctions and market disruptions made their presence felt.
Western sanctions, including the EU’s embargo on seaborne Russian crude and the G7’s price cap, have forced Moscow to redirect exports toward Asian markets—primarily China and India—often at significant discounts that erode profit margins.
In addition, Russia’s oil industry also faces structural challenges. Western sanctions have restricted access to advanced extraction technologies and equipment, limiting the sector’s ability to maintain production levels and develop new fields. This, in turn, has affected productivity in mature oil fields where sophisticated equipment is essential.
The Russian government has responded to budget pressures by increasing taxation on the energy sector, creating additional strain on companies already struggling with reduced revenues and higher operational costs.
The oil sector’s struggles also coincide with massive military expenditures, with defence spending consuming an increasingly large share of the federal budget. This has put pressure on the Kremlin to balance immediate military funding needs against long-term economic stability.