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ECONOMY OF THE AGGRESSOR

ECONOMY OF THE AGGRESSOR

An in-depth study of Russia’s economy. Where does the enemy get the resources for the war against Ukraine?

29 January, 2025
World
War in Ukraine
Yaroslav Romanchuk
Yaroslav Romanchuk
ILI Team
ILI Team

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Imperial Russia of the 2020s is a specific set of political, legal, economic, social institutions and network organizations. Formal and shadow, central and regional, sectoral and multifunctional zones – all are intertwined, mutually linked within a rigid political totalitarianism with an obvious ideology of Russian Nazism and fascism. Russia has never been a country with a high level of economic freedom, political and personal liberty, protection of private property rights, or rule of law, to be considered a capitalist, market economy, much less a liberal one.

A country without economic and personal freedoms

In the 2024 Economic Freedom Index by the Fraser Institute (based on 2022 data), Russia ranked 119th with a score of 5.93. In the Human Freedom Index by the Cato Institute, Russia ranked 139th in 2024 (based on 2022 data), with a score of 5.35, the highest ranking was in 2020—120th place (with a score of 5.92) based on 2018 data. In the 2024 Property Rights Index by Property Rights Alliance, Russia ranked 103rd with a 3.8 out of 10 score. In the 2024 Rule of Law Index, Russia ranked 113th with a score of 0.43 (“1” being the ideal realization of the rule of law principle).
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Other indices and international ratings convincingly prove that Russia did not reach the status of a country with a free market and liberal economics for a single year, much less a long period after the collapse of the Soviet totalitarian empire.
All the governments of both Boris Yeltsin and Vladimir Putin pursued economic policy within the framework of the State of Universal Interventionism model. If in the 1990s and the first half of the 2000s, one can still identify certain actions and decisions to expand the sphere of voluntary, market exchange, then over the past 20 years, we have witnessed Russia's transformation into a Nazi, fascist dictatorship, which is a model of total state control over all significant flows, assets, and resources of the country.
V. Putin cannot by any criteria be considered a representative of the right, liberal, much less Western vector of development. Claims that the Kremlin is committed to liberal principles in its economic policy are scientifically insignificant and are not supported by any valid data.
Such hypotheses that discredit the philosophy of liberalism and the free market have been expressed by many representatives of Russian and even Ukrainian intellectuals, numerous Russian political scientists, politicians and intellectuals who, consciously or through ignorance, mislead public opinion in the world. Sources - in the pdf attachment.
V. Putin is a typical ultra-left dictator, who uses all possible levers of power to eliminate Freedom, subordinating Man to Leviathan (the state). The head of the so-called “Kremlin” syndicate - Vladimir Putin is not only the head of the Nazi state but also of several powerful network structures that form its core. It includes not only law enforcement agencies but also propaganda, ideological, and informational institutions. The main ones among them are the FSB (Federal Security Service), MVD (Ministry of Internal Affairs), RPC (Russian Orthodox Church), NG (National Guard), MO (Ministry of Defense), FSO (Federal Protection Service), SVR (Foreign Intelligence Service), SK (Investigative Committee), and FNPR (Federation of Independent Trade Unions of Russia). They control all significant resources, assets, and flows through commercial structures.

Syndicate "Kremlin": Mechanisms of Sectoral Resource Control

In fact, the "Kremlin" syndicate is the center of all the above-mentioned state management or power structures. The distribution of market segments and financial and resource flows is based on territorial criteria (federal center–region), institutional affiliation (formal and informal beneficiaries), and sectoral divisions. The Kremlin oversees general coordination and arbitration among various groups, syndicates, and organizations through political, legal, and security blocs. It includes not only legal structures but also organized crime groups. They also participate in the system of control over all significant commanding heights of the Russian economy: fuel and energy sector (oil, gas, coal, electricity, nuclear power), financial system, metallurgy, agricultural raw materials and food, wood, construction and real estate, import of cars, equipment, chemical industry, pharmaceuticals. De jure property rights are only a part of the extensive bundle of rights that describe the property relations and the mode of operation of business in Russia, especially big businesses. Neither private nor, even more so, state-owned commercial enterprises can function without taking into account the interests of the heads of specific special, law enforcement, regulatory, and permission services and structures. A model of resource and asset management, close in its essence to fascism and corporatism, has emerged. It has a rigid hierarchy, an order of relationships between different interest groups/syndicates. Institutions of representative democracy are purely decorative, and the parliament, law enforcement, and judicial authorities are embedded in the system of control, management, and arbitration of the Kremlin at the federal level and of regional leaders when it comes to business at the regional, and local levels.
Understanding the ownership structure, the economic management system, its key sectors, and capital allocation mechanisms is crucial for assessing the overall resilience of the Russian economy, for determining the real number of resources that Russia spends on the war against Ukraine and the West, and for identifying the weakest, most vulnerable places of the totalitarian empire. It would be a mistake to equate the stability of the Russian economy solely with the state of the federal budget, revenue, and tax proceeds from oil and gas. Other sources of resources for financing the Russian war against Ukraine and the West include regional budgets, resources of financial organizations, big private (de jure) and state businesses, including extractive companies, as well as tangible and intangible assets, (corporate, customs, law enforcement connections, networks of contacts, shell companies, controlled banks, payment networks, know-how in circumventing sanctions, bans, etc.) of Russian organized crime groups, which operate in foreign markets and have large resources in the financial system of the world outside Russia.
The totalitarian Russian system of resource and asset management works in much the same way as the economy in Hitler's Germany. The formal preservation of the institution of private property does not mean that Russia has a full-fledged market economy. The Kremlin, as the center of management, distribution, and coordination of the activities of the main economic actors, has an informal “golden share,” that is, the right to interfere in the activities of state and private companies, to demand that they produce the goods and services it needs. At the same time, these kinds of expenditures are not included in the federal budget item “turnover” or “security”.
The erosion of the institute of private property (reducing the number of its functions) alongside with statification became tools for turning the economy into a war machine, with a separate budget line for the purchase of “cannon fodder” of $55 - 60 billion per year. Taking into account that the volume of the shadow economy in Russia is 50 - 55% of GDP (~ 1.2 trillion $), the total average annual costs of the “Kremlin” syndicate for the war in 2022-2024 amounted to 25 - 30% of GDP or 500 - 550 billion $.
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In early 2025, Craig Kennedy suggested the existence of additional sources of war financing in Russia:
L"Since mid-2022, this off-budget financing scheme has contributed to an unprecedented $415 billion increase in total corporate borrowing. This report estimates that between $210 billion and $250 billion of that amount consists of mandatory preferential bank loans to defense contractors, many with poor credit histories, to pay for war-related goods and services."L
These are resources from only one additional source. If we make a full balance of resources, money, and assets, including intangible assets, the full amount will correlate with the assumption of the British researcher.
To assess Russia's reserves and stocks, it is important to consider the investments made by the "Kremlin" syndicate in preparations for the war against Ukraine and the West since the mid-2000s.
For 2005-2021 on all-round preparations for war against Ukraine and the West the syndicate “Kremlin” spent an estimated 2,423 billion dollars. This is 12.3% more than Russia's average annual GDP for 2022-2024, which amounted to 2154.7 billion dollars.
YearsGDP / annual averageInvestments in preparation for war
2005-2010$1332 billion
~5% of GDP		$399,6 billion
2011-2016$1868,8 billion
~7% of GDP		$784,8 billion
2017-2021$1651 billion
~15% of GDP		$1238,5 billion
TOTAL$2154,7 billion$2423 billion
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The main reason for the poor quality of these investments was corruption. Open theft, kickbacks, bribes, and the allocation of resources through "vacuum" companies, which were created and controlled by high-ranking officials and politicians, all led to the fact that about half of this amount was embezzled, taken out of the country, or converted into assets not linked to state resources and programs.

Features of Interpreting Statistical Data from Russia

One of the main characteristics of the Nazi syndicate “Kremlin’s” activity is lying and deceit. This applies not only to waging an information war, controlling the media, falsifying elections, or the results of sociological surveys. This applies not only to waging an information war, controlling the media, falsifying elections, or the results of sociological surveys. They are used to confirm certain ideological clichés and political positions and to conceal economic transactions that could harm the syndicate “Kremlin’s” interests in foreign markets, primarily in the form of sanctions, bans, and restrictions on the movement of goods, money, and services. If it were otherwise, then the Russian government would not hide the statistics that it provided before the large-scale war against Ukraine. Therefore, even when official Russian authorities declare the collection and processing of statistical data according to international standards (for example, data from the Central Bank of Russia, Federal State Statistics Service of Russia (Rosstat) the probability of their falsification, submission of distorted data from the lowest, micro level, to the leadership of the Kremlin syndicate is very high. In this analytical material, we use the data of these organizations because they are the primary sources of economic statistics both for analytical centers and for international organizations, including the IMF, the World Bank, the WTO, and UNCTAD.
In light of this observation, it is important to take into account several important facts and parameters of the aggressor country's economy.
  1. The model of Russia's economy today is that of a totalitarian State of Universal Interventionism, in which the “de jure” state is very different from the “de facto” state. This concerns, foremost, the institution of formally private property, the notion of “state-owned enterprises” (SOEs), and “business of the state” (business of the state). The bundle of functions of the institution “property” includes discretion and position of the state.
  2. Many quantitative macroeconomic indicators are distorted by the directive actions of the State, motivation of managers of private and state companies to present statistical data in the desired light, “manual” regulation of prices, profitability of commercial organizations in infrastructure sectors, the ruble exchange rate (through the actions of the Central Bank).
  3. To deceive the West and minimize the consequences of sanctions, the Russian authorities conceal the real mechanisms and volumes of foreign trade transactions and payments, which cannot but affect the accuracy and objectivity of official statistics available from open sources.
  4. To assess Russia's sustainability it is necessary to take into account not only the parameters of the federal, and local budgets, the total budget of the state administration, but also the resources of the public sector (financial organizations, commercial organizations of the real sector), commercial structures of the private sector, especially big business in the extractive industry, banks, infrastructure companies, as mentioned above.
  5. No international organization has a network of primary statistical information collection independent of the official Russian authorities. The aggressor country has a regime of strict secrecy concerning financial and resource flows controlled by the Kremlin, i.e. most of the economy. IMF, World Bank, EBRD, UN, WTO, and consulting organizations use official data of the Russian government. The difference in estimates is due to different assumptions, speculations, motivations, and agendas of each organization.

The current state of the Russian economy, trends, and sources of capital

What is the Russian economy? It is a set of hybrid legal, economic, and power institutions that determine the nature, intensity, and dynamics of production, consumption, investment, and trade processes. The state (federal, regional, and local level) owns 65-70% of all resources and assets, being the largest economic actor. The state also pursues economic policy through pseudo-private commercial structures, in which either the state has a share, or they work on maintenance, implementation of state investment projects, and public procurement. The World Bank calls them “state business” (business of the state).
Contrary to most forecasts made in early 2022, after the imposition of sanctions by the West against Russia, its economy demonstrated resilience and flexibility in responding to external and internal challenges. The GDP contraction in 2022 was not 8–12% as predicted by most organizations and experts, but only 1.2%.
The average annual growth rate of the Russian economy in 2015-2021 amounted to 1.2% of GDP.
For comparison, the average annual growth rate of the Russian economy in 2001-2014 amounted to 4.3%. According to the authors of the proposed “sanctions from hell” regime, the Russian economy should have fallen further into recession; it grew by 3.6% of GDP. The world economy in 2023 grew by 3.3%, and the “eurozone” economy by 0.4%. According to the IMF forecast (October 2024), the real GDP of Russia in 2024 will grow by 3.6% of GDP.
According to the estimate (December 2024) of the Center for Macroeconomic Analysis and Short-Term Forecasting, which is close to the Russian Government, Russia's 2024 GDP will grow by 3.7-3.8% of GDP. According to the macroeconomic survey of the Bank of Russia (December 2024), GDP will increase by 3.8% in 2024.
The survey participants are major banks, consulting, analytical, and research centers. Among them are Bloomberg Economics, VEB, VTB, Alfa Bank, Eurasian Development Bank, Gaidar Institute, Renaissance Capital, Rosbank, Sberbank, CMACP, and UniCredit Bank - a total of 34 respondents, Macroeconomic Survey of the Bank of Russia. Survey results: December 2024 Центральний банк Російської Федерації.
The data support the hypothesis that the sanctions adopted by the Western countries (G7, EU-27, USA) against Russia turned out to be ineffective and “leaky”.
A convincing confirmation of this is the World Bank's decision to classify Russia as a country with a high level of per capita income for 2023, which amounted to $14,250 per capita. The main sources of income growth are trade, financial, and construction sectors.
The Kremlin power, with the help of its tangible and intangible assets, soft power, and a wide network of agents of influence, has managed to reorganize the chains of logistics, finance, and supplies of goods to ensure the functioning of its economy. Moreover, its soft power and network of agents of influence allowed the aggressor even in 2024 to increase gas supplies to the European Union by 25% in January-November. Russia, against which the West imposed sanctions, became the second-largest natural gas supplier to the EU in the third year of the war. In the report, “Corporate Enablers of Russia's War in Ukraine. A Closer Look at Russia's International Taxes and Revenues in 2023” Institute of Kyiv School of Economics and B4Ukraine showed how European and American corporations continue to pay billions of dollars in income tax alone to the Russian budget.
In 2023, U.S. corporations in Russia paid $1.2 billion, becoming the largest payer of foreign income taxes to the Russian budget. At the same time, at the very beginning of Russia's large-scale war against Ukraine in February 2022, the U.S. administration promised to impose “sanctions from hell”.
Experts of the European Center for Analysis and Strategies (CASE) say about the weakness and defectiveness of Western sanctions against the aggressor country in their report “The Reliable Rear of the Dictator: The Russian Economy Amid the War”:
L"…commodities supplied from Russia easily found their way to the world market if offered at a discount price — the best example can be the competition between Russian and Arab oil on the Indian market. As a result, despite all the introduced restrictive measures, Russian exports decreased from $491.6 billion in 202139 to $425.1 billion in 202340, or by a mere 13.5 percent... and will probably remain close to that level in 2024-2025, providing the opportunity both to cover all necessary imports and to balance the federal budget."L
In fact, the promised harsh sanctions of the West against the Kremlin authorities carrying out a full-scale invasion of a neighboring European country turned out to be weak, declarative, and selective, which made it possible to ensure export-import operations without critical failures in the production chains of the military-industrial complex, infrastructure, transport and processing industries, with a slight, clearly non-disruptive increase in the costs of financial, logical and transport operations. Hence, there are quite optimistic assessments of the Russian economy not only from the ruling syndicate but also from the International Monetary Fund.
  • The Russian government and the Central Bank of Russia forecast a slowdown in Russia's GDP growth rate to 0.5 - 1.5% of GDP in 2025, with a slight increase in growth rates to 1-2% of GDP in 2026 and 1.5-2.5% in 2027.
  • IMF forecasts (October 2024) Russia's economy to grow by 1.3% of GDP in 2025 and 1.2% of GDP in 2026.
  • The World Bank estimates the dynamics of the Russian economy as follows: 2024 - 3.2% of GDP, 2025 - 1.6% of GDP, 2026 - 1.1% OF GDP.
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Source: World Economic Outlook Database. IMF. October 2024.
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Source: Macroeconomic Survey of the Bank of Russia. Survey results: December 2024. Bank of Russia.
The reasons for this relative short-term resilience lie in a combination of the following factors and actions:
  1. The applied regime of Western sanctions and control over their implementation allowed Russia to take advantage of the favourable situation for fuel and energy products and sharply increase exports. If in 2020 the volume of merchandise exports was $333.5bn, in 2021 it was $494.2bn, in 2022 it was $592.1bn. In 2023 it decreased to $424.5bn, but this is not because of sanctions, but because of the global situation and prices for fuel and energy commodities. According to the macroeconomic survey of the Central Bank of Russia (December 2024), Russia's exports of goods and services in 2024 will be $468bn (in 2023 it was $466bn), imports in 2024 - $371bn (in 2023 it was $379bn). In the period 2025-2027, a panel of experts, analysts, and representatives of Russia's financial sector forecast a slight increase in both exports and imports of services, with a minimal devaluation (by 15.1%) of the Russian ruble from an average annual exchange rate of RUB 92.6/$1 in 2024 to RUB 106.6/$1 in 2027. As of the beginning of 2025, the volume of international reserves of the Bank of Russia was $609.5bn. For comparison, in the middle of 2022, they were $586.8bn, and at the beginning of 2023 - $582bn.
  2. Active government support for household consumption and industrial sectors related to the military-industrial complex. In 2022, the growth of real disposable income of the population was 4.5%, in 2023 - 5.8%, in 2024 is expected to be 6.7%. As of 01.07.2024, the volume of deposits in Russia's financial sector amounted to RUB95.06 trillion ($950bn). For comparison, as of 01.07.2022, it was RUB65.23 trillion, and at the beginning of 2022 - RUB68.18 trillion. Over two years, deposits have increased by 45.7%.
  3. Monetary policy of the Central Bank, which managed to maintain trust in the financial system, pursued a soft monetary policy in 2020-2023 concerning industrial favourites of the government and created favourable conditions for depositors on ruble deposits. The average annual increase in the ruble money supply (M2) in 2020-2024 is 17.8%, while the broad money supply (M3) is 15%. Further implementation of such a policy would inevitably lead to an increase in annual inflation to 15% - 20%, or even higher in case of erosion of confidence in the Russian ruble and deterioration of the foreign economic position. The Kremlin leadership realized the consequences of high inflation and macroeconomic imbalance. Therefore, in 2024 and 2025, it allowed the Bank of Russia's management to significantly tighten monetary policy by raising the key interest rate. We should also expect a decrease in the growth rates of the hottest components of the money supply.
  4. State financing of military conscription, and the payment of "coffin payments" to the families of the deceased have become an additional source of stimulating domestic market demand. According to the BBC, 60% of Russian regions offered more than one million Russian rubles ($10,000) for signing a contract at the end of 2024, while 25% of regions paid more than 2 million rubles (approx. $20,000). In the Samara region, payments per contract soldier amounted to RUB4m ($40,000), while in Moscow they reached RUB5.2m ($52,000). Payments to recruiters were introduced, up to $1 in equivalent per contract soldier. This is in addition to salaries and additional bonuses (for destroyed equipment, and injuries). For the death of a war participant in Russia in 2024, they paid RUB5 million ($50 thousand) plus the opportunity to receive a lump sum and insurance from the SOGAZ company RUB4.9 million ($49 thousand) and RUB3.3 million ($33 thousand).
  5. Return of Russian business from abroad with capital, inability to withdraw capital from Russia to Western countries, to open accounts abroad due to Western sanctions. Such measures prevented the outflow of capital from the Russian banking system and stopped the outflow of human capital from Russia, which sharply increased at the beginning of 2022.
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Джерело: World Economic Outlook Database. IMF. October 2024

Russia's foreign trade: oil and gas

To assess the sustainability of the Russian economy, and its resources for the Nazi syndicate "Kremlin" to wage war against Ukraine and the West, it is necessary to analyze the state of Russia's foreign trade in general and its fuel and energy goods in particular. The data on exports and imports of goods by main commodity groups once again convince us of the weakness of the sanction regime imposed against the aggressor. While in 2021, before the large-scale phase of Russia's war against Ukraine, Russia's merchandise exports were $491.6bn, in 2022 they increased significantly to $592.5bn or 20.5% (by $100.9bn). It is true that in 2023 merchandise exports fell to $425.1bn, but this is still higher than in 2020, i.e. we can already talk about long-term trends. In 2024, the third year of the "hot" war, Russia's merchandise export is expected to be $430bn. The share of mineral products in Russia's merchandise exports was 51.2% in 2020, 56.1% in 2021, 66.1% in 2022, and 61.2% in 2023.
An oil and gas embargo on the part of the West would have been the most effective and efficient measure against the aggressor, but it did not go for it, which allowed the Kremlin to use the existing opportunities for oil and gas trade with the outside world.
Let us take a closer look at the state and dynamics of the development of the gas and oil sectors.

Russian gas

In 2023, Gazprom's gas transmission system in Russia received 564.25 billion cubic meters of gas, although in 2022 it was 596.71 billion cubic meters. The decrease was due to a reduction in gas supplies to EU countries.
In 2023, 37.893 billion cubic meters of gas were pumped into Russia’s storage facilities (UGS) (in 2022, it was 44.879 billion cubic meters). The withdrawal during the reporting period amounted to 39.31 billion cubic meters (in 2022, it was 35.726 billion cubic meters).
In January-October 2024, Russia increased pipeline gas exports to Europe by more than 15% to 26.52 bcm. In 2023, Russian pipeline gas exports to Europe amounted to 28.15 bcm. According to the International Energy Agency (IEA), Russian pipeline gas supplies to Europe (including Turkey) in 2023 fell to their lowest level since the early 1970s to 45 bcm.
The volume of supplies to Western and Central European countries via transit through Ukraine in January-October 2024 amounted to 12.85bn cu.m., which is 7% more than a year earlier.
In 2023, Russia was still the second-largest exporter of pipeline gas in the world. Most of it went to China (26 billion cubic meters), Turkey (21 billion cubic meters), and Belarus (18 billion cubic meters).
The largest importer of gas in the world in 2023 was China (160 billion cubic meters). It is followed by (data in bcm): Japan (91), Germany (77), Mexico (64) and South Korea (61).
Pipeline gas exports from Russia in 2023 amounted to 99.6 billion cubic meters, LNG - about 45.4 billion cubic meters. In 2021, LNG exports were 42.4 billion, and in 2022 - 46.3 billion cubic meters.
The average supply from 2014-2021 was 178 bcm with a peak in 2017-2019 up to 193 billion and 168 bcm in 2021.
This includes Turkey and Eastern Europe. Directly to the EU countries in 2021, gas supplies amounted to 132 bcm, in 2022 - 61.5 bcm, and in 2023 - 25.7 bcm.
Turkey accounted for about 20 bcm in 2024. Russia supplies a total of 24-25 billion cubic meters to CIS countries.
China is increasing its supplies. In 2021, it bought 10 bcm from Russia, 15 bcm in 2022, and about 22 bcm in 2023. If the Power of Siberia-2 project is implemented, Gazprom may increase gas exports to China to 98 billion cubic meters, i.e. more than four times the 2023 level.
Gazprom's 2023 results are the worst in the last 25 years. According to IFRS, Gazprom's net loss amounted to about RUB 629 billion against a net profit of RUB 1.2 trillion in 2022. Gas sales revenue in 2023 decreased to RUB3.125 trillion (halving in annual terms). In 2023, revenues from gas exports decreased by 2.6 times: from RUB 7.3 trillion to RUB 2.8 trillion. Compared to 2021, gas export revenues decreased by RUB 2.9 trillion, while the loss from gas sales amounted to RUB 1.17 trillion. However, in 2024, the gas monopoly's position improved. This commercial structure is one of the components of the Kremlin's foreign economic and foreign policy influence on the outside world.
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Source: Central Bank of Russia. September 2024

What fills Russia's federal budget? Oil, gas, petroleum products, coal

In 2021, Russian oil exports in value terms increased by 51.8% year-on-year to $110.12bn in 2020. The physical volume of Russian oil exports decreased by 3.8% to 230 million tonnes (OPEC deal restrictions).
In pre-war 2021, Russia's budget and extra-budgetary funds received $135bn in revenues from oil sales, $60bn more than in 2020.
In 2022, oil exports were 242.2 million tonnes, and in 2023, 234.3 million tonnes. Oil and gas condensate production in 2023 was 530.6 million tonnes, in 2022 it was 526 million tonnes.
Primary refining for 2023 was 275 million tonnes, in 2022 the figure was 271.9 million tonnes. Gasoline production in 2023 was 43.9 million tonnes and diesel production was 88.1 million tonnes.
  • In 2023, Russia sold almost all of its oil to China and India.
  • China accounts for about 45-50 % of Russian oil exports.
  • India's share has grown from almost zero in two years to 40%.
  • Europe's share in Russian oil exports decreased from 40-45% to 4-5%.
In 2023, Russia's oil and gas industry accounted for 27% of Russia's GDP and 57% of export revenues.
For 2023, Russia exported approximately 230 million tons of oil, with only 15% going to Western markets, compared to 60% in 2021. In 2021, China and India accounted for about 32% of Russia's oil exports, in 2022 - 46%, and already in 2023, over 80%.
The share of Russian oil supplies to Europe has decreased almost tenfold in recent years. It used to be 40-45%, and in 2023 it was no more than 4-5%. At the same time, the share of Russian oil on the world market has remained almost unchanged due to sanctions and embargoes. For example, British Petroleum reports that in 2021, Russia exported 263 million tonnes of crude oil (a 12.8% share of global supplies), 264 million tonnes (12.4%) in 2022, and 240 million tonnes (11.3%) in 2023. This slight decrease is more Russia's reduction commitments to OPEC+ than the impact of sanctions and embargoes by the EU and the US.
Turkey has significantly increased its purchases of Russian oil. While it was buying only 200,000 bpd (barrels per day) until 2022, the volume was already 700,000 bpd by the end of 2023.
In the report of the International Energy Agency (IEA), there is a column "other countries and unknown destinations". In 2021, 800,000 bpd were exported under this column, in 2023 already 900,000 bpd. The European direction of Russian oil exports decreased from 3.3 million bpd in 2021 to 600,000 bpd in 2023.
According to the International Energy Agency, in 2023 Russia exported 2.6 million bpd of oil products. This is 100,000 more than in 2022. The sanctions and embargoes worked in such a way that Russia reached the 2021 level when no one had yet introduced an embargo against its oil products or set price “ceilings”.
Coal. The same situation for coal: the routes have been changed, but the total export volume has not decreased.
Coal sales abroad in 2022 amounted to 210.9 million tonnes, and 213 million tonnes by the end of 2023, while coal production in Russia in 2023 itself decreased by 1,26% year-on-year. According to Turkey, in 2023 it bought 46% more thermal coal from Russia compared to 2022 (the volume was 27 million tonnes).
In almost a year, the share of Russian coal in Turkey's imports has grown from 48% to 70%.
At the same time, the share of coal exports from Russia to countries that imposed sanctions decreased to 18% in 2023. In 2022, it was almost 40%. The largest buyers of Russian coal were China and India. For the first time, Russia ranked second in terms of coking coal supplies to India.
Surprisingly, South Korea is the third largest buyer of Russian coal. Between 5 December 2022 and the end of March 2024, South Korea's share of Russian exports was 11%.

A petrol pump country: Russia's budget revenues from oil and gas

According to the Russian Ministry of Finance, oil and gas revenues of the federal budget in 2024 amounted to 11,131bn ($121bn) roubles. This is 26.2% more than in 2023 due to the higher price of oil.
In 2023, the price of oil was $62.99 per barrel; in 2024, the price of oil was $67.85.
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In January-September 2024, the share of oil and gas revenues in Russia's federal budget was 31.7%. In comparison, they were over 50% in 2014, 36-46.4% in 2015-2019, and dropped to 28% in 2020. The rate then recovered to 35.8 % in 2021 and 41.6 % in 2022. Last year, it returned to the 30 % level, amounting to 30.3 %.
Tax revenues from the oil and gas industry in 2024 were expected to be RUB11.31 trillion ($122 billion) at oil prices of $70 per barrel and gas prices of $280 per thousand cubic meters. However, over the next three years, from 2025 to 2027, the Russian government has projected a decrease in the oil price by about 6.9%, to $65.5 per barrel, and the gas price by 14.1%, to $240.2 per 1,000 cubic meters. As a result, budget tax revenues from oil and gas are forecast to decline by 14.3% over three years. Thus, in 2025 they will decrease by 3.3% to RUB10.94 trillion ($107bn), in 2026 - to RUB10.56 trillion ($101bn), and in 2027 - to RUB9.7 trillion ($92bn).
  • The volume of Russia's federal budget revenues in January-September 2024 amounted to RUB 26.3 trillion, which is 33.1% higher than in the same period of 2023.
  • Oil and gas revenues for the first nine months of 2024 increased 1.5 times and exceeded RUB 8.3 trillion.
  • Russia's non-oil and gas revenues increased by 26.9% to RUB 18 trillion in January-September 2024.
Oil and gas budget revenues are generated from mineral extraction tax (MET), additional income tax (AIT), and export duties. The main part of oil and gas revenues is MET revenues. In 2022, they accounted for 71.7% of oil and gas revenues (excluding expenses on reverse excise tax payments), and in 2023 - 80.7%. In January - September 2024, the indicator reached 83.5%.
The second place in the formation of oil and gas revenues of the Russian budget has traditionally been occupied by revenues from export duties. In 2022, revenues from export duties on supplies of gas, oil and oil products accounted for 21.6% of oil and gas revenues (excluding payments on reverse excise duty), in 2023 - 11%. From 2023, export duty rates on crude oil and petroleum products went to zero as part of the tax manoeuvre in the oil industry (export duty was supposed to be reduced in 2019-2024, while MET was to be increased). As a result, in January-September 2024, the share of duty revenue decreased to 2.5%. At the same time, the role of MET revenues in filling the budget has increased. In 2022, their share in oil and gas revenues was 11.4%, in 2023 - 11%, and in January - September 2024 - already 13.9%. The bulk of oil and gas revenues comes from oil production, refining and exports.
In 2022, the share of the oil sector in total Russian revenues was 66.5%, in 2023 it was 74.6%, and in January-September 2024 it reached 77.7%.
Tax revenues from gas production and exports accounted for 30.2% of oil and gas revenues in 2022, 20.2% in 2023 and 16.3% in January-September 2024, while revenues from gas condensate production accounted for 3.3, 5.2 and 6%, respectively.
Reverse excise tax payments reduce oil and gas budget revenues, especially payments under the damping mechanism in the fuel market (used to smooth the growth of motor fuel prices in the domestic market). In 2022, the corresponding expenditures amounted to R3.2 trillion with revenues of R14.8 trillion, and in 2023 - R2.9 trillion with revenues of R11.7 trillion.
The main contribution to the growth of oil and gas revenues of the aggressor country in 2024 came from the oil industry.
Taxes on mineral resources. Oil budget revenues (including reverse excise tax payments) in January-September 2024 increased 1.6 times year-on-year to Rb 6.5 trillion. At the same time, revenues from mineral extraction tax (MET) increased 1.5 times to RUB 9.3 trillion, while revenues from extra income tax (additional income tax) increased 2.2 times to RUB 1.6 trillion. Payments from the budget on reverse excise tax increased by 42.2% to RUB2.8 trillion.
In January-September 2024, revenues from mineral extraction tax and export duty in the gas industry increased by only 8.6% to Rb 1.4 trillion, including budget revenues from mineral extraction tax on gas production up 22.3% to Rb 1.1 trillion, export duty revenues decreased by 23.2% to RUB 290.2bn due to a drop in gas export prices. MET revenues on gas condensate increased 1.7 times to RUB 498.4 billion.
According to the Russian government's estimates, which are included in the 2025-2027 budget, MET revenues in 2024 are planned at RUB12.6 trillion (+32.9% compared to 2023), including RUB10.43 trillion (+33.9%) from MET on oil production, RUB1.45 trillion (+18.7%) from gas production, RUB704.1 billion (+53.3%) from gas condensate production.
  • AIT revenues in 2024 should amount to RUB 2 trillion (+58.3%)).
  • Budget revenues from the gas export duty (expected) will decrease by 19.7% to RUB 454.7bn.
  • Reverse excise tax payments are estimated at RUB3.8 trillion. (+29,2%).
In 2024, the share of oil and gas revenues in the budget is estimated at $32%. In the budget for 2025 and the planning period of 2026 and 2027 it is planned to reduce the share of oil and gas revenues. According to the Russian government's forecast, it will decrease to 27.1% in 2025, 25.2% in 2026 and 22.6% in 2027. The share of non-oil and gas revenues will increase from 68.7% in 2024 to 72.9% in 2025, 74.8% in 2026 and 77.4% in 2027.
The oil and gas revenues themselves are scheduled to decline. The budget for 2025-2027 states that they will decrease from RUB11.3 trillion in 2024 to RUB10.9 trillion in 2025, RUB10.6 trillion in 2026, and RUB9.8 trillion in 2027. At the same time, it is assumed that the total budget revenues in the next three years will grow at the expense of non-oil and gas revenues. In 2027, total revenues should reach Rb 34.2 trillion (+19.5% to 2023). The growth of non-oil and gas revenues is expected due to an increase in the corporate income tax rate from 20 to 25%.
According to the budget parameters for 2025-2027, the average export price of Russian oil is expected to decrease from $70/bbl in 2024 to $69.7/bbl in 2025, $66/bbl in 2026, and $65.5/bbl in 2027.
In 2025, federal budget expenditures (RUB41.5 trillion) should be equal to the sum of non-oil and gas revenues (RUB29.4 trillion), basic oil and gas revenues (i.e. calculated based on the oil price of $60 per barrel - RUB9.1 trillion), State debt servicing costs (RUB3.2 trillion) and the difference between the provision and repayment of domestic budgetary and intergovernmental loans (minus RUB0.2 trillion).
In 2025, oil and gas revenues are projected at 27.1% of total budget revenues. If this figure is achieved, it will be a record low since 2006. By the end of 2024, oil and gas revenues should amount to RUB11.3 trillion, or 31.3% of the budget. In 2025, they are forecast to drop to RUB10.9 trillion.

Main aspects of Russia's fiscal policy

In general, Russia's fiscal policy and the size of its non-market sector (government revenues and expenditures) can be assessed from the data in the tables below, but it is worth noting the most important points.
  1. The level of tax burden excluding oil and gas revenues in 2022 was 20.79% of GDP.
  2. This is 13.25 percentage points below the OECD average. This level of tax exemptions retains room for growth in case of additional expenditures. If we take Russia's budget system as a whole, in 2024 the revenues of the state administration amounted to 68,877 billion rubles ($750 billion) or 35.2% of GDP. Expenditures in 2024 were 72864 billion rubles ($792 billion) or 37.2% of GDP. Between 2025 and 2027, the deficit is expected to be 0.9% of GDP in 2025, 0.9% of GDP in 2026, and 1.0% of GDP in 2027.
  3. Low level of budget deficit. The federal budget is set according to "budget rules". The volume of required debt sources should be at a level corresponding to the size of state debt servicing costs (on a net basis, Rb 3.0-3.5 trillion per year or 1.0-1.5% of GDP). Moreover, the main source of financing the federal budget deficit is internal borrowings.
  4. Russia's public debt. In 2024, it was 15.7% of GDP. Under the government's approved fiscal policy for 2025-2027, it will rise to 18.1% of GDP in 2027.
  5. The state of the National Welfare Fund. In 2019, Russia's National Welfare Fund had 10,730bn or 9.8% of GDP, in 2024 it had 12,614bn rubles (6.4% of GDP). According to the estimates of the Russian Ministry of Finance, in 2027 its size is projected at 17,148 billion rubles (6.9% of GDP).

Volume of Russia's tax expenditures, 2021 - 2027, billion rubles

Indicator2019202320242025*2026*2027*
Revenues of public administration bodies, bln RUB394315903468877781788296687394
In % of GDP3634,335,236,43635,2
Expenditures of public administration bodies, bln RUB373266296672864799208492889833
In % of GDP34,136,637,237,236,836,2
The appendices in the form of tables can be studied in the pdf file located after the Research.

Conclusions

How to accelerate the erosion and destruction of the “Kremlin” syndicate's resource base?

To develop, adopt, and implement a plan for Ukraine's victory in the war, as well as a strategy for modernizing the country after it, it is critical to adequately assess the enemy, see its strengths and weaknesses, and accordingly create our development institutions, and improve the quality of sources of growth.
If we take purely economic, financial, social aspects, parameters of the Russian economy, then in the current regime of Western sanctions, relations with China, India, Turkey, other countries outside the EU-27 and G-7, the chances of turning Russia's economy into a factor in forcing the Kremlin to stop the war with Ukraine are close to zero.
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With aggregate expenditures of the aggressor's state administration of $800 billion in the next three years, GDP growth of even 1% of GDP, full control of the Kremlin over commodity companies, the largest financial organizations, and SOEs with their branches/structures abroad, given the complete paralysis of democratic institutions, the level of zombification of the population and the willingness to turn hundreds of thousands of soldiers into cannon fodder every year, the pure "economy" factor will not be a catalyst for an acute political crisis in Russia, of rebellion against the current leadership of the Nazi syndicate “Kremlin”.
The Russian government "draws" expenditures on national defense in 2025 of 13,602 billion rubles (6.3% of GDP) and on national security and law enforcement agencies of 3,822 billion rubles (1.8% of GDP). Defense spending is even expected to decline between 2026 and 2027, to 5.6% in 2026 and 5.3% in 2027. For comparison, expenditures under the budget line "social policy" in 2025 are expected to be 10.8% of GDP. Obviously, these figures show only one part of the total cost of the Kremlin syndicate's war against Ukraine and the West.
In such a state, even inflation above 20%, which would finance most of the costs of the war, would not lead to paralysis of the economy, but rather to a growing crisis. If they are strengthened by political and administrative mistakes (freezing deposits or transferring them to rubles, banning or severely restricting the circulation of dollars, transition to a strict regime of price regulation, introduction of a monopoly/oligopoly on foreign trade, a sharp increase in tariffs for housing and utilities, fuel, imposing restrictions on leaving the country, bankruptcy of certain banks and enterprises), the chances of the Russian economy falling into a deep crisis increase.
The destruction of the Kremlin's resource base can be accelerated by such actions of the Axis of Good (EU, NATO, G7) as:
  • imposing a trade embargo on fuel and energy products, taking actions (increasing supply) to reduce oil and gas prices;
  • tightening primary and secondary sanctions on all companies that continue to operate in Russia and pay taxes to the Russian budget;
  • a sharp increase in the supply of all necessary weapons to the AFU to turn the tide of the war and achieve the demoralization of the enemy's armed forces;
  • sharp increase in the production potential of the Ukrainian military-industrial complex together with manufacturers from NATO countries, primarily the USA;
  • the foundation of powerful information and analytical center or a network of centers for targeted work against the policy of the Kremlin authorities inside Russia. Such work should create and deepen cracks between different social and regional influence groups, expose the hostile nature of Putin's regime, and strengthen centripetal forces. This Center should counteract Russian narratives in the world and develop the soft power of Ukraine and its partners abroad;
  • increase in the number, intensity, and depth of conflicts between different leaders, structures, and groups of the Kremlin syndicate, fragmentation of the ruling grouping along regional, sectoral, and industry lines;
  • intensification of activities of the governments of NATO, EU, and G7 countries to identify and eliminate the "soft power" of the Russian regime, its agents of influence, beneficiaries of the "Kremlin" syndicate, who are enemies of Ukraine, and the West.

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Yaroslav Romanchuk

A well-known Ukrainian and Belarusian economist, popularizer of the Austrian economic school in the post-Soviet space. He specializes in reforms in transitional economies in the post-socialist space.

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