While Russian propaganda boasts of "unprecedented import substitution successes," the reality of 2026 looks different: the budget is cracking at the seams, and the oil industry is for the first time in history requiring state subsidies to avoid bankruptcy. Professor Igor Lipsits analyzes the dry figures proving that the Kremlin has definitively lost its main geopolitical lever. Instead of energy superpower status, Russia is left with only the role of cheap raw material appendage, or, in Igor Sechin's apt phrase, a "rice bowl" for China.

Igor Lipsits: Hello. I am Professor Igor Vladimirovich Lipsits, and I invite you to the fourth lecture of my cycle "The False Ring of Copper TASS, or About the Real State of Russia's Economy." We will continue discussing what TASS commentators tell us about Russian economic affairs and compare it with what we see and what other experts say. Perhaps then it will become clear how people in Russia are constantly deceived by propaganda service employees.

The Myth of Success and "Russian Roulette" with Salaries

When we talk about how these services describe the Russian economy, we can quote another, already the fifth passage from Mr. Nizamutdinov. He writes: "Despite secondary sanctions, Russia maintains leading positions in energy, fertilizer, and arms markets. The creation of domestic technologies is in full swing, import substitution in key industries is 60-80%, and in certain areas, primarily defense - practically 100%. In general, the Russian military-industrial complex has reached a level that Western competitors can only dream of."

Amazing, right? In describing successes, Mr. Nizamutdinov is so choked with delight that he simply amazes with his enthusiasm. Apparently, he hopes that real Russian manufacturers will never see his writing and won't respond with strong profanity. I too will try to refrain from obscene language, and instead tell you how things really are in Russian industry at the turn of 2025-2026. We'll go industry by industry, not by general indicators.

In brief: both I and many other experts believe that Russian industry is cracking at the seams. It's a heavy image, but it really suggests itself. From the Urals to Kuzbass, from Russian Railways to AvtoVAZ, many large enterprises are switching to a four-day week, cutting salaries, sometimes even going to a three-day work week.

This is already frightening. Accordingly, salaries drop 40%, people are sent on forced leave. A new interpretation of the concept "Russian roulette" has even appeared - now it's what they call the random selection of employees to be sent on unpaid leave.

Companies explain this by the desire to avoid layoffs and the need to economize. The term "forced poverty" has even appeared. Russian business talks about how bad everything is, explaining non-payments and cancellation of bonuses. And this isn't from the good life: they've really hit the ceiling - they can't sell as much as they can produce.

The list of companies in trouble is serious: the largest cement holding "Tsemros," Russian Railways, GAZ, KAMAZ, AvtoVAZ, diamond giant "Alrosa." While I was preparing this material, information came that "Tsemros" had already closed two cement plants. This is a serious blow, but cement is simply not in demand. Why?

  • Demand is falling, the economy is contracting and entering a recession stage, like in the '90s.
  • Very expensive credit makes investments impossible - they don't pay off.
  • There's a large flow of cheap Chinese imports. The country opened up to the East, as the president dreamed, and now goods are coming from that East that are killing the Russian producer.

The picture, as you see, is not cheerful.

Oil Industry: From Superpower to Toxic Pariah

We will analyze Mr. Nizamutdinov's passage phrase by phrase. And we'll start, of course, with oil, because it determines the country's fate. Even the Russian press can no longer hide the situation. Look at the headlines - these aren't emigrant resources, these are "Novye Izvestia" and other local media: "Russia's Economy: Frontal Collapse by Sectors. Industry Has Never Been This Sick." "Like in an Ice Bath. Russian Industry Froze in Deliberate Cooling."

For the first 10 months of 2025, growth was only 1%, but everything could have been much worse. The press is forced to write the truth so that at least someone reads it.

TASS claims: "Russia maintains leading positions in energy markets." From the building on Leontievsky Lane, the world probably looks that way, but reality is different. After four years of sanctions, Russia's share in global oil production and trade has shrunk to 11% in both categories. Before the war it was slightly more: 12% in production and almost 13% in trade. The decline seems small, but the quality of Russian activity in the market has changed dramatically.

Russia has completely lost the status of "oil superpower" it had since the late 1960s. Previously, it dictated prices together with OPEC. Now Russia has turned into a toxic country that sells but can no longer influence either world prices or its own revenues.

Due to the loss of the premium European market, room for maneuver has disappeared. Russia goes where it's allowed and sells at prices dictated by buyers. Manipulating production volumes (closing and opening wells) is difficult for Russia, unlike Saudi Arabia: the fields are old, worn out, extraction conditions are difficult. Conservation and deconservation of wells involves colossal costs.

Financial Catastrophe: Production at a Loss

The main thing in the oil business isn't how many barrels you extracted, but how much profit you received. And here the situation has become tragic. Discounts to the benchmark Brent grade have grown. Russian Urals always cost slightly less (it's worse quality), but in early 2025 the difference was only $2-3. By December, the difference reached $20-25, and Asian buyers are demanding discounts up to $35. As a result, Urals sells for $34-36 per barrel. This is a blow to the budget.

  • In 2024, oil and gas revenues amounted to 14 trillion rubles.
  • In 2025 - 8.2 trillion.

The drop over the year is 40%. By year's end, the real drop reached 50%. Russia lost half its oil revenues.

Low prices are driving the industry into the loss zone. The myth that oil workers are swimming in money is collapsing. Oil has been extracted in Russia for a century already, easy oil is finished. Expansion to the North and East has run into economic senselessness: even "Rosneft" announced the cessation of geological exploration - it's not cost-effective.

An incredible situation has arisen: natural wealth exists, but it's no longer economic wealth. Some wells bring up to $5 loss per barrel. To keep the industry from dying, the state is forced to give it tax breaks. In early December 2025, Vladimir Putin signed a law on tax deductions under the mineral extraction tax for "Rosneft" and "Gazprom." Think about it: the budget doesn't receive super-profits but is saving the "breadwinners."

Company profits collapsed back in the first half of 2025 (before new sanctions):

  • "Rosneft" - profit fell 3 times.
  • "Lukoil" - 2 times.
  • "Gazprom Neft" - profit fell 54%. And this is Gazprom's main earning division.
  • "Surgutneftegaz" became unprofitable (minus 454 billion rubles for half a year).

Oil companies are cutting investments, stopping equipment renewal, laying the foundation for a future production collapse.

Russia Reduces Production: "We Can, But Don't Want To"

In the global market, supply exceeds demand (production is growing in Guyana and other non-OPEC countries). Russia has only two major buyers left - China and India. They dictate conditions. As a result, Russia began reducing production (according to leaks - up to 100 thousand barrels per day). OPEC allows more extraction, but Russia extracts less. Not because it can't technically, but because it's unprofitable.

Moreover, there are shipping problems. Tankers are loaded, but have nowhere to sail - no orders. They're turning into floating storage, like what happened with Iran. Currently, about 30 million barrels of unsold Russian oil are floating at sea. Add to this drone strikes on ports, refineries and platforms in the Caspian - and the picture becomes completely grim.

Budget Absurdity: The State Subsidizes the "Cash Cow"

The Russian government has reached the point of actually supporting the oil industry.

  1. Fuel damper. This mechanism was supposed to be zeroed out, but on November 11, 2025, Putin signed a decree on a moratorium on zeroing. Oil workers will continue receiving payments from the budget so they don't go bankrupt.
  1. Reverse excise. Tax refunds to processors.

For 11 months of 2025, oil workers received from the budget ~2.7 trillion rubles (damper + excise refund). It's not the state milking the oil cow, but the budget feeding the emaciated livestock so it doesn't die.

Technological Dead End (Hard-to-Recover Reserves) and "Water Cut"

Why has cost risen? Because easy oil is finished. Now hard-to-recover reserves dominate. Gazprom Neft head Alexander Dyukov admitted that more than 60% of the company's production is hard-to-recover reserves. Instead of oil fountains, we see pumps extracting "well fluid."

According to geologist Brekhuntsov, in Khanty-Mansi Autonomous District, water cut reaches 84-97%. That is, in the fluid raised from depth, oil is only 3-16%, the rest is water. To extract 1 ton of oil, you need to pump 30 tons of water into the subsurface, lift 31 tons of fluid and separate the oil. This is colossally expensive. Production cost is already $40-45. If you sell at $35 - it's guaranteed loss.

Provincial Gas Station of Indochina

Nornickel owner Vladimir Potanin stated: "Russia has ceased to be the world's gas station." Beautiful. And I'll even agree. Russia has ceased to be the world's gas station, it has become a provincial gas station for India and China. Export geography now looks like this:

  • China - 45%.
  • India - 35%.
  • Turkey - 7%.

In total, more than 80% of oil goes to just three destinations. This is a trap. When you have many small buyers, you dictate the price (monopoly). When the buyer is larger than the seller and there are only two or three of them - it's monopsony. China and India are twisting Russia's arms, demanding discounts, and Moscow has nowhere to go - "they haven't delivered another globe."

Attempts to diversify the economy (reports from 1999 and 2020) were ignored. Russia can't get off the oil needle because the world doesn't need anything else from it.

Budget-2025 Collapse: A Clear Example

Now about why fertilizers and weapons, which Nizamutdinov mentioned, won't save the situation. The fall in oil revenues is a direct threat to the state's existence. And these aren't my fantasies, these are dry budget figures. Look at the story with the 2025 budget:

  1. In November 2024, Russia approves the 2025 budget with a deficit of 1.2 trillion rubles.
  2. 2025 begins, oil revenues collapse, the country loses 2.6 trillion in expected revenue.
  3. What does the government do? In May it makes budget corrections.
  4. The size of the allowed deficit increases by exactly this amount of losses (1.2 + 2.6). New deficit - 3.8 trillion rubles.

The budget construction crumbled in half a year. Neither fertilizers nor weapons (which, by the way, also aren't selling so brilliantly) could close this hole.

Conclusion

Russia was a gas station and remains one. Only now it services not the world, but Indochina. I want to end with a quote from Igor Sechin, head of "Rosneft." Trying to please Chinese partners, he said: "Russia is now an energy rice bowl for China."

I am unable to humiliate Russia more than Mr. Sechin did. Live with this definition: "energy rice bowl." It seems to me this is even more offensive than "gas station." With this we conclude the oil analysis. In the next lectures we'll go further - segment by segment. All the best.

Your Professor Lipsits.