Russia economy meltdown as key sector faces ‘once in 30 year crisis’ | World | News

Russia’s war economy is teetering on the brink of meltdown as its coal industry faces a ‘once in 30 years’ crisis due to Western sanctions, rising costs and collapsing global prices. One senior Russian businessman despaired, admitting the industry was in “really terrible shape”.

Losses have doubled to 225bn rubles (£2.1bn) in the first seven months of 2025, eclipsing 2024’s full-year total and turning the sector – a vital lifeline for regional jobs and budgets – into the economy’s weakest link. As Moscow’s overall war machine surpasses doomsday predictions, the coal boom signals bigger cracks: manufacturing contraction for the third month in a row, ballooning corporate debt and a penchant for illegal looting in occupied territories.

Profits of around 375 billion rubles (£3.45 billion) were made from coal in 2023; It currently drives GDP below 1%, but its 140,000 direct jobs and funding for 30 mining regions are amplifying socio-economic shockwaves.

“Coal producers are having a hard time,” Vladimir Putin admitted at a forum in September in Kemerovo, Siberia’s coal hub known as Kuzbass.

The turmoil raises the ghosts of the 1989 miners’ strikes shortly before the collapse of the Soviet Union and the 1998 hard hat clashes that symbolized Russia’s deepest post-communist collapse.

As of September, 23 firms (13% of the national total) were on the verge of bankruptcy, while a further 53 firms were on the verge of bankruptcy. “Medium-sized and small organizations are most at risk,” says Alexander Titov, senior analyst at the Moscow Institute of Energy and Finance.

Prices for thermal coal, key to electricity generation, have risen to £70 a tonne (78% of their 2022 peak) amid China’s record production glut. Sanctions are fragmenting Western markets, causing discounts on exports to Asia to fall 60% below benchmarks in early 2022, falling to 20% today.

Senior analyst Fırat Ergene says: “Russia’s manufacturers continue to export at low margins, or even at a loss, because downsizing would limit access to foreign currency, currently a priority for Moscow, and risk social disruption in mining regions.”

Rail bottlenecks worsen the route: Sanctioned oil cargoes now congest lines to ports, and freight is rising to 90% of coal prices, up from 50% before the war. Exports remain behind pre-invasion volumes despite increases in China, India and Vietnam.

Vladimir Korotin, general manager of Russian Coal, the world’s top 15 producer, warns: “The coal industry is experiencing its sharpest crisis since the 1990s.” “Thousands of jobs and tax revenues are at stake in a dozen Russian regions,” he said earlier this year.

Having lost more than half its production, Kuzbass has a deficit of 70.6 billion rubles (£647 million) in 2024 and borrowed 36 billion rubles (£330 million) in the first half of 2025 alone. During this period, 19,000 coal mines across the country evaporated and 30 enterprises producing 30 million tons per year were in danger of bankruptcy.

Mechel, the steel-to-coal giant, is shelving a mine and clearing its staff over the summer; Its production fell 28% in the first half. Full-year losses could triple to 300-500bn rubles (£2.8bn-£4.65bn), pushing industry debt to 1.5tn rubles (£14bn).

The watered-down May rescue package, signed by Putin after pushback from the finance ministry, distributes tax pauses, loan waivers and reduced tariffs to the hardest-hit segments that avoid direct subsidies.

Energy Minister Sergei Tsivilev, a former Kuzbass governor and coal tycoon with close family ties to Putin, supports the package, but there’s not much on the surface.

Alex Thackrah, a senior manager at a coal analytics firm, says: “Our forecast for global coal prices is downward through 2027, with a risk of seasonal increases in the final quarter of 2025.” Sanctions restrict Western equipment, trigger parts clearance; More than half of the 180 companies lost red ink last year.

The Kremlin is turning to plundering Ukrainian assets in occupied Donbas, where coal mines long supported by £750 million a year in Kiev aid would disappear without them. Russian backers are returning operations that have become unsustainable to the state.

The unnamed businessman said: Finance Times: “The war is bad for most, if not all, Russian companies. But the coal industry is in really bad shape.”

Pavlo Kukhta, Ukraine’s former deputy economy minister, says: “The Donbas mining industry is old and heavily dependent on state support from Kiev, with subsidies reaching around £750 million a year. When Russia took over, the subsidies dried up and now the industry is collapsing. Russia’s mining sector faces the same problems.”