Russia economy meltdown as energy chief reveals dire state of industry | World | News

Russia’s coal sector, the cornerstone of energy exports and the region’s economies, is entering what officials describe as the worst crisis in three decades; Losses are doubling and dozens of firms are on the verge of collapse. Deputy Energy Minister Dmitry Islamov made a stark assessment at the Russian Energy Week forum on Thursday, warning that the sector’s consolidated losses could reach 225bn rubles (£2.1bn) in the first seven months of 2025; this is double the 2024 total. It predicts full-year deficits will exceed 300 billion rubles (£2.8 billion), while accounts payable will rise to 1.5 trillion rubles (£14 billion).

“Unfortunately, the coal sector has been in crisis for the second year,” Islamov said. In a video clip from the forum, his voice measured in the midst of economic tension, he detailed how the number of companies in the “red zone” of risk (stopping or reducing production) rose from 30 in April to 53 in July. “Actually, the industry is struggling right now, but it is also working very hard,” he added, underlining efforts to maintain production despite rising debts.

The remarks, shared widely on social media by former Ukrainian interior ministry adviser Anton Gerashchenko, paint a picture of an industry battered by Western sanctions imposed since Moscow’s full-scale invasion of Ukraine in 2022.

The European Union’s embargo on coal has forced it to turn to Asian markets, where buyers such as China and India are demanding steep discounts of up to 60% below pre-war levels. Global thermal coal prices, which peaked around $400 per ton in late 2022, dropped to $93 per ton as of mid-October due to the effect of excess supply from producers such as China and Indonesia.

Export prices at Russia’s Far Eastern ports fell to the lowest level since 2020 at $69 per tonne in June, while production costs remain at 6,000-6,500 rubles (£56-61) per tonne, making operations unprofitable for many.

Rail bottlenecks, exacerbated by sanctions against oil tankers clogging the tracks, have caused freight costs to rise to 90 percent of coal prices; Before the war it was 50 percent.

Major producer Mechel reported a 28% drop in production in the first half of 2025 and warned that losses would triple to 300-500 billion rubles for the year. Even giants like SUEK, Russia’s largest coal company, have closed or downsized four mines. Nationwide, 19,000 jobs were eliminated in the first half alone; 23 companies went bankrupt and 53 more floundered.

The fallout reverberates into coal-dependent regions; none more so than Kuzbass in Siberia, which produces more than half of Russia’s 430 million tonnes of annual output and finances 30 mining towns. The region has a deficit of 70.6 billion rubles (£647 million) in 2024 and has borrowed 36 billion rubles (£330 million) this year to stay afloat.

Coal taxes account for more than a third of revenues in places like Khakassia; It directly employs 140,000 people and provides 12-13% of the country’s electricity.

“Coal producers are having a hard time,” President Vladimir Putin admitted at a forum in Kemerovo, the heart of Kuzbass, in September. An anonymous Russian businessman said: Finance Times: “The coal industry is in really bad shape,” likening the turmoil to the collapse of the 1990s.

Analysts warn a “once-in-30-year crisis” could drag down broader growth; The manufacturing sector has already been shrinking for three months.

The sector accounts for less than 1% of GDP but increases vulnerabilities: corporate debts are rising, regional budgets are bleeding, and social unrest is looming in single-industry cities.

The businessman added: “War is bad for most, if not all, Russian businesses.” Pavlo Kukhta, Ukraine’s former deputy economy minister, draws parallels with the collapsing Donbas mines, once subsidized by Kiev with £750 million a year, now plundered by Moscow but yielding little return.

In response, Putin signed a rescue package in May offering tax pauses, credit cuts and tariff cuts, and former coal magnate and Putin ally Energy Minister Sergei Tsivilev has pushed for 178bn rubles (£1.7bn) in subsidies in 2025.

But experts such as Alexander Titov of the Moscow Institute of Energy and Finance are doubtful that this will stem the tide, as medium-sized companies face bankruptcy and global prices are on a downward trend until 2027.

Coal analyst Fırat Ergene stated that producers export at a loss just to secure the dollar and prevent layoffs.

As Russia’s war machine surpasses initial predictions, the coal boom signals deeper cracks: a mid-year budget deficit of 3.7 trillion rubles (£35bn) or 2% of GDP and a depleted National Wealth Fund.

With exports falling short of pre-invasion levels despite increases to Asia, the Kremlin eyed Ukrainian coal to fill the deficit; it was a desperate gamble in an industry that had once fueled imperial ambitions. For now, Islamov’s demand to “continue mining” shows that the industry is in the grip of serious turbulence.