Putin in a "Ssamyeonchoga"... Gazprom, Russia's Financial Lifeline, Sees 88% Plunge in H1 Net Profit

Energy Imports Plunge, War Costs Rise Double Burden
Russian Finances Hit Bottom... Ruble Value Plummets

Russia's state-owned energy company Gazprom saw its net profit plummet in the first half of this year. The sharp decline was largely due to the closure of gas pipelines as a countermeasure against Europe's economic sanctions imposed in response to the Ukraine war. With Russia's finances drying up amid war expenses, the reduction in revenue is expected to deal a significant blow.

Vladimir Putin, President of Russia [Image source=Yonhap News]

According to Bloomberg and other sources on the 29th (local time), Gazprom reported a net profit of 296 billion rubles for the first half of this year. This represents a staggering 88.2% decrease compared to 2.514 trillion rubles a year ago, marking the lowest level since 2020. Gazprom recorded a net loss of 18.6 billion rubles during the same period.

The sharp drop in Gazprom's net profit in the first half of this year is largely due to restrictions on gas shipments to its largest market, Europe. As Western countries including the U.S. and Europe intensified sanctions against Russia for invading Ukraine, the Russian government has been intermittently shutting off gas pipelines to Europe since last year as a form of retaliation.

Gazprom CEO Pamil Shadigov stated in a press release after the Q2 earnings announcement, "The decrease in exports to Europe was partially offset by increased supply to China," adding, "(The supply to China) will further increase as part of contractual obligations going forward."

However, Gazprom's gas exports to China are only a fraction of its previous exports to Europe. Last year, Gazprom exported 15 billion cubic meters (bcm) of gas to China. This is only one-twelfth of the 177 bcm exported to Europe, including T?rkiye, in 2021, the year before the Ukraine war began. Even with an increase in gas supply to China this year, expected to reach 22 bcm, it will amount to only one-eighth of the previous European export volume. Gas exports to Europe this year stand at 51 bcm, significantly reduced compared to pre-war levels.

Although Russia deployed energy as a weapon in retaliation against Western sanctions, the repercussions have backfired. European countries have diversified their import sources to the U.S., the Middle East, and Norway in preparation for Russian sanctions. Additionally, mild weather last winter significantly reduced dependence on Russian gas imports.

Russia's fiscal instability has worsened. Revenue from trade between early this year and July dropped by 85% compared to last year. On top of this, with the treasury depleted due to war expenses in Ukraine, Russia plans to allocate over $100 billion?one-third of its total fiscal expenditure this year?to defense spending. Russia is suffering from a double burden of economic isolation due to Western sanctions, reduced energy income, and increased war costs. The International Monetary Fund (IMF) forecasts Russia's GDP growth rate at 0.7% this year, predicting an expanding fiscal deficit and a sharp reduction in the current account surplus.

The value of the Russian ruble is also declining. Before Russia's invasion of Ukraine in February last year, the ruble was trading at 75 rubles per dollar. However, as Western sanctions intensified, the ruble plunged past 120 rubles per dollar in March last year and currently stands at around 95 rubles per dollar. In response, Russian authorities raised the benchmark interest rate from 8.5% to 12% this month, a 3.5 percentage point increase, in an effort to defend the ruble's value and minimize the impact of economic sanctions.

This content was produced with the assistance of AI translation services.