Dear Readers:
Temporarily putting aside the Terror News, I want to go back in time a few days and review this piece by reporter Olga Samofalova. Actually… you can’t get away from terrorism, because this one is also about a terrorist act, but less bloody than the Crocus. The topic is the destruction of the Nord Stream Pipeline, the damage this act of sabotage did to the Russian economy, and how the Russian economy learned to cope.
Olga’s lead paragraph:
The explosion of Nord Stream cost the Russian budget over a trillion rubles of lost revenues last year, from the export of gas. This according to the Federation Customs Service of Russia. Even the sanctions against Russia’s oil sector caused less damage than this. Yet, in spite of this, the Russian budget has been able to spring back. How was it able to compensate for these losses?
In 2023 the Russian budget came in under its projected revenues, by 1,138 trillion rubles, that it would have otherwise received from export tariffs on gas.
This was announced by Ruslan Davydov, who heads the Federal Customs Service (FCS). Percentage-wise, gas revenues were down by 35%, which proves the tactical success of the sabotage attack upon this piece of German infrastructure. Compared to this, Russian oil revenues also went down, but only by 7.2% compared to 2022.
In spite of this setback, the General Plan for the gas revenue sector actually over-fulfilled, by 2.5%. This was made possible by the growth in imports. Davydov: “Due to the drop in world prices for energy resources, and a certain adjustment to the tax structure within the budget structure, last year 74% of our revenues came from imports. This comprised 4,932 trillion rubles, which is a record for the FCS.”
Another factor, according to Central Bank chief Elvira Nabiullina, is the shrinking, in 2023, of the oil-gas sector within the Gross Domestic Product (GDP). In this sense, the Russian economy became less dependent on the oil-gas sector.
Not everybody agrees with Nabiullina, however. Nikolai Pereslavsky, who heads a branch of the Financial Consulting Company CMS Group, states the following: “It is premature to talk about any significant shrinking of Russian dependency on oil-gas revenues. This process occurred, that is not disputed, and the economy has started to restructure itself on high-tech products. […] Revenues from exports have diminished, that’s true, and a key factor is the losses from gas exports. But, like people say, there is a silver lining. The gas sector has a customer in the internal market. The gasification of our country stands at around 73%.”
Another financial analyst, Nikolai Dudchenko, who works for the group “Finam”, agrees with Pereslavsky: “It is premature to talk about lessened dependence on oil-gas revenues. If you compare the 3-year period before the Special Military Operation, from 2019-2021, with the ongoing period 2022-2024, then you will see that the situation with oil-gas revenues, and their contribution to the budget, has not really changed very much. In the earlier period, these revenues comprised around 34.1% of the budget, and an average of 6.3% of the GDP. In the current period, these revenues are expected to comprise up to 34.8% of the budget, and the very same 6.3% of the GDP.”
Data coming in from the first few months of 2024 also do not show a lessened dependency on these revenues. Natalia Milchakova, who works for Freedom Finance Global: “For the months of January-February of 2024, the Russian budget received 1,62 trillion [rubles] in oil-gas revenues; comprising 32% of the entire budget. Comparing this to the January-February period of 2019, five years ago, at that time the number was 39%.” And Milchakova does not believe the differences between now and five years ago are significant, especially taking into account all the seismic shifts in the geopolitical landscape, during that period of time.
Milchakova, proving that numbers are tricky, points out that, whereas revenues to the Russian budget grew by 71% in January-February, in absolute numbers they fell by almost 5 times, in comparison with the same period five years ago. And that, all the same, Russia is struggling with a budget deficit. Fortunately, it is small, only .8% of the GDP. The good news is that she believes Russia actually is weaning itself from dependence on oil-gas revenues, and receiving increased revenues from other sectors of the eonomy.
Imports Are Up
Russia is importing more and more goods from other countries. In 2023 imports rose from 276.5 to 302.9 billion dollars. Which is an increase of 9.5%. Most of these imports came from Asia, up to 187.5 billion, according to Dudchenko. The majority of imported goods consisted of machines [could also mean “automobiles”], equipment, transportation; and also textiles and shoes. According to Pereslavsky, the growth in imports was favored by the devaluation of the ruble, which went down by around 30% in comparison to the dollar, Euro, and yuan.
Pereslavsky: “2024 will not differ substantially from 2023. The oil producers have managed to hold oil prices to 80-90 dollars a barrel. In Europe gas is now trading at $300 per thousand cubometers. Russia will be able to keep exports up by diversifying to other sectors. The oil producers have partially succeeded in re-orienting their markets. The gas producers hope to realize their favorite project which is called Power of Siberia -2.”
Dudchenko: In January-February 2024 the Russian budget already received 1,6 trillion rubles from the export of oil and gas. The Ministry of Finance expects these revenues to reach up to 11.5 trillion in the course of the year. Or 32.8% of all revenues. In order for the plan to be fulfilled oil prices of the brand called Urals need to be 70.1 dollars per barrel, given the exchange rate of 90 dollars to 1 ruble. “These goals are realistic, given that the spread (спред) of Urals-brand oil to world benchmarks has begun to gradually shorten, and that the world oil prices have a tendency to continue to rise.”
Given all of this, one needs to take into account that, for Russia, the revenues acquired by exporting gas to Europe, were never as much a priority as the petro-dollars which went into the “pot” of the National Welfare Fund. When Russian pipeline gas exports to Europe were cut, this actually harmed European economies much more than it harmed Russia, Milchakova reminds us. Bloomberg estimated that Europe, due to the sanctions against Russia, lost something like 1.5 trillion dollars in revenue. The German economy, in essence, received a kind of subsidy from Russia, which they can’t have any more. Germany is in the process of de-industrializing, even in its flagship chemical industry.
Awful Avalanche 
3 million rubles….? That cannot be right, sounds like pocket change.
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Original article says a Trillion Rubles…
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Oops! sorry about that. I had the number correct in the following sentence, but blew it in the lead. Hasty typo.
Has been fixed, thanks!
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Good try, but no cigar. Original says “more than a trillion”, so drop that numeral ‘3’!
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Oi yoi, sorry again, MrDomingo! I think I have a bit of dyslexia. I just fixed it to “over a trillion”, then the next sentence gives the more exact amount. I have no idea where I got that 3 million from, possibly I was skimming something else at the same time. But I appreciate your eagle eye and editorial corrections!
😦
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Fair enough, marking time with this article. But it’s hard to avoid reality.
One notes from reading Tass dot com all this week, that Lavrov is missing, and that Zakharova has been spokesperson each day. With Danilov’s firing, she says the British have taken over running Zelensky from the Americans. Hence the continuation of drone and shelling attacks on Russian civilians and oil refineries while the Ukie armed forces are getting the living tar beaten out of them. Let alone electricity infrastructure. Everything is turning to shite very rapidly. Next stop, attacks on British soil is my guess — we’ll see if the US runs for home or decides it’s time to commit suicide as well. Oh and Zakharova has also poured crap over France, citing unacceptable behaviour at the UN Security Council, and that Macron’s offer to assist the RF against terrorism was not official, merely blather. He is likely to have a dozen baguettes forcibly shoved down his refined throat all in one go.
Between them, I’d say the UK and France are due for a real spanking very soon. So only if the US decides not to back up those countries will WW3 be averted. It’s that tense. Listening to the total idiot Lloyd Austin yesterday, and the fantasists running America in general, I’d say only a word in Russia’s ear from China may delay things a few days. Otherwise, kiss your buttcheeks goodbye.
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I didn’t notice that Lavrov was missing, maybe he isn’t feeling well this week? In addition to her other duties, Zakharova also took the opportunity to trash Germany as well. Not sure if it’s worth a post, but I saved an article wherein she raked the Germans over the coals for applying special victimhood (in WWII) to what they did to the Jews; as opposed to apologizing for what they did to ALL Soviet citizens.
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“The explosion of Nord Stream cost the Russian budget over 3 million rubles of lost revenues last year.” That’s about US$33,000 at current exchange rates.
Cue Dr. Evil: We will sanction Russia and cost their economy…3 gazillion Zimbabwean dollars.
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Подрыв «Северных потоков» стоил российскому бюджету более триллиона рублей потерянных доходов от экспорта газа в прошлом году, посчитали в ФТС.
A trillion rubles is about 10.8 US dollars.
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”Подрыв «Северных потоков» стоил российскому бюджету более триллиона рублей потерянных доходов от экспорта газа в прошлом году, посчитали в ФТС.”
So, simple translation error. A trillion ruble cost is about 10.8 billion U.S. dollars. Dr. Evil still laughs maniacally.
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Thanks for correction! It was 3 TRILLION. I made a dumb typing mistake, but fixed it just now.
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If the DC ghouls, represented by the ruling Hillary/Cheney/Obama/Lindsey-G cabal, were competent evildoers bent on destroying the Russian economy, instead of a group of self-deluded sociopaths, they would cease the war on terms favorable to Russian security AND drop all sanctions, THEN the Russian economy would crater…at least according to current “economic-theory”.
Yep, the good economic news related by Y above is a lot like the highly touted “GDP” in the US. For example, the ship that took out the F Scott Key bridge single-handedly improved the US GDP numbers by increasing “economic-activity”. Massive hurricanes and earthquakes are also good for GDP*, [as long as there are enough survivors to rebuild]**, at least according to the twisted priesthood of economics graduates.
So, according to that twisted priesthood, DC/London’s physical and economic war against Russia is good for the Russian economy because it increases Russian “economic-activity”, clearly, the ghouls, represented by the ruling Hillary/Cheney/Obama/Lindsey-G cabal, are knowingly working for the Russians !!! That being the case, the ghouls that rule us are traitors..during a time of war!!! Fortunately, unlike Russia, we can still hang traitors…even if we have to buy the rope from China.
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*Current economic theory holds that what’s good for GDP, is good for the US.
**While a massive asteroid that wiped out the earth seems, at first glance, like it makes good “economic” sense, however, only if enough people survive to rebuild. But, if we look at the uptick in economic activity that would precede such an event, there might be a genuine economic “upside” by making people think that the earth was going to be destroyed, when in fact, the “smarties” in DC/London planned to divert the incoming celestial object at the last second which…would “only” destroy 1/3rd of the earth. Just think of all the opportunities on the derivatives market…eh? The current crew in DC/London could really cash in by playing their cards right. When in 21st century DC…do as the 5th Century [AD] Romans did.
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The Good Ole Boys club?
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Knocking down a bridge is good for the American economy? Is this Keynesian Economics, LOL?
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Germany will not continue down the path of purchasing LNG much longer simply because they cannot maintain social peace with long term double digit inflation. Germans do not want to relive the Weimar years. The traditional gas supply system from Russia will resume as soon as the Ukrainian conflict is resolved and will start out small but ramp up fairly quickly as LNG contracts expire. Putin knows that the current EU insanity will diminish once it becomes known that the Ukraine gambit has failed. And Russia’s economy will boom once the rebuilding of former Ukraine gets underway. The future is bright as long as the West does not stupidly or accidentally start WW3. One sour note, Putin likely knows that it was the Soviet Union that played a major role in planting the seeds of Western insanity and debauchery, and thereby creating this Frankenstein’s monster. It was likely history’s greatest act of covert subversion and the West fell for it hook, line, and sinker. Other than Victor Orban, you cannot name a single Western leader of competence.
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But how are Germans supposed to get Russian gas again without that pipeline that Biden blew up?
Also, I am not following you with that thing about Soviet Union planting seeds of debauchery. Soviet Union was actually a rather puritanical (in a good way) country. Like, most of the movies and TV shows were wholesome and family-friendly, not like the crap you see today.
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With respect to supplying natural gas to Europe, there are landlines that can be repaired and placed back into service in a matter of days once Ukraine is fully secured. And there are 4 pipelines in the Nordstream II channel, not all are damaged and those be reactivated in a few months time.
As regards the social decay of the West, the KGB was instrumental in spawning the rise of numerous movements that slowly and incrementally resulted in what might now be termed the Wokism Revolution that has infected the West. This goes all the way back to the early 1950s and was revealed in detail by Yuri Bezmenov in the 1980s.
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That makes sense about the pipelines, but it is all contingent on Ukraine being “secured”, as you say. Since one of the main reasons for building the underwater pipes was to bypass a hostile Ukraine.
I am dubious about the KGB inspiring Western decadence, my impression is that it went the other way. Do you have a link for the Bezmenov character and his hypothesis?
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Thanks! I’ll watch it this weekend.
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Although, I gotta say, just skimming the comments, I can tell what kind of people this guy appeals to: rabid anti-Communists, right-wingers, and free-market Ayn Randists. Am I right? Not exactly my type of people.
But okay, I’ll watch it anyhow, in case he surprises me, probably not.
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One thing that’s often overlooked when talking about sanctions is that anything vital that Russia needs that’s been sanctioned has either been replaced already, or soon will be by domestic producers. This applies to everything from food to household items, automobiles, industrial machinery and electronics. This has been a boon for domestic industry and employment, not to mention a permanent loss to nations that previously exported those items to Russia. I’m guessing it’s also helped China a lot by providing a much needed market to offset the cost of energy imported from Russia, thus helping their trade balance and making settlement outside the dollar system easier to manage.
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Good points. I think it behooves any viable nation to have a healthy internal manufacturing system, as well as their own agriculture. These are the basics of a healthy nation, and that has not changed since the time of Frederick the Great!
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Historically it was an internal source of iron ore and coal that made one a great power. The ability to build railways and especially warships and armaments without depending on external supply was critical to national defence. That was the motive behind Britain’s ‘Great Game’ attempts to keep Russia and Germany apart. The combination of the two meant Britain would eventually fall behind in steel production which would lead to the inability to project power, as we see today.
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That makes sense.
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Speaking as an econogeek, I haveta say “excellent post, Yalensis!” Sure, you didn’t do the statistical research for this, but you had enough financial sense to pick out some articles which were important. I read a lot of info about the Ukrainian situation, and much of it focuses on economic matters. Especially at Naked Capitalism. But their perspective has been on “econopolitical” issues — how is the oil flowing between Russia and other countries? What’s happening with the German economy now that it’s starving for energy? Even Russia-centric writers such as Gilbert Doctorow are discussing how consumer goods are still available in Russia despite attempts to shut down the economy there. But no one has gotten into the nitty-gritty of what this means to the Russian government budget. This adds to my picture of what’s important there. This post was so informative that I’m going to save it to re-read over the Easter holiday. There’s SO much to stay on top of, and with stats like what are in the articles you excerpted, I need to try and absorb it at a time when there’s no so much else on my mental plate. Naked Capitalism should have cited this in their “Links” post as something worthy of reading.
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Thanks for that, Bukko! Sometimes, when I am skimming for content I see a piece like that, with a slightly different twist, as it seems to me, and I decide to do it. I often tend to go for the more pessimistic ones, or more nitty-gritty, as a counter-balance to the more Pollyanna “Everything is great!” ones. Just for a little sobering note every now and then. Nobody is going to come out of this war without a few bruises, not even Russia.
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