In the aftermath of the US-Israeli strikes on Iran, some fear a surge in global oil prices could hand Moscow an unexpected windfall. As President Volodymyr Zelensky observed, it would be typical Moscow-style to convert geopolitical instability into strategic advantage. However, the reality is that neither an oil windfall nor even a stable economy is on Russia’s horizon.
Unlike many oil-producing nations that could gain from Middle East supply disruptions, Russia increasingly relies on black-market Urals crude transported by a so-called “shadow fleet” that is coming under growing pressure from sanction enforcement by Europe, the United States, and even India.
To sell its oil, Russia is already offering steep discounts to a rapidly shrinking pool of buyers.
As it is not part of the regular oil trade, Russia’s far lower price is cut in its dealings with a shady network of brokers, insurers, and clients who are already spooked by increasing law enforcement action against Russia’s economic lifeline.
This week, Brussels sent shockwaves through the oil-trafficker community, placing a €10 million ($11.6 million) bond on an arrested vessel and prompting some shipowners to question whether the risk of fines greater than the value of their ships is worth it.
Meanwhile, as Russia dodges sanctions, it has accused Ukraine of drone-striking its oil-running ships. Sanctions, like drones, increase transport and insurance costs, driving down Moscow’s bottom line and cutting into the black gold representing about 22% of the national budget. The lack of oil revenues is already cutting deep into Russia.
Russia may still be able to sell oil – but selling oil through shadow markets is not the same as sustaining an energy economy.
A recent report by German intelligence indicated that Russia concealed the true scale of its budget shortages for 2025, hiding more than $30 billion in shortfalls, meaning the real year-end budget gap was closer to $103.3 billion. In comparison, the entire 2025 Russian military budget was only $160 billion. As industry in Russia continues to sour, coming up with more cash soon is unlikely.
Russia’s severe labor shortages, reflected by a 2.1% unemployment rate last year, highlight the lack of remaining economic slack and will force wages to rise faster than productivity. Firms facing increased costs will pass them onto consumers, causing inflation to remain stubbornly high. The Kremlin has de facto acknowledged this by indicating it currently has a shortage of about 2.3 million workers and that it could grow to 3.1 million by 2030.
To counter the lack of labor, Russia has already brought in 70,000 workers from India compared to the 5,000 work visas it issued in New Delhi in 2021.
Russia’s labor shortage will only worsen in the decades ahead as the country’s demographic crisis deepens. The invasion of Ukraine has reportedly produced more than 1.2 million Russian casualties, according to Western and Ukrainian estimates, while an estimated 800,000 Russians have fled abroad. Combined with long-term demographic decline, Russia’s population has already fallen from 148.1 million in 1995 and is projected by the United Nations to reach roughly 121.3 million by 2050.
In response to persistent high inflation, the Central Bank of Russia (CBR) has held interest rates at 16%, dampening investment and tightening credit conditions. As a result, investment had fallen 3.1% year-over-year by the third quarter of 2025.
Secondary effects of the liquidity crunch are beginning to appear, with reports that ATMs periodically lack cash.
Officially, the CBR anticipates a structural liquidity deficit of up to 3.5 trillion rubles ($44.7 billion) in 2026. However, the real amount could be far higher as Kremlin-adjacent analysts warn the banking sector could verge on a system-wide crisis by late 2026 if bad loans continue to rise.
In response, the Kremlin has cashed out roughly 43% of the National Wealth Fund’s gold reserves, selling approximately $930 million in October 2025 and another $961 million in November 2025 to China. Selling more gold can buy time, but it also signals that the backstop is thinning as options run out.
Despite this trade, Moscow appears to be discovering that its so-called “everlasting friendship” with Beijing comes with significant leverage on China’s side, with Beijing demanding steep oil discounts and showing little urgency in finalizing the Power of Siberia 2 pipeline project.
The Kremlin’s oil strategy is therefore not a path to growth, but a strategy of delay.
Moscow’s storytelling of an impending economic boon due to oil sales seems to conveniently forget that their worsening economic demise is not only correlated to the price per barrel, but also to terrible leadership that has led the nation to the brink.
Oil may fuel Russia’s war machine – but it will not rescue the system that is slowly exhausting it.
The views expressed in this opinion article are the author’s and not necessarily those of Kyiv Post.