We’ve mentioned it in previous articles HERE, HERE and HERE and it’s only getting worse.
Russia’s coal industry—a cornerstone of its energy sector, is now collapsing at break-neck speed. The Kemerovo region, known as Kuzbass, which accounts for approximately 60% of Russia’s hard coal production and 80% of its coking coal, is now facing mine closures and unpaid wages to miners.
Governor Ilya Seredyuk reported that eight coal enterprises in Kuzbass have suspended operations, leaving several hundred miners without salaries for months. Accumulated wage arrears have reached 220 million rubles. Notably, the Zadubrovsky Novy and Evtinsky Novy open-pit mines, along with the Olzherasskaya-Novaya and Inskaya mines, have ceased functioning.
The sanctions have disrupted traditional export markets, particularly in Europe and Japan, leading to a 10.4% decline in coal exports from Kuzbass over the past year. Consequently, coal production in the region has decreased by 7.3%, totaling 198.4 million tons.
The financial repercussions extend beyond the mining sector. The Kuzbass regional budget has suffered a shortfall of 58 billion rubles in tax revenues, prompting a 20% reduction in the 2025 budget—from 308 billion to 246 billion rubles. This austerity measure affects critical public services, with education funding reduced by 12%, healthcare by 20%, and housing and communal services by over 75%.
Labor shortages compound these challenges. The ongoing war and mobilization efforts have led to a significant exodus of working-age individuals, exacerbating the scarcity of skilled labor across various industries. This demographic shift hampers industrial productivity and economic stability.
The coal industry’s downturn is part of a broader economic decline. In 2024, Russian coal exports fell from 148 million tons in 2022 to 105.5 million tons, a 28.7% decrease. This decline raises concerns about the sustainability of Russian exports, especially during winter months when ports become impassable.
The ruble has weakened considerably, losing over half its value against the US dollar and euro. This devaluation, coupled with high inflation and soaring interest rates, has led to a contraction in consumer spending and industrial output. The manufacturing sector, in particular, is grappling with reduced production due to labor and input shortages.
International companies are also wary of re-entering the Russian market. The case of Renault serves as a cautionary tale; after exiting Russia in 2022, Renault faces a potential $1.3 billion cost to return, reflecting Russia’s stance on compensating for state and local investments made post-exit. This scenario underscores the broader challenges foreign businesses face amid economic instability and stringent government policies.
The cumulative effect of these factors paints a grim picture of Russia’s economic trajectory. The coal industry’s decline, labor shortages, currency devaluation, and dwindling foreign investment collectively signal a deepening economic crisis. As sanctions continue to bite and internal challenges mount, Russia faces an uphill battle to stabilize its economy and maintain industrial output.