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Sanctions Drive Russian Coal Industry Towards Collapse

Editorial

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2 weeks ago

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In response to Russia’s invasion of Ukraine, the European Union imposed sanctions on all coal exports from the country in 2022. This move affected approximately a quarter of Russia’s coal exports globally. The United States has also strengthened its sanctions on Russian coal companies, contributing to a unified Western stance against the Kremlin. As the war continues, the Russian coal sector is showing significant signs of distress, raising concerns about its potential collapse.

Impact of Sanctions on the Coal Sector

Russia possesses the world’s sixth-largest coal industry and plays a vital role in global fossil fuel markets. The sanctions targeting Russian energy exports aim to weaken the Kremlin’s military operations in Ukraine. Although coal is a smaller segment of the Russian economy compared to oil and gas, it remains crucial for numerous single-industry towns, employing hundreds of thousands of workers. According to Newsweek, the European Union’s sanctions have resulted in an annual revenue loss of approximately €8 billion.

In addition to revenue losses, the coal industry faces severe operational challenges. High borrowing costs, exceeding 20%, and compounded sanctions have restricted access to essential technologies and equipment. Prior to 2022, Russia relied heavily on imports from the United States, Japan, and Europe for much of its mining equipment. The Moscow Times reports that the Russian government has cited high company debt of 1.2 trillion rubles (about $15.34 billion

Natalya Zubarevich, a regional specialist, shared her insights with Bloomberg, stating that the coal industry is experiencing “a perfect storm,” as multiple issues converge simultaneously. On October 24, 2023, Russian Deputy Energy Minister Dmitry Islamov reported that these sanctions have inflicted a severe toll on the sector, with losses projected to reach 112.6 billion rubles (about $1.44 billion) by the end of 2024. He lamented that, “unfortunately, the situation continues to deteriorate.”

Current State of the Coal Industry

The crisis appears to be accelerating, with coal enterprises registering losses of 112 billion rubles (approximately $1.43 billion) between January and May of 2025. Dmitry Lopatin, the deputy director of the coal department at the Energy Ministry, indicated that only about half of Russia’s approximately 180 coal companies remained profitable in 2025. Alarmingly, more than a quarter of these companies are at risk of closure. Islamov revealed at a Federation Council Committee on Economic Policy meeting that 51 enterprises, including both mines and open-pit operations, have either ceased operations or are on the verge of doing so.

Despite efforts from the Russian government to stabilize the failing industry through tax breaks and social insurance payouts, the outlook remains grim. Exchange rates have become untenable, making it difficult for companies to break even. Furthermore, the sanctions have significantly reduced Russia’s pool of buyers, creating vulnerability to fluctuations in demand, particularly from China. Isaac Levi, the lead for CREA’s Europe-Russia policy and energy analysis team, highlighted that “any fluctuation in Chinese import activity could significantly impact the industry’s recovery and pricing stability.”

Although government subsidies and reforms may temporarily delay the inevitable, analysts predict that the coal industry may face substantial consolidation or even collapse. While President Vladimir Putin has previously touted the resilience of Russia’s economy in the face of sanctions, the coal industry is revealing cracks in that narrative. This situation may indicate deeper issues within the economy, suggesting a war-torn sector struggling to adapt. The ongoing sanctions are proving effective, gradually undermining a key component of Russia’s economic stability.

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