Gazprom seeks domestic price hike amid economic turmoil

The economic crisis in Russia is becoming more pronounced towards the end of the third year of the war in Ukraine. As reported by the Kremlin agency Interfax, senior Gazprom manager Alexei Sakharov outlined in the Russian parliament the necessity for radical gas price increases.

"In Russia, gas prices should reach a level that ensures the implementation of large investment projects. The current level of wholesale gas prices does not meet these needs," argued Alexei Sakharov, a senior Gazprom manager, during an expert panel in the Duma. He noted that Gazprom does not have resources sufficient for essential investments and the development of gas infrastructure for Russian consumers.

Sakharov also explained that the average transport tariff for independent suppliers is 65.2 roubles per thousand cubic metres per 100 kilometres, which does not even cover the costs of this activity, currently amounting to 109 roubles. This means that the company is incurring significant losses while transporting gas to Russians. The rates for gas transport have not changed since 2015. It is important to note that this concerns tariffs regulated by the authorities for the domestic Russian market, not for export abroad.

"To ensure financing for new projects, it is necessary to increase the rates to approximately 170 roubles," added Sakharov.

In 2023, for the first time in over twenty years, Gazprom reported losses, recalls Reuters. The company had – in conversion – losses of 7 billion dollars. However, after three quarters of 2024, it amounted to 3.2 billion dollars in losses. The full-year data is still awaited.

Gazprom is struggling despite price increases for Russian households and companies. The Kremlin-independent "Moscow Times" calculates that since the outbreak of the war in Ukraine, tariffs for gas for Russian consumers have gone up significantly. "From 1 July 2025, another increase is planned – by 10.2 percent, and the cumulative increase in gas prices will amount to 37 percent since the beginning of the invasion of Ukraine. In 2025, the costs of gas for enterprises will rise even more sharply – by 21.3 percent," it reports.

We asked experts for comments on Gazprom's appeal for more significant increases. Analysts associate it with the economic crisis, alongside issues facing Gazprom itself resulting from the outbreak of the war in Ukraine.

In 2022, Gazprom was sacrificed on the altar of Putin's imperial ambitions. Now, faced with the realities of war, it is struggling. For years, Russians were accustomed to cheaper gas. Gazprom benefited from the surplus for gas supplied to EU countries, which compensated for its cheap sale in Russia," comments Filip Rudnik, an economic expert on Russia for money.pl.

The analyst believes that further gas price increases for Russians are inevitable. "They will try various machinations. It's essential to note that other supply routes, including to China, do not compensate for the losses in Europe (they are left with only a line called Turk Stream to countries in the southern part of the continent - editor's note). The Kremlin counts on the Power of Siberia pipeline to China, but the Chinese demand prices at the level of those in Russia," the analyst explains.

The Financial Times reported last year that attempts to finalise a major gas deal between Russia and China have stalled despite constructing the second line of the Power of Siberia. "Gazprom has no one to sell its gas to," concludes Filip Rudnik.

"Halting gas transit through Ukraine, which occurred on 1 January 2025, will deprive Gazprom of an additional approximately 6 billion dollars in annual revenue," assessed American gas and oil market analyst Ronald Smith, quoted by the Moscow Times.

Aleksandra Kozioł, an analyst at the Polish Institute of International Affairs, emphasises in an interview with money.pl that "although Gazprom intends to maintain gas sales to Europe and retain its role as an important European partner, this is an unrealistic assumption".

Gazprom lacks the transmission capacity to Europe. Nord Stream and Yamal are not functioning, and the transit agreement with Ukrainian Naftohaz expired at the beginning of this year. The EU is also not interested in purchasing Russian gas, and the European Commission declares complete withdrawal from it by 2027. Therefore, currently, the launch of existing pipelines is unlikely, let alone the construction of new connections to increase transmission capacity to Europe," comments the PISM expert.

Aleksandra Kozioł assesses that "Gazprom is slowly becoming a burden for the Russian budget". "Planned mass layoffs only confirm this trend (according to the TASS agency, 1,500 employees from the company's headquarters, which today employs 4,100 people, are to lose their jobs - editor's note). It is unsurprising that Gazprom is demanding the Russian authorities decide to increase gas prices on the domestic market," assesses the PISM expert.

"Preferential gas prices are, however, an essential element of the social contract in Russia, where the authorities provide citizens with benefits in exchange for political support. Gas price increases will therefore continue to be artificially regulated to avoid social discontent," she emphasises.

She also notes that the marketisation of gas prices in Russia is also unrealistic due to the inflationary impact on the Russian economy. "The authorities are trying to avoid this at all costs, prioritising war production," summarises the analyst.

On Thursday, Reuters reported, citing "five anonymous sources close to the Kremlin administration," that the deteriorating economic situation in Russia might prompt the Kremlin to engage in peace negotiations and end the war. They told the agency that there is an increasingly common opinion about "achieving war goals". This mainly concerns the land connection between Russia and Crimea and weakening Ukraine's army. Kyiv has so far rejected any territorial concessions to the Russian aggressor.

Reuters assesses that while the Russian economy, valued at 2.2 trillion dollars, recently showed resilience in wartime conditions, in recent months, the situation has become tense due to labour shortages and high interest rates introduced to combat inflation, which accelerated under the influence of record military spending.

There is already tentative talk of an economic crisis even within the Kremlin itself. "The Russian economy is stable and maintaining a relatively high pace of development despite some problematic factors," Kremlin spokesman Dmitry Peskov told Reuters. Former deputy head of the Russian central bank Oleg Vyugin said that Russia is interested in a diplomatic end to the war, also "for economic reasons".

Bartłomiej Chudy