Russia’s oil giants are being squeezed from all sides—by falling crude prices, sanctions, and punishing interest rates—leaving first-half profits in freefall and exposing the limits of Moscow’s ability to shield its energy sector from global headwinds.
Rosneft, the country’s largest oil producer, reported a 68% decline in profits for the first six months of 2025 versus the same period of 2024, citing a global crude oil oversupply driven by OPEC+’s unwinding of production cuts. Chief executive Igor Sechin warned that the surplus could reach 2.6 million bpd in Q4 2025, prolonging price weakness into 2026. Sechin also criticized Russian monetary policy, arguing that the elevated key interest rate artificially strengthens the ruble, hurting exporters and eroding state revenues.
“The first half of this year was characterized by lower oil prices, primarily due to the overproduction of oil,” Sechin said in the company’s statement. “In addition, there was an expansion of discounts on Russian oil due to the tightening of EU and US sanctions restrictions and a significant strengthening of the ruble exchange rate, which negatively affected the financial results of all exporters.”
Even without sanctions, Western Big Oil also suffered lower financial results this year as prices remained stubbornly low despite repeated risks to supply related mostly to geopolitics. Forecasts, however, continue to see an overhang in supply with demand growth slowing down, which is affecting international prices and therefore company earnings results. OPEC is one of the few that do not foresee a glut in oil, which, one might argue, is only to be expected from an oil producers’ club and not to be taken too seriously.
Bloomberg reported last week that Russia’s number-two in oil, Lukoil, had also reported a sizable decline in first-half profits, at 51%, reportedly. However, there was no information about Lukoil’s January-June financial results on the company’s website.
Gazprom Neft, meanwhile, booked a profit drop of 54% for the first six months of the year, attributing it to higher taxes and, interestingly, a weaker, rather than stronger, ruble. Per the company, which is the oil-focused arm of state gas major Gazprom, the combination of headwinds had affected the profitability of its operations across both upstream and downstream businesses.
Novatek, the largest private gas producer in Russia, also suffered a dip in its profit for the first half of the year, but that was attributable more to its higher operating expenses, per its financial report, rather than any other factor, suggesting gas producers, and more specifically LNG producers, are somewhat insulated from the worst effects of Western sanctions. Of course, they also enjoy a much better demand outlook for their product, unlike oil producers.
Despite the lower prices for crude oil on global markets, however, none of the abovementioned companies reduced their output in the reporting period. In fact, some reported increases in output despite sanctions and rising interest rates. This would suggest demand for crude oil remains rather healthy in spite of the pessimistic forecasts. Yet, as Big Oil knows from experience, this is not being reflected in international prices and is affecting their financial figures.
According to Bloomberg, Russia’s flagship oil blend, Urals, traded at an average of $58 per barrel during the first half of the year, which was 13% lower than its average for the second half of 2024. It is worth noting, however, that per price data, Urals traded substantially above $60 per barrel for most of the time during the first half of this year.
The outlook for oil prices remains subdued. The latest evidence that the assumption of a glut is strong is that prices started this week with a decline, despite calls from France and Germany to impose secondary sanctions on countries buying crude from Russia. Normally, such news would prompt a rebound in oil prices, but it appears that traders either do not believe secondary sanctions will be implemented or they do not believe they will have much of an effect on the availability of Russian crude.
There seems to be a good reason for the latter disbelief. Reuters reported on Friday that Russian oil exports to India were set to increase this month despite the United States’ secondary sanctions on the importing nation in the form of a 25% additional tariff on all Indian imports into the United States. Washington has accused India of “profiteering” from Russian oil imports.
“The tariffs are part of a broader trade discussion between India and the U.S., and given India’s increasing domestic refinery runs amid discounted Russian barrels, we don’t see India scuppering its Russian imports in meaningful volumes,” BNP Paribas analysts said in a note last week, in what sounds like a confirmation of what ING analysts called the oil market growing numb to sanction-related pressures on prices as focus remains exclusively on the expected glut.
By Irina Slav for Oilprice.com
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