Will There Be Enough Oil for the Guns? Economic Perspective on the Alaska Meeting Results

Let’s take as an axiom that Putin himself will be ready to continue the war even amid the harshest economic crisis and financial system collapse. For him, this game is worth any cost, and Kyiv is worth not only a massacre but economic suicide as well. The question is only whether the elites or parts of them will be willing to stop this economic harakiri, but that question cannot be answered in advance. So, let’s focus on what such a development means for everyone else – ordinary citizens and the civilian business sector.

The Russian stock market responded to the Alaska meeting results with a deafening plunge – and yet the Moscow Exchange introduced Saturday trading of futures and options on stocks clearly expecting agreements and growth. I like to repeat – the market can be wrong, but it cannot lie. And the Saturday collapse in quotes shows: the market perceives the meeting’s results as extremely negative for Russian companies and the Russian economy as a whole. Why is that, if even the new sanctions Trump threatened are at least postponed “for two to three weeks,” according to him?

First, because postponed doesn’t mean off the table. Trump’s unpredictability causes problems for everyone, but in this case, honestly, even imposing the promised sanctions might have been less harmful than uncertainty about their implementation. As they say, better a terrible end than a terrible endlessness. Trump would have imposed sanctions – and precisely during those three or four weeks, Russian oil producers would have found workarounds to continue trading with India and China.

In fact, there’s no need to look for anything – everything has already been found and fine-tuned under other sanctions. A good discount is offered on the price, intermediary firms are chosen for interaction, and payments are made through cryptocurrencies or national currencies, outside the dollar perimeter.

Tankers – “illegals” – depart either from Far Eastern ports or sail through the Baltic Sea escorted by warships and/or Russian fighter jets. Such a convoy is expensive, of course, but it’s a matter of principle, and transporting oil extracted in the European part to the Far East isn’t cheaper either.

That’s how it would be, but the cursed uncertainty hangs like a Damocles sword over the oil producers, who need to start planning for next year. And their plans affect the federal budget parameters concerning oil and gas revenues.

The second problem is that the Russian economy, under its fourth year of sanctions pressure, has started to crack under the strain. So far, nothing threatening seems to be happening: as acknowledged not only by the Russian Central Bank but even by the “unfriendly” Bloomberg, it has even been possible to avoid a recession.

In Russia, there is simply stagnation, previously called stagnation. However, here and there, developments are emerging that make seasoned economists’ hearts grow cold.

For example, the rapidly growing budget deficit, which even Central Bank-friendly analysts forecast to reach at least 8 trillion rubles by year-end. That’s 3.58% of GDP – while a safe level globally is considered 3%. And just to grasp the scale of the disaster: the 2025 budget was drafted with a deficit of 1.2 trillion rubles (0.5% of GDP), and in June, the State Duma, at the Ministry of Finance’s request, increased it to 3.8 trillion rubles (1.7% of GDP).

The problem is further aggravated by the fact that there’s hardly anything to cover the deficit with: the Ministry of Finance’s sales of government debt in the form of OFZ bonds are getting worse. Of course, bankers can be forced to buy the required volume, but the trouble is that even banks are having problems, as noted not only by Bloomberg but also by the Kremlin think tank CMAKP.

The old reliable ruble devaluation remains – not for nothing did the government zero out the mandatory foreign currency revenue sale requirements for exporters at the first signs of inflation decline.

One cannot count on income growth: even raising taxes, excises, duties, etc., did not compensate for the drop in oil and gas revenues through increased receipts from other sectors. Meanwhile, global demand for oil is falling – primarily in China and India, the main clients of the Russian fuel and energy complex.

Even if “shadow” tankers with Russian oil continue to roam the World Ocean, revenue from this will decrease while expenses will rise. And this is without considering that the Damocles sword of Trump’s tariffs could cut off Russia’s largest oil importers.

Against this backdrop, the IMF report, in which Kazakhstan for the first time surpassed Russia in a favorite Putin indicator – GDP per capita – sounded especially loud and bitter. So loud that it drowned out a much more serious piece of news: despite the fact that the economy overall avoided recession, the civilian sector has been in recession since the beginning of the year. Only the defense sector is growing, and that only due to budgetary stimulus.

Put simply: the state is vigorously feeding money into the war furnace. At the same time, it extracts money from everywhere it can: from the “stash” in the form of the National Wealth Fund, from the pockets of the population and peaceful businesses, going into debt and devaluing its own currency. But the result is clear: the fire burns, the furnace heats up, and everyone is warm. But the question is: what next?

The Alaska meeting was expected to provide answers and, judging by the composition of the delegations, the answer was supposed to include lifting some sanctions and establishing business cooperation. Putin even signed a decree before the summit on the return of the American company Exxon to the “Sakhalin-1” project. This would have greatly relieved the civilian sector of the economy and helped the Russian budget increase its revenue. But – it didn’t happen.