Fifth Year of War in Ukraine: An Energy Balance

• Commentary Energy and Sustainability · Geoeconomics
  by Massimo Lombardini
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February 24th marked the beginning of the fifth year of Russia's "special operation" in Ukraine. Although there are differences, it is inevitable to compare the slow progress of Russia's special operation to the four hours American special forces took to capture and transfer Venezuelan President Nicolás Maduro and his wife to New York. In Russia's case, President Zelensky is still in power, and the Kremlin has conquered only a relatively small portion of Ukrainian territory. Furthermore, the special operation has had severe demographic, economic and energy repercussions in Russia.

Demographic and Economic Impacts of the Special Operation

On the eve of the conflict, Russia had a population of 145 million people, a number in slow decline that has accelerated since the start of the war. According to the Center for Strategic and International Studies (CSIS), since February 2022 Russia has lost 1.2 million soldiers, 325,000 of whom were killed. In comparison, between 1979 and 1989 the war in Afghanistan caused 50,000 casualties, but at that time the Soviet Union had almost twice the population of present-day Russia. The exodus of over one million Russians who left the country to avoid conscription has worsened the demographic crisis.

Economically, the country has not suffered the collapse predicted by some, but has seen inflation above 10%, interest rates reaching 20%, and almost 40% of the state budget absorbed by military expenses. So far, the Russian government has funded the war through hydrocarbon exports and the Sovereign Fund (National Wealth Fund), which has shrunk to $30 billion, a decrease of 70% from the start of the war. If this trend persists, the Kremlin might find itself short of resources and, after exhausting the "family silver", face great difficulties obtaining loans on the international market.

The Russian Energy Crisis

With the exception of the crises of 2006 and 2009, even during the "coldest periods of the Cold War" the flow of hydrocarbons from the Soviet Union to Europe was maintained. Until February 24th, 2022, Russia was the main supplier of gas, oil, and coal to the European Union. From that date onwards, an energy divorce between the two parties began, with the progressive reduction of Russian supplies. Energy has always played a crucial role in the Russian state budget, and the decline in energy profits since the beginning of the conflict is having a significant impact on the country's economy.

In August 2022, the European Union sanctioned Russian coal, quickly replacing it with supplies from other countries. For gas, which in 2021 represented over 40% of European imports with more than 150 billion cubic meters, the replacement has been longer and costlier, partly because some countries, like Germany, had developed a strong dependence on Russia. Since the beginning of the conflict, Russian gas supplies have slowly decreased to just over 10% in 2025, and following the latest sanctions they are expected to be zeroed out by September 30th, 2027.

The "weaning" from Russian gas has not been painless. In 2022, supplies had already been substantially reduced, forcing the European Union to buy, at high prices, from other producers, mainly American liquefied natural gas. In 2022, there was much rhetoric about the American "salvation gas" that would help Europe, but supplies from the United States were purchased at astronomical prices, more than ten times the values of 2021.

With the European buyer disappearing, there has been much emphasis on the possibility for Russia to redirect exports to China with the new Power of Siberia 2 project. However, this pipeline, with a capacity of 50 billion cubic meters, would only replace a third of the export of Russian gas to the European Union in 2021. Additionally, China, while having signed a generic Memorandum of Understanding with Russia, does not intend to become overly dependent on a single supplier, in this case Gazprom.

Thus, the Kremlin will not be able to redirect the gas exported to the European Union in 2021 to other buyers but will manage only a modest increase through the existing Power of Siberia 1 pipeline and a limited export of liquefied natural gas to other consumers. In other words, two-thirds of the gas sent to the European Union in 2021 will remain unsold in the Russian fields.

As for oil, which in 2021 represented almost 30% of the European Union's imports, the situation is different. Part of the imports reached central and eastern European countries via the Druzhba pipeline and part by sea with tankers. The imports via tankers were sanctioned at the end of 2022, allowing only European countries without sea access (landlocked) to continue sourcing through Druzhba. By the end of 2025, these supplies had been reduced to just over one percent of the European Union's imports.

At the end of January 2026, the branch of the Druzhba pipeline that supplied Hungary and the Slovak Republic was damaged during military operations, zeroing out the residual flow of Russian oil to the European Union. It is anecdotal to recall that in 1973 Leonid Brezhnev, inaugurating the pipeline branch to Germany, described it as a partnership guarantee for "30 or even 50 years", making a rather accurate prediction at the time.

Naturally, Moscow will continue to have the opportunity to export its oil to countries that have not introduced sanctions, agreeing to sell it at heavily discounted prices. In November 2025, the discount on Urals, the main Russian blend, compared to Brent, an international benchmark, increased to $24 per barrel. As indicated by the Financial Times, this reduced Russia's energy income in 2025 by about a fifth compared to 2024.

The reduction in oil revenues is hitting the Russian economy seriously. A drop in crude oil prices or an increase in discounts to countries still purchasing Russian oil would further reduce Moscow's already slim profit margins, whose oil, moreover, has high production costs.

Conclusions and Future Prospects

The comparison between present-day Russia and the Soviet Union of the 1980s highlights crucial similarities. Both regimes began conflicts that turned out to be longer, costlier, and bloodier than expected. The Russian budget allocated to the conflict in Ukraine absorbs about 40% of state resources, similar to what happened in the 1980s for expenses related to the Afghanistan conflict and to counter Ronald Reagan's Strategic Defense Initiative.

Another similarity is related to oil. The Soviet Union invaded Afghanistan at the end of 1979 with oil around $40 per barrel, a price that plummeted below $10 in 1986, devastating the Soviet economy. In 2022, at the start of the invasion, the oil price peaked at $130 per barrel, before dropping below $70 in 2025.

Russia has always exploited its energy resources to pursue an assertive foreign policy, commonly referred to as the "weaponization of energy". However, the reduction in profits from oil exports is beginning to severely impact Moscow's economy, a sort of "weaponization of energy" against Russia itself, depriving it of economic resources to finance the conflict.

Putin seems insensitive to the "bloodbath" in Ukraine, but Russia will not maintain the same insensitivity, and military expenses are destroying the country's economy. Alexandra Prokopenko, an economist who left the country at the start of the conflict, compared the state of the Russian economy to altitude sickness. When climbers at high altitudes suffer from altitude sickness, they must stop and go back to avoid irreversible damage to their bodies. One may wonder whether Russia's altitude sickness will prompt Putin to halt.

Unfortunately, the recent intervention in Iran, pushing oil prices upwards, is unexpectedly aiding the Kremlin's ailing economy. Like a climber at high altitude needing oxygen to continue ascending, higher oil prices would represent vital oxygen tanks for Moscow.