How Russia's economy moves a Siberian rent to Moscow

Why Russian oil and gas outweigh their output share

Rosstat published its first full measurement of the oil and gas sector in 2021. It counted everything it could attach to the industry: extraction, refining, transport and sale, the goods and services the sector bought, and the activities that support it. The result was a maximum share of GDP that rose and fell with the price of oil.

The 2021 publication set these beside other producers measured the same way: about 8% for the United States, under 10% for Canada, 14% for Norway and 13.3% for Kazakhstan, against 30% for the United Arab Emirates and 50% for Saudi Arabia.

Exports and revenue show a much larger share. In the mid-2000s the sector was around 20% of GDP, and it still accounted for about half of exports and about half of federal budget revenue. In 2012 oil, gas and petroleum products made up over 70% of all exports. In 2015 oil and natural gas were 62.8% of them, against 5.9% for ores and metals and 5.4% for machinery and transport equipment. Crude oil earned 110.9 billion dollars in 2021 and processed oil 69.9 billion, with gold at 17.3 billion and coal at 15.4 billion behind them.

The gap between the two shares is where the rent is collected. Russia uses about two-thirds of the gas it produces and a quarter of its oil at home, and sells three-quarters of its oil on the world market, where the state taxes it most directly. Michael Alexeyev, an economist at Indiana University, has pointed out that the oil and gas taxes the government reports leave out corporate dividends and the revenue generated wherever the rent is spent inside the economy. One estimate that counts both the formal and the informal parts puts the total oil and gas rent at 24% of GDP in 2023.

Tax takings follow price and volume. Oil and gas tax revenue fell 24% in 2023, to 8.8 trillion roubles, and the sector's share of federal revenue came down to up to 30% in 2024 from 50% in the mid-2010s. The Wikipedia account of the Russian economy reads that fall as diversification. The same years brought a price cap on Russian crude and a budget in which defence spending doubled, and both are taken up below.

How the rent travels west across Russia

The great bulk of the oil and gas comes from the fields under the northern part of West Siberia, with a second source in the Volga-Ural zone and a smaller one in the Komi-Ukhta field of the north. The West Siberian fields were opened in the late 1950s and the 1960s, and a network of oil and gas pipelines was laid from them to the Urals. The system now links the fields to every region of the country, to neighbouring former Soviet republics and, across the western frontier, to European buyers.

Coal follows the same geography. About three-quarters of Russian coal is mined in Siberia and some two-fifths in the Kuznetsk Basin alone, and the bulk of output comes from the southern fields strung along the Trans-Siberian Railroad. The Tunguska and Lena basins hold bigger fields, but they are remote and largely untapped.

The railway is what made the east pay. Sergei Witte, then working in the finance ministry, persuaded Alexander III to begin it in 1891, partly so that the untapped resources of Siberia could be extracted, and a route wholly within Russian territory was finished in 1916. It runs 9,288 kilometres from Moscow's Yaroslavsky station to Vladivostok across eight time zones and is now double-tracked and electrified. The Baikal-Amur line added a second trunk route of about 3,200 kilometres between Ust-Kut on the Lena and Komsomolsk-na-Amure on the Amur.

Britannica gives the railways about nine-tenths of the country's freight turnover, or three-fifths once pipelines are counted, and half of all passenger movement. The network in European Russia is nearly seven times as dense as in the Asian part. East of the Urals the word network barely applies: there are a few trunk lines with feeder branches to mines and plants, and the line from the Kuznetsk Basin to the Urals is especially prominent in freight.

Electricity is also sent west. The hydroelectric stations built on the Angara, the Yenisey and the Ob from the 1960s feed high-voltage lines that send much of Siberia's output to the European region. The power that stays in Siberia runs the aluminium smelters and cellulose plants that were sited there to use it, and much of Russia's aluminium is made there, although its own bauxite deposits are relatively meagre.

What shock therapy did to Russian prices and savings

The economist Richard Connolly has argued that four features of the Russian economy have outlasted four centuries of upheaval: weak courts, late modernisation, technological underdevelopment and living standards below those of Western Europe and North America. The Soviet economy that Russia inherited in 1991 had been run by five-year plans since 1928. By the 1970s the planners in Moscow were overwhelmed, and between 1975 and 1985 falsified reports of met targets became common practice. Britannica notes that official statistics in the last Soviet years masked industrial inefficiencies.

The reform programme led by Deputy Prime Minister Yegor Gaidar began on 2 January 1992 with the lifting of price controls, and prices rose 300% in January alone. Inflation was 2,509% for 1992, 840% for 1993, 215% for 1994 and 131% for 1995, and the government had no control over the central bank that set monetary policy. The programme became known as shock therapy. It wiped out the savings households had built up under the Soviet system, average meat consumption fell from 63 kilograms a head in 1990 to 45 kilograms in 1999, and by 1997 about half the population lived below the poverty line. Britannica puts the contraction of the economy over the decade after 1991 at more than two-fifths.

Privatisation ran alongside. Citizens were issued vouchers to buy shares in privatised firms, but the vouchers were often sold for cash and gathered up by entrepreneurs, and the director of a Soviet factory would often become its owner. Russians called the process "prikhvatizatisiya", grab-itization. Ownership of the large firms ended up with politically connected owners, and much of the new wealth was moved abroad.

The state could not collect what it was owed, because the Soviet Union had had virtually no tax system in the modern sense and one had to be built from nothing. The government borrowed short-term to cover its deficits, and the IMF extended loan facilities totalling 20 billion dollars over the decade. 1997 brought growth with low inflation and a redenominated rouble. In 1998 low oil prices, a strong fixed exchange rate and poor tax collection broke the arrangement: the rouble was sharply devalued, numerous banks became insolvent and millions of depositors lost their savings.

How Russia banked its oil money after the crash

The recovery ran on a cheap rouble that made Russian goods competitive and on a rising oil price. Between 2000 and 2002 a tax reform introduced a flat income tax of 13%, and a single extraction tax replaced three separate resource taxes. GDP grew by an average of 7% a year from 2000 to 2008, consumer credit increased 45 times between 2000 and 2006, and the share of people below the poverty line fell from 30% in 2000 to 14% in 2008. The federal budget ran a surplus every year from 2000 until October 2007, and Russia repaid 3.3 billion dollars it owed the IMF in 2005, three years early.

Part of the surplus was put aside. A Stabilization Fund was set up inside the federal budget on 1 January 2004 to balance it whenever the oil price fell. On 1 February 2008 it was split in two: a Reserve Fund equal to 10% of GDP, invested cautiously, and a National Welfare Fund allowed to hold riskier assets, including shares in Russian and foreign companies. The Reserve Fund started at 125 billion dollars and had been spent by 2017, when it was closed. The National Welfare Fund started at 32 billion dollars in 2008, peaked at 201 billion in August 2022 and was down to 133 billion by December 2023, with its liquid assets at 56 billion.

The classification of the economy swung with the currency. The World Bank moved Russia into its high-income group in 2013 on 2012 results, returned it to upper-middle income in 2016 after the rouble fell, and restored it to high income in July 2024 on 2023 results. The Bank of Russia dismantled its currency corridor on 10 November 2014 and let the rouble float, two months ahead of plan, so as to stop spending reserves on defending it.

Growth had already slowed to 1.3% in 2013. It was 0.6% in 2014, the economy shrank 3.7% in 2015, and it grew 0.3% in 2016 and 1.5% in 2017, years of falling oil prices, sanctions and capital flight.

What else Russia produces besides oil and gas

Farming occupies a small share of a very large territory. By Britannica's count less than one-sixth of the land is agricultural and less than one-tenth arable, and agriculture contributes little more than a twentieth of GDP while employing about one-eighth of the labour force. Grain covers considerably more than half the cropland, with wheat the chief cereal. Most of it is grown by very large enterprises in the North Caucasus and the Volga region, many of them the old collective and state farms under new names. Russia: geography explains why the crops thin out to the north and east.

More than two-fifths of Russia is forested, and Britannica puts Russian output at about one-fifth of the world's softwood, from forests that grow slowly in the cold. The fishing fleet caught 4.77 million tonnes of fish in 2018, mostly pollack, herring, cod and salmon, and privatisation in the 1990s turned the industry from feeding the home market to exporting. Russia mined over 33 million carats of diamonds in 2013, about a quarter of world output, and the state-owned company ALROSA produced about 95% of them.

Manufacturing was built for the Soviet market and the Soviet armed forces. Tanks, jet fighters and rockets are sold abroad and add to export income, and aircraft make up more than half of arms exports. Car plants at Tolyatti and the heavy-truck works at Naberezhnye Chelny carry the names AvtoVAZ and KamAZ. After Western manufacturers left in 2022, passenger car production fell to 450,000 that year, and by December 2022 the only foreign carmakers producing or building plants in Russia were eleven Chinese companies.

Services were the sector the Soviet state ran worst, by Britannica's account. Private services grew quickly after 1991 and passed half of GDP by the start of the 21st century. As of 2013 Russians spent 60% of their pre-tax income on shopping, which many could afford because they owned homes privatised from the Soviet housing stock and paid no rent or mortgage.

How sanctions and war rebuilt the Russian budget

The first sanctions followed the annexation of Crimea in March 2014, imposed by the United States, the European Union, Canada and Japan, and Russia's membership of the G8 was suspended. The second round, after the invasion of Ukraine in February 2022, froze assets of the central bank, which held 630 billion dollars in foreign-exchange reserves. The World Bank, which had approved no new loans or investments in Russia since 2014, ended all its programmes there on 2 March 2022. On 2 September 2022 the finance ministers of the G7 agreed to cap the price of Russian oil and oil products, a measure designed to let Russia keep producing while limiting what it earned. Russia defaulted on part of its foreign-currency debt in 2022, its first such default since 1918, and many official economic statistics have gone unpublished since early that year.

Spending moved to the war. The 2024 budget planned revenue of 35 trillion roubles against expenditure of 36.6 trillion and doubled defence spending to 10.78 trillion roubles, 29.4% of expenditure. In 2025 defence and security took about 40% of government spending, more than education, healthcare, social policy and the national economy combined. Reporting in January 2025 described over 200 billion dollars in preferential bank loans that the government compelled banks to make to defence contractors and war-related businesses, outside the budget. The deficit was estimated at 2.6% of GDP in 2025.

Two readings of the outcome are on record. The Wikipedia account describes an economy that kept growing on military spending, rising wages, household consumption and government spending, and it also records forecasts that sanctions will do lasting damage. Unemployment was 2.1% in 2025, which the same source attributes to demographic decline, the war's demand for industrial and military manpower, and emigration. Rosstat confirmed growth of 1.0% for 2025 on output of 214.261 trillion roubles, slowing from 1.3% year on year in the first quarter to 0.8% in the third. By September 2025 Ukrainian drone and missile strikes had disrupted nearly 40% of Russia's oil refining capacity, and gasoline had to be imported from Asia.

The central bank has answered with high interest rates. It raised its key rate to 18% in July 2024. On 11 September 2026 it held the rate at 14.00%, reporting seasonally adjusted price growth of 11.6% in annualised terms for July, driven partly by motor fuel, and annual inflation of 6.3% on 7 September 2026. Its baseline expects inflation of 6.0 to 7.0% in 2026 and 4.0% in 2027, and assumes the structural primary budget deficit falls to zero in 2029. The IMF's July 2026 update projects growth of 1.1% for 2026, and the World Bank projects about 1% a year for 2026 and 2027.

Why roubles and yuan now settle Russian trade

The rouble is freely convertible, a departure from the artificial exchange rates of the Soviet era, and under Article 75 of the constitution in force since 25 December 1993 only the Bank of Russia may issue money. Its exchange rate has moved sharply since the float. It reached 97 roubles to the dollar on 15 August 2023 and passed 100 in October 2023.

Sanctions changed the currency in which Russia is paid. By June 2023 the European Union took 1.7% of Russian exports and supplied 1.5% of its imports. In August 2025 the rouble's share of Russia's foreign-trade settlements reached 55.2%, with 56.3% of export payments and 54.1% of import payments made in roubles, while the currencies of countries the government lists as friendly carried 29.4% of export payments. The Ministry of Economic Development puts the share of national currencies in trade with the CIS countries at over 85% and in trade with China at close to 95%.

The plumbing was laid in stages. The rouble and the yuan began trading against each other on the Moscow Interbank Currency Exchange on 16 December 2010. In 2014 the central bank founded the National Payment Card System, which launched the Mir cards, and in 2019 it opened the Faster Payments System for instant transfers by telephone number or QR code. By 2022, 23 Russian banks were connected to China's Cross-Border Interbank Payment System. Cashless payments made up 87.5% of retail turnover in the first quarter of 2025, by the central bank's figure.

Russia joined the World Trade Organization on 22 August 2012, after 19 years of negotiation, and in 2015 became a founding member of the Eurasian Economic Union, a single market of 183 million people with free movement of goods, services, capital and labour. A study published in 2025 still named the limit on all this as "Russia's dependence on hard currencies like the dollar and the euro", with only partial yuanisation of foreign trade.

Where the money lands once it reaches Moscow

Moscow had 13,274,285 residents on 1 January 2025, about 9% of Russia's 146,119,928, and the city government stated in 2024 that the capital produced more than 20% of the country's GDP, with labour productivity on average 2.5 times the national figure.

A 2011 research article described the relationship between Moscow and the regions as a centre and a periphery, with excessive centralisation, no alternative centre to the capital and weak links between the regions themselves, a pattern it found reproduced over time. Natalia Zubarevich extended that model into her theory of four Russias. The first is the cities of a million people or more, the most modernised part of the country. The second is medium-sized industrial cities, and the monotowns built around a single plant are its least stable part. The third is small towns, workers' settlements and the countryside. These three each hold roughly a third of the population. The fourth, home to 6% of it, is the national republics of the Caucasus and southern Siberia, including Tuva and the Altai Republic, where urbanisation is still in its early stages.

The Gini coefficient stood at 33 in 2023, and the Wikipedia account attributes the regional gaps behind it to the uneven spread of natural resources among the federal subjects. Illicit money outflows cost Russia over 880 billion dollars between 2002 and 2011. In 2019 the government approved a spatial strategy that grouped the regions into 12 macro-regions for planning.