Madi Kapparov: Economic SitRep on Russia

Weekly Economic Update on Russia

By Madi Kapparov, 24 June 2025

This is a new newsletter by Eurofile. Every Monday evening, we publish a weekly review of major economic news from Russia with a brief analysis. As most data on Russia’s economy is provided by the Russian state, many of the sources referenced will be either Russian state-controlled media or Kremlin-connected state and non-state organizations. Exercise caution using these sources.

US strikes Iran: implications for Russia

Over the weekend, the world was gripped by US strikes against Iranian nuclear facilities. Today, the markets had a muted reaction as the extent of Iran’s retaliatory strikes clarified with all major indices in the US rising and oil futures sliding 7%. In last week’s newsletter we discussed why the Iranian conflict might provide only a short-term reprieve for Russia in the form of temporarily elevated oil prices. However, today I wanted to briefly discuss another factor that makes Iran important for Russia’s economy.

Aside from being a supplier of drones, missiles, and other munitions, Iran also serves Russia as a major trade transit hub via the International North-South Transport Corridor (INSTC), connecting Russia to India and other South Asian countries. The INSTC predates Russia’s full-scale invasion of Ukraine in 2022 but grew in significance following European sanctions of 2022. The traditional route connected St. Petersburg to Mumbai via the Suez Canal with vessels using European ports to refuel and resupply. However, that route is no longer viable. The INSTC now acts as a substitute – goods from Russia depart from Astrakhan to Iran via the Caspian Sea and by rail from South Russia via Azerbaijan and to a lesser extent via Kazakhstan and Turkmenistan. From Iran Russian goods make their way to India primarily via Bandar Abbas, an Iranian port city in the Strait of Hormuz. Obviously, the trade route is a two-way street and Indian and some other Asian goods take the same path to Russia.

Prior to 2022, the INSTC was of little significance for Russia. Now, depending on the source the volume of Russian exports that make their way through the corridor ranges from 15 to 30 million tons a year, however, it is difficult to obtain reliable data. Iranian sources indicate that for the most recent Iranian calendar year (ending on March 20^th) Russian exports through the corridor were 17.5 million tons or +28.8% year-on-year. The volume is expected to rise with the introduction of a new rail line in Iran connecting Astara to Resht which is currently under construction. Last week, Russian deputy transport minister Dmitry Zverev spoke with the Iranian ambassador to Russia Kazem Jalali. They discussed the Astara-Resht rail construction progress including “the preparation of engineering surveys, the organization of construction work and financing issues.” Russia is expected to invest 1.3 billion Euros into the construction project with the entire project estimated to cost 1.6 billion Euros (source: TASS). According to the Russian trade mission to Iran, the INSTC transit volume is expected to reach 41-45 million tons by 2030 and exceed 100 million tons in the future.

My subjective takeaway – Russia might exert pressure on Iran to prevent disruptions in the Strait of Hormuz. While such disruptions will elevate the oil price driving up the Urals, they would also strain Russia’s limited trade corridor options. However, Russia will continue supporting Iran in the game of diplomacy and subterfuge – the political costs of inaction for Russia are high and we already observe as much from the renewed nuclear saber rattling.

SPIEF 2025

The atmosphere of this year’s St. Petersburg International Economic Forum (SPIEF) was notably more tense than in prior iterations. Perhaps, what struck me the most was Andrej Makarov’s speech where he indirectly criticized Russian authorities for inept economic policies amounting to only “money printing” and “courts without just rulings,” and reminded that such measures resulted in the USSR’s collapse. He prefaced his speech with “allow me not to say what I think as I want to survive to next breakfast.” However, given that Makarov is a member of United Russia, State Duma deputy since 2003, and Chairman of the Duma Budget and Taxation committee since 2011, such speeches should be taken with a grain of salt – it is possible that it was a provocation aimed at Russian industry leaders present at the Forum to identify those who sympathize with the sentiment expressed in Makarov’s speech.

Moskovsky Komsomolets (MK), a Russian outlet with ties to the FSB, only briefly touched upon Makarov’s remarks. “Makarov’s passage about a country “with an unpredictable past” caused conflicting emotions. But the phrase about Putin’s 25-year-old quote — “Property rights are still poorly protected” — sounded vivid: nothing has changed,” writes MK. German Gref, CEO of Sberbank, stated at SPIEF that “we [Russia] are at the peak of economic uncertainty.” Besides, Makarov, Gref was the least optimistic of the major players present at SPIEF limiting his speech to only factual challenges faced by the Russian economy. Gref recommended Russia to seek new “growth factors” as relying on the existing economic model to achieve the desired 3% annual growth is no longer viable.

Sergej Kogogin, CEO of KAMAZ, Russia’s largest truck manufacturer, was interviewed by RBC at the SPIEF. He confirmed the difficulties in the market: “…the imbalance continues: about 85% of commercial vehicles were sold through leasing, and today, with a double rate, leasing does not pay off. As a result, about 50 thousand trucks have accumulated in the warehouses of leasing companies, add to this the still unsold stock of Chinese dealers, which we now estimate at 40 thousand — this is not just a cooling of the market, it is a collapse.” In the interview, he also confirmed that the primary customers over the past three years have been Russian law enforcement agencies and the military.

Severstal, one of the largest steel makers and miners in Russia, also added to the doom-and-gloom at the SPIEF. Alexander Shevelev, CEO of Severstal, stated at the forum that the tight monetary policy in Russia and the rising costs of ferrous metallurgy enterprises with high production costs may lead to their forced shutdown due to unprofitability. Shevelev also predicted that Russia’s steel consumption would fall by about 10% to 39 million tons this year.

CMASF monthly update

The Center for Macroeconomic Analysis and Short-Term Forecasts (CMASF) published their monthly macroeconomic update. CMASF is a major think tank in Russia duplicating most of the work of macroeconomic analysis done by state bodies and its reports are used by the Kremlin in their economic decision making. The current Defense Minister previously led CMASF. The report is quite lengthy and for brevity I will only mention what I consider to be their key findings: the only civilian industrial sector that is still growing is oil and gas; the level of investments is falling; the debt market is shrinking; the slack in the industrial capacity is growing relieving some of the pressure; low global market prices for raw materials and the strong ruble had a detrimental effect on Russian exporters; the economy lacks “growth drivers” – the old model, based on the combination of growth in wages, incomes, and consumption of the population, real estate development, and import substitution, no longer works.

Nationalization and Privatization

Last week Russia nationalized the Domodedovo International Airport in Moscow. The grounds for nationalization were based on “foreign entity ownership” of the airport according to the Office of the Prosecutor General. The airport continues its normal operations (as normal as they can be).

Russia also nationalized a port last week. The Petropavlovsk-Kamchatsky port is now owned by Rosimuschestvo, a federal agency managing nationalized assets. It is one of the few major ports in Russia’s Far East.

These moves continue a larger trend that started in Russia in 2023 to yield funds for the federal budget. Recall, earlier this year in March, Vadim Moshkovich was arrested. He is the founder of Rusagro and an oligarch with close connections to Putin. The nationalization of Rusagro is already underway. A year ago, I discussed Russia’s nationalization objectives.

There is a flipside to nationalization. Anton Siluanov, Russian Finance Minister, in an interview to Izvestiya at the SPIEF stated that the Russian budget made 26 billion rubles from the sale of state assets through privatization programs. He added that the revenue from privatization is expected to reach 100 billion rubles.

Other news

Cost of cargo transportation in Russia will increase due to lack of vehicles - by August, the average freight rate in Russia, which had already increased by three to five percent in June, may grow significantly due to the continuing decline in the number of vehicles on the market.

Denis Manturov, First Deputy Prime Minister of Russia, stated that Lada production will decline in 2025. In 2024 Lada production already contracted by 40%. In 2025, the production volume may drop another 30-35%. AvtoVAZ, the maker of Ladas, confirmed and in their outlook for 2025 now expect their sales to drop 20-25%. Fontanka also reports that car dealerships in Russia now offer unprecedented discounts to move their stock.

The Russian real estate market continues its contraction. The volume of new housing in May decreased 17% on an annualized basis. Vedomosti also finds that the footage of new retail spaces set a new “anti-record.” “The portfolio of the 200 largest fast-moving consumer goods (FMCG) chains increased by 218,700 square meters of retail space year-on-year in Q1 2025, according to a study by Infoline, which Vedomosti has reviewed. It says that this is 1.9 times less than the previous year. Overall, this is the lowest growth rate for the first three months in the last 15 years.”

The State Duma has a new bill aimed at boosting Russia’s ailing demographics. MK writes: “a bill was introduced to the State Duma of the Russian Federation proposing to increase maternity capital by 25%. And not just by 25%, but plus 25% for each subsequent child… The idea is clear: to persuade Russian women to give birth more actively! At least to stimulate it with money, if there is no other way...”

This is it for today. Until next week.