CASPIA presents an interview with Mikhail Krutikhin, a Russian oil and gas market analyst. The discussion examines the impact of sanctions on Russia’s energy sector, the changing geography of oil and gas exports, Moscow’s growing dependence on Asian buyers, prospects for energy cooperation with Caspian countries, and the long-term risks facing Russia’s oil and gas industry.

Export reorientation: How sustainable Is Russia’s energy model?

– Since 2022, Russia has managed to redirect a significant share of its oil exports towards Asian markets. However, to what extent does this adaptation demonstrate the genuine resilience of Russia’s energy model, and to what extent is it simply the result of a temporary ability to maintain exports through discounts, changes in logistics routes and the search for alternative buyers?

– Several factors need to be taken into account here. First and foremost, the pool of alternative buyers of Russian oil remains quite limited. India and China have become the main importers, while Turkey and Brazil purchase Russian oil in smaller volumes. At the same time, the list of major alternative buyers has barely expanded.

By the end of 2026, it has become increasingly clear that this export model does not generate substantial profits for Russia’s oil and gas sector. China is not increasing its purchases of Russian oil and continues to demand significant discounts.

India, meanwhile, is gradually shifting towards supplies from the Persian Gulf countries. Additional opportunities have emerged for Iraq and Kuwait. Iraq, in particular, is offering its oil at discounts of USD 27 per barrel or more. Against this backdrop, Russian oil, which passes through multiple intermediary networks, is becoming less competitive in terms of price, gradually reducing its appeal to Indian companies.

Thus, export reorientation has enabled Russia to maintain certain supply volumes, but it has yet to demonstrate that it can preserve the previous economic efficiency of its energy model.

The China factor: strategic partnership or economic dependence?

– China has become one of the key buyers of Russian energy resources. However, Beijing has little objective interest in allowing Moscow to enjoy unlimited bargaining power. To what extent can Russian-Chinese energy cooperation today be regarded as a strategic partnership, and to what extent does it represent an asymmetric arrangement in which China gains additional economic advantages as Russia’s negotiating position weakens?

– What we are witnessing today is clearly the second scenario: China is effectively dictating the terms of energy cooperation to Russia. A telling example is oil supplies through the Eastern Siberia–Pacific Ocean (ESPO) pipeline. Under these arrangements, the Russian company Rosneft offers substantial discounts to its Chinese counterparts. Moreover, some of these supplies are effectively made in repayment of previous financial obligations. In other words, the oil serves as a form of compensation for loans and financial injections previously provided by China to Rosneft.

A similar situation is emerging around prospective gas projects. China has rejected initiatives such as Power of Siberia 2 and the Altai project because it currently has no need for additional Russian gas.

At the same time, the Chinese side is effectively proposing terms under which Russia would have to finance the construction of all the necessary infrastructure itself, while Beijing would retain the right to determine the volumes and timing of purchases. Furthermore, China insists that the price of Russian gas should be aligned with domestic Russian prices.

Clearly, under such conditions, these projects offer no commercial benefit to Russia. At present, Moscow is not so much making money from oil and gas supplies to China as making economic concessions in order to retain access to this market.

The current situation is undoubtedly advantageous for China. In the absence of meaningful competition from Western companies, Russia has effectively become an exceptionally convenient source of energy resources and other raw materials. At the same time, China has gained the opportunity to supply its own products to Russia on favorable terms, facing virtually no competition from Western manufacturers. As a result, the current model of energy cooperation increasingly reflects an asymmetry of interests and Russia’s growing dependence on the Chinese market.

India and the limits of Russia’s alternative export model

– India purchases Russian oil primarily on the basis of its own economic interests rather than political solidarity with Moscow. What could happen to Russia’s export model if New Delhi decides that Western sanctions risks, logistics costs or payment conditions are more important than the economic benefits of purchasing Russian oil? Does Russia have any genuine alternatives that would allow it to quickly compensate for a potential decline in Indian demand?

– Previously, India could largely disregard the threat of sanctions pressure, including the possibility of secondary sanctions. However, the economic situation is now changing. Indian companies are increasingly recognizing that purchasing oil from the Arab states of the Persian Gulf is becoming more advantageous than acquiring Russian energy resources.

This is primarily a matter of economic rationale. Political considerations do not play a decisive role. India has no obligation to support Russia’s export model and will choose suppliers offering the most favorable conditions in terms of price, logistics and commercial risks.

Therefore, if Indian demand declines further, Russia will face considerable difficulties in finding alternative markets of comparable scale. Its ability to compensate for such losses quickly is extremely limited.

Geopolitical tensions and the future of the global energy market

– Geopolitical crises involving Iran and the Strait of Hormuz may increase demand for alternative sources of oil and gas, including Russian supplies. However, to what extent does Russia genuinely benefit from such crises in the long term? Can a temporary increase in global energy prices offset infrastructure risks, instability along export routes and the accelerated search for alternatives to Russian energy resources?

– The high oil prices we are currently witnessing, including Brent crude trading above $110 per barrel, are largely driven by tensions surrounding the Strait of Hormuz.

However, this situation also has a downside. High prices encourage the global energy market to accelerate its transition towards alternative energy sources. Countries are beginning to explore the use of gas more actively, interest in nuclear energy and coal is being revived, and investment in renewable energy sources, particularly wind and solar power, is expanding. In other words, rising prices for conventional energy resources are gradually driving structural changes in the global energy sector and may eventually lead to a decline in demand for fossil fuels.

This is a particularly unfavorable development for Russia. Since Soviet times, the foundation of the Russian economic model has remained relatively simple: export raw materials and energy resources, generate revenue from these exports, and purchase abroad the scientific and technological solutions needed for the country's development.

In other words, Russia has not paid sufficient attention to developing its own alternative energy sources and technologies that could ensure the long-term diversification of its energy sector. Moreover, I currently see no indications that this approach is likely to change substantially.

Russia has an official document known as the Energy Security Doctrine, which effectively portrays the development of alternative energy in other countries as a political instrument directed against Russian interests. At the same time, the main emphasis is placed on conventional energy sources: oil, gas, coal and other fossil fuels.

As a result, Russia risks falling behind in the context of the global transformation of the energy market. While other countries invest in new technologies and diversify their energy mix, the Russian model continues to rely predominantly on the export of conventional energy resources.

Russia and the Caspian region: competing interests and limited prospects for cooperation

– To what extent should Russia’s energy cooperation with the Caspian states be viewed as competition for markets and transport routes, and to what extent could it become an area of mutual interdependence? In which sectors might Russia’s interests coincide with those of Azerbaijan, Kazakhstan and Turkmenistan, and where are conflicts of interest inevitable?

– We are already witnessing a considerable number of contradictions. Moreover, in some cases, political considerations take precedence over economic rationale.

One need only recall the situation surrounding the Caspian Pipeline Consortium (CPC), when the Russian side created obstacles to its normal operation. This is a critically important route through which Kazakhstan exports up to 80 per cent of its oil. Such circumstances clearly demonstrate how vulnerable energy and transport projects can become when political factors take priority.

Overall, many Russian plans for developing energy cooperation in the Caspian region appear unrealistic. For example, various proposals for exporting Russian gas to Iran through Azerbaijani territory are periodically discussed. However, such initiatives face a number of objective constraints.

First and foremost, implementing these projects would require Azerbaijan’s consent. Furthermore, the existing gas transportation infrastructure running through Azerbaijani territory has the physical capacity to transport no more than 1.5 billion cubic metres of gas per year.

There are other serious obstacles as well. Russia cannot simply supply gas to Iran independently and then exercise control over its distribution on the Iranian market. Iranian legislation does not allow foreign companies to acquire ownership rights to gas and oil within the country: such rights belong exclusively to the Iranian side. In addition, Iran's gas market is regulated by the state, and domestic gas prices are so low that such supplies are unlikely to generate commercial profits for Gazprom.

Finally, Iran itself lacks the necessary capacity for large-scale gas exports, as the country does not have fully developed liquefied natural gas (LNG) infrastructure. This raises an obvious question: what commercial prospects could Russian gas supplies have in a market that lacks the capacity for large-scale exports of its own and does not require additional volumes under the proposed terms?

Thus, many statements about the prospects for such energy cooperation with Iran and the Caspian countries remain, for the time being, more in the nature of political declarations than economically viable projects.

Russia’s oil and gas industry in 50 years: structural constraints and technological risks

– Looking at Russia’s oil and gas industry over the next 50 years, which factor represents the most serious structural risk to its future?

– First and foremost, it is important to recognize that the global energy market is undergoing significant structural changes. Demand for different types of energy resources is evolving unevenly, and this trend is likely to intensify over the coming decades.

For example, the current period of high oil prices does not mean that demand will remain at the same level over the long term. On the contrary, it is entirely possible that we will see a gradual decline in demand within the next few years.

For Russia, the depletion of oil fields and the deteriorating quality of its oil reserves are becoming particularly serious problems. These factors are already having a negative impact on the industry. As the most accessible fields become depleted, companies are increasingly forced to develop more challenging resources, which require significantly greater financial investment and technological capabilities.

The gas sector is facing similar difficulties. Russia has enormous gas reserves, but a fundamental question remains: where can this gas be sold? The global market has a sufficient number of alternative suppliers, many of which can offer buyers energy resources without the political and sanctions-related conditions associated with Russian supplies.

These include not only traditional suppliers such as Norway, but also the United States. Furthermore, there are promising projects in West Africa and other parts of the world. The global market is gradually demonstrating that it can function without Russian gas when the relevant political, economic and logistical constraints arise.

If Russia's current political system remains in place, I see no significant incentives for genuine technological and investment development in the energy sector. This creates additional long-term risks for its competitiveness.

The future of Russian oil exports: which scenario is most likely?

– Which of the widely discussed forecasts concerning the future of Russia’s energy sector do you consider the most misleading? What are analysts, international markets and governments underestimating when assessing Russia’s ability to maintain its position in the global energy market?

– Several scenarios for the development of Russia’s oil industry have already been presented in the official document known as the Energy Strategy of the Russian Federation through 2050. According to the relatively optimistic scenario, Russia will be able to produce approximately 540 million tons of oil annually and maintain this level of production capacity until 2050.

However, the same strategy also outlines another scenario under which the country will experience a substantial decline in oil production. The main reason is the steadily increasing share of hard-to-recover reserves, whose development is becoming progressively less economically viable.

In my view, this pessimistic scenario deserves particular attention. We are already witnessing a decline in production, and, in my assessment, the current trend is consistent with the most pessimistic forecasts.

If existing trends continue, Russia could lose its status as a significant oil exporter by 2050. Moreover, domestic oil production may be sufficient only to meet the country's internal needs. This is the scenario I consider the most likely.

The Russian-American arrangement on diesel fuel: economic necessity or political signal?

– An arrangement concerning supplies of Russian diesel fuel to the American and global markets has called into question the previous logic of sanctions pressure on Moscow. If Washington is prepared to ease restrictions in order to stabilize fuel prices within the United States, does this not suggest that economic considerations are beginning to take precedence over the strategy of isolating Russia? And what signal does such a move send to other countries that continue to enforce sanctions against Russia’s energy sector?

– First and foremost, we need to establish exactly which supplies are being discussed. Russian diesel fuel may be destined either for Cuba or for Brazil. Direct purchases of Russian petroleum products by the United States, however, remain prohibited. American legislation imposing an embargo on imports of Russian energy resources is still in force. This is the first point that needs to be taken into account when assessing the situation.

The second issue concerns the actual volumes of the proposed supplies. Even if we consider the entire volume of Russian diesel fuel in question, it would barely be sufficient to cover one-third of the daily fuel consumption of American transport. Meanwhile, during the time these shipments are being transported towards the United States, the country itself would need to export several dozen times more diesel fuel to international markets.

Therefore, this arrangement has no significant political implications either. Moreover, all the discussion surrounding these supplies has had no noticeable impact on domestic diesel prices in the United States. On the contrary, prices at American petrol stations have actually increased.

I would not regard what is happening as a significant step towards either easing energy-related pressure on Russia or restoring full-scale cooperation between Moscow and Washington. In essence, this is a political gesture without any substantial economic basis.

– How do you assess the main motivations behind this decision? Why, in your view, was such a step taken, and what political or economic objective was it intended to achieve?

– In my view, this was primarily an example of Donald Trump’s political rhetoric. He was attempting to demonstrate to American voters ahead of the midterm congressional elections that his administration was capable of taking measures to reduce fuel prices and stabilize the energy market.

However, these plans failed to deliver the expected results. Apparently, American voters barely noticed this move, as it did not lead to lower fuel prices.

As for the Russian side, we can speak of an attempt to seize upon any opportunity that even superficially resembles the prospect of sanctions relief. Moscow was quick to present the situation as evidence that Washington was prepared to reconsider restrictions and restore energy cooperation.

In practice, however, it has become clear that there is no real basis for such expectations. Moreover, there has not even been any substantial lifting of sanctions. American legislation continues to prohibit the import of Russian energy resources. Therefore, I see no grounds for interpreting this episode as the beginning of a shift in US sanctions policy towards Russia’s energy sector.

– Could this arrangement mark the beginning of a broader normalization of Russian-American relations in the long term? Can energy pragmatism gradually create opportunities for the restoration of economic cooperation between the two countries?

– No, I do not believe that such an arrangement could mark the beginning of a broader process of normalization in Russian-American relations.

It seems unlikely that even the new composition of the US Congress following the elections, let alone the current one, would allow for the full lifting of sanctions and the development of large-scale economic cooperation with a country engaged in an aggressive war.

Therefore, I would not expect individual statements or limited agreements in the energy sector to lead to a fundamental reassessment of American policy towards Russia. At this stage, there are no grounds for speaking of a stable political and legislative framework that could facilitate the restoration of full-scale Russian-American energy cooperation.