Moscow Times warns that Russia’s coal mining industry is collapsing

“The worst crisis in 30 years”

The first to bear the brunt of supporting Putin’s war effort was Russia’s gas industry, spearheaded by Gazprom. Soon after, the situation worsened for Russian Railways, with a sharp decline in industrial goods transport during the first half of 2024. Now, Russia’s coal industry is the latest to feel the pressure, seeking to join the growing list of sectors trying to fall off the cliff.

According to Rosstat , coal production in Russia fell by 6.7% year-on-year in July, and its total volume of 31.5 million tons was the lowest since the 2020 pandemic. Compared to the peaks shown in December 2022, coal companies have lost about 12 million tons of monthly production, or 27%.

Annual coal production is down by a third from its 2022 peak. A major reason for this decline is that both India and China are importing less coal from Russia. Exports to China fell by 8%, while shipments to India plunged by 55% in the first half of 2024. With little interest from the Western world in buying Russian coal, Putin is heavily reliant on China and India to sustain the economy. Any shifts in their demand are now directly affecting Russian industries.

The issue extends far beyond the coal industry's topline revenue. Russia is the world’s second-largest coal exporter, after Indonesia, and ranks among the top three countries in coal reserves. “According to Rosstat, more than half of coal companies have become unprofitable, and the net financial result of the entire industry has turned negative”.

The coal industry supports over 140,000 Russian jobs.

Think of the catastrophic impact the 2008 financial crisis had on the global banking sector—global banking revenues fell by 10% to 20%, and the contagion led to nearly 9 million job losses in the United States, with the job market taking seven years to recover.

While Russia's coal sector may not trigger the same widespread ripple effect across industries, it's already hemorrhaging jobs, and the fallout will soon spread to other parts of the economy. With no recovery in sight as long as the war continues, the Russian economy will struggle to rebound. As things stand, it is now almost entirely reliant on selling oil and funneling that revenue into war efforts to stay afloat.

For a long time, manipulating data and tightly controlling industrial information helped protect the ruble. The Russian Central Bank made several adjustments under intense pressure. This combined strategy—concealing information, cooking the books, and exploiting loopholes—managed to shield the ruble since the war began. However, cracks are starting to show. The ruble is now inching closer and closer to the critical 100-per-dollar mark.

As expected, the Russian Central Bank will pull out all the stops to keep the ruble from crossing the critical threshold. They are selling yuan and increasing demand for rubles.

When the central bank buys rubles, it effectively raises demand for the currency in the market. As demand increases, the ruble’s value strengthens relative to other currencies, particularly the U.S. dollar. This might provide some temporary relief for the ruble, but what has really supported the currency more than the Central Bank’s efforts is a Western institution that goes out of its way to assist the Kremlin.

Since the outbreak of war, the IMF has allowed Russia to be in violation of its own membership standards–which require member states to disclose transparent, verifiable, and comprehensive national income statistics.

Putin now refuses to disclose major economic indicators ranging from foreign trade data, monthly output data on oil and gas, capital inflows and outflows, financial statements of major companies, central bank monetary base data, foreign direct investment data, domestic value added by industry, and lending and loan origination data.

The IMF has adjusted its standards to accommodate the Kremlin’s efforts to conceal information from the world. The IMF, along with the Russian Central Bank and the Kremlin’s manipulated data, are the main reasons why the ruble is holding its current value.

This is the part I really don’t understand: the ruble’s value on any given day is crucial for Russia and its war efforts. With the expertise available in the Western world, how hard would it be to release a detailed monthly report exposing the true state of the Russian economy for all to see?

Every available tool, including intelligence agencies, should be used to expose Russia’s financial reality. This alone would help the market make more informed decisions and properly assess the ruble’s value. But that requires willpower and effort, and someone needs to take the lead.

As a result, the market is reacting based on the limited information available. Traders worldwide are realizing that Russia’s oil revenue has a ceiling, and one by one, its critical industries are entering a state of decline.

At the start of the year, the ruble was trading below 90 against the dollar, dropped to 84 in August, and now it’s hovering at 96.

Any trader will tell you the significance of round numbers — 100 is a psychological barrier. If breached, it could trigger a series of unwanted events. The ruble would come under sustained pressure and increased scrutiny. The IMF won’t be able to hide behind optimistic forecasts anymore; they’ll be forced to confront the reality of parroting the Kremlin’s fake statistics.

More traders will take short positions on the ruble and start releasing their own assessments, no matter how difficult that may be. For this reason, I firmly believe that the Russian Central Bank will not hesitate to use its reserves to prevent the ruble from crossing 100 against the dollar.

One by one, the pillars of Putin’s regime are starting to crumble. This is an extremely dangerous situation for both Russia and the world, because if Putin continues on this path, he may push Russia to a point where prolonging the war becomes the only way to hold the state together. Propping up Putin’s regime won’t work — he has proven beyond any doubt that he does not understand economics. Just look at Russia’s GDP per capita over the last decade:

• 2010: $10,675 USD
• 2020: $10,108 USD

How does that happen in a country with such abundant natural resources? At its peak, Russia exported 400 million tonnes of coal, 250 billion cubic meters of gas, and 255 million tonnes of oil in a single year. All of those peaks occurred in the last decade. Despite the immense inflow of wealth, Putin has still managed to oversee a decline in Russia’s per capita GDP.

Putin does not understand economics, and the sooner the U.S. national security apparatus realizes this, the better it will be for the world. What was supposed to be a quick, three-day victory for the Kremlin has now turned into a gamble for the very survival of the state. He will keep pushing forward because he believes that is what secures his future. This is no longer about Russia, nor is it about Ukraine — it is about his ability to remain in power as the ruler of the Russian state.

Thanks for reading. The war is getting closer to the end. Now, more than ever, it’s crucial to make critical information about Ukraine accessible. That’s why I’ve made 300 stories available to the public in 2024, inlcuding this one.