Gazprom’s defeat by the Kremlin. Putin wants a lot of money

Gazprom loses on the Moscow Stock Exchange. All because of the ban issued by the Russian authorities, who do not approve of the payment of dividends by the fuel giant. The decision comes as a result of the company’s first net annual loss since 1999, worth $7 billion, resulting from the collapse of gas exports to Europe as a result of the Russian aggression against Ukraine and the escalation of the political conflict.

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The problems facing Gazprom, which until recently was the pride of the Russian economy and a source of huge profits thanks to the export of raw materials to Europe, have worsened in recent months. The company found itself in a difficult situation after the Russian attack on Ukraine and the imposition of sanctions on Moscow itself, which ended gas supply contracts to customers on the Old Continent.

According to Reuters, the Russian government published late Monday evening an order prohibiting Gazprom from paying dividends to shareholders for last year. This comes after the company’s first disappointing annual financial result in 24 years, with a net loss of $7 billion due to a sharp decline in gas sales to Europe.

The market reaction to the Russian authorities’ decision was clearly negative. Gazprom shares fell by more than 4.3 percent on the Moscow Stock Exchange on Tuesday, reaching its lowest levels since October 10 of last year. This is another blow to the exchange rate, which was already badly damaged by mysterious explosions that damaged three of the four lines of the Nord Stream gas pipelines linking Russia to Germany at the bottom of the Baltic Sea.

The official reason for the suspension of dividends by the state-controlled company is its huge investment needs. Gazprom will have to allocate significant financial resources to redirect gas sales trends after losing sales markets in Europe.

The main reason for the Russian businessman’s financial problems is the collapse of “blue fuel” exports to Europe, which until 2022 was a major recipient of raw materials from Russia, generating the lion’s share of the company’s revenues. The Kremlin’s aggression towards Ukraine and growing political tensions between Moscow and the West have led to a sharp decline in gas volumes sent to the Old Continent.

Gazprom data and Reuters calculations indicate that in 2022, Russia will import approximately 63.8 billion cubic meters of natural gas to Europe via various routes. Last year, this value fell by more than half – by 55.6%. On an annual basis, to only 28.3 billion cubic meters. This is a gap compared to the record year 2018, when the Russian company exported to the European Union and other European countries, including: Turkey, with 200.8 billion cubic meters of raw materials.

Besides all this, the possibility of not paying last year’s dividends represents a serious blow to the company itself, its minority shareholders and the entire Moscow Stock Exchange. Gazprom’s loss of its “cash cow” status and reliable source of cash is another symptom of the deep problems that the entire Russian economy must confront in the face of growing international isolation. It is also not certain that dividend payments will also be suspended in the coming years.

We learned of the data confirming the fuel giant’s problems at the beginning of May. It turns out that Gazprom suffered a loss of 629 billion rubles in 2023. This was the company’s first loss since 1999.

According to expert Elena Rybakova, there is a change in the image of the Russian economy towards meeting the needs of the war machine, and it is no longer just an opportunistic change, but rather a structural change.

The expert, quoted by the Financial Times, cites a number of statements that illustrate the ongoing militarization of the Russian economy. It notes that Russia’s direct military spending has more than tripled to more than $100 billion (6% of GDP) compared to the period leading up to the invasion of Ukraine in 2022. The number of military industrial companies has risen from less than 2,000 to 6,000. Employment in this sector increased by at least half a million jobs.