Russian Railways Faces Economic Setbacks
John C. K. Daly
Executive Summary:
Russian Railways (RZhD) cargo volumes dropped by 5.6 percent in 2025 to a 16-year low due to reduced shipments of oil, construction materials, metals, and coal, resulting from both the rising demands of Russia’s war economy and increasingly challenging global markets.
Russia’s mounting debt places RZhD at the center of the country’s economic challenges, as the rail network’s historically lower debt levels have risen sharply amid plunging freight volumes, high interest rates, and a broader economic downturn.
RZhD will face mounting serious financial difficulties due to the Kremlin’s war against Ukraine, increasing Western sanctions, and rising financing costs despite being considered “too big to fail.”
Russian Railways (RZhD) is increasingly beset with seemingly intractable fiscal problems. RZhD is Russia’s most important infrastructure network, moving hundreds of millions of tons of cargo and passengers every year. Established in 2003 by Russia’s Ministry of Railways, it is Russia’s largest employer with approximately 700,000 employees. RZhD operates across 11 time zones in Russia and, as a state-owned monopoly, faces no competition in Russia’s domestic rail market. RZhD’s rail network is the world’s third longest, after those of the United States and the People’s Republic of China (PRC) (Radio Free Europe/Radio Liberty, January 7).
RZhD cargo volumes dropped by 5.6 percent in 2025 to a 16-year low. This is due to reduced shipments of oil, construction materials, metals, and coal, resulting from both the rising demands of the war economy and increasingly challenging global markets (Nezavisimaia Gazeta, January 13). RZhD’s problems come at a time when revenues have been affected by the slowdown in Russia’s war economy and the highest interest rates in two decades. Russia is a huge country, but its logistics system has historically been a weak point, repeatedly limiting its ability to wage wars and maintain economic stability.
RZhD requested $2.6 billion (200 billion rubles) in assistance from the state at the end of 2025. As RZhD transports 87 percent of all Russian cargo, including non-pipeline oil, its instability affects the entire economy and military logistics (Railway Supply, October 8, 2025). In 2024, RZhD invested $16.6 billion (1.28 trillion rubles) in new infrastructure, major construction projects, and other forms of development (International Railway Journal, January 23).
By early 2026, RZhD’s debt surged to nearly 4 trillion rubles ($51.9 billion), marking the company’s most severe financial crisis in 16 years (Nezavisimaia Gazeta, January 11). The mounting debt places RZhD at the center of Russia’s economic challenges, as the rail network’s historically lower debt levels have risen sharply amid plunging freight volumes, high interest rates, and a broader economic downturn.
Aside from maintaining RZhD as a functioning civilian entity, funding is needed due to the war against Ukraine. The war has heavily affected RZhD, as Western sanctions disrupted trade flows and reduced exports of raw materials, except to the PRC (see EDM, February 6, 2023, January 23, 2024, February 13). RZhD consequently took on more debt to refocus its civilian rail operations eastward. From the war’s outset, Russia used its railways as the primary means of delivering supplies to the Ukrainian front, building a railway along the land corridor to Crimea. This is also why it prioritizes capturing railway hubs in Ukrainian territory. Locomotive shortages and workforce attrition have exacerbated the crisis, with some RZhD divisions now operating with up to 60 percent fewer staff than required. About 200 trains are cancelled every day because RZhD is short 2,500 drivers and 3,000 locomotive crew members (Railway Supply, August 10, 2025). Even though the Russian government’s main objective now is to prevent the company from sliding into a debt crisis so deep that recovery would be extremely difficult, it has so far refused to allocate the amount requested by RZhD.
RZhD’s massive debt load has made it Russia’s third-largest debtor, with its current net debt approximately $51 billion (2.8 trillion rubles), aggravated by high interest rates implemented by the Central Bank of the Russian Federation (TsB RF), Russia’s main (first-tier) bank, in its efforts to control inflation. Further impacting RZhD’s commercial operations is the prioritization of military cargo, which disrupts civilian traffic. As an interim solution, RZhD intends to slash spending by 20 percent in 2026 (Telegram/@telerzd; Vedomosti, December 29, 2025).
As the Russian government has prioritized developing eastern Siberia over the past few years, RZhD has taken loans to finance construction on its “Eastern Polygon” in connection with the expansion of transport flows from Russia toward the PRC (Kommersant, June 27, 2025). RZhD is now encountering difficulties in servicing these debts due to high interest rates. The war against Ukraine is also affecting RZhD’s financial situation. As the volume of prioritized military cargo on the railway increased sharply, the volume of commercial transportation that provides RZhD’s earnings correspondingly fell.
A final factor draining RZhD’s revenues is systemic corruption. On January 28, a criminal case was opened in Moscow against officials of RZhD’s central infrastructure directorate for systematically accepting bribes from railcar repair companies. Investigators determined that the suspects received at least $247,663 (19 million rubles) in bribes through intermediaries, and at least 52 individuals were implicated in the criminal group’s activities (Izvestia, January 29).
The investigators determined that, in exchange for bribes from June 2020 to January 2026, the suspects provided railcar repair facilities with inflated uptime figures and concealed evidence of substandard repairs. The criminal enterprise involved intermediaries who maintained contact with facility managers in more than 40 regions nationwide. The suspects are to be charged with committing crimes under the Russian Criminal Code, Article 290, Part 6, with “receiving a bribe as part of an organized group on an especially large scale” (Izvestiia, January 28).
On December 29, 2025, RZhD’s board of directors approved its 2026 investment plan and budget. The company’s press service reported, “The volume of Russian Railways’ investment program, based on established funding sources, will amount to 713.6 billion rubles ($9 billion) next year.” 531.4 billion rubles ($692 million) will be allocated to maintaining fixed assets and ensuring transportation safety. Specifically, 288 billion rubles ($375 million) are earmarked for major repairs of rolling stock and infrastructure, as well as for the replacement and modernization of automation, power supply, and communications systems (Izvestiia, December 30, 2025). RZhD’s projected budget also includes funding to purchase up to 400 new locomotives and 190 passenger carriages. (Dzen.Ru, January 1). The grim reality, however, is that RZhD’s 2026 budget represents a 20 percent decrease compared to 2025 (Vedomosti, December 29, 2025).
To address RZhD’s grim fiscal situation, several government support options are under consideration, including raising freight tariffs, changing tax payments, and using funds from the National Welfare Fund (FNB) to provide direct assistance (Official Publication of Legal Acts of Russia, February 12; The Moscow Times, February 16). To optimize RZhD’s debt burden, major banks are considering restructuring its debt portfolio at a rate equal to the coupon rate on five-year federal loan bonds plus 1 percent with a ten-year maturity. A temporary conversion of bank loans into RZhD’s shares for a term of no more than three years, with a repurchase option and a Finance Ministry guarantee, is also being explored (Kommersant, December 18, 2025). A current legal obstacle to such action, however, is that converting the debt will require amending the law governing the management and disposal of railway transport property, which explicitly states that the Russian Federation owns all RZhD shares.
The FNB, established in 2008, may be unable to proffer emergency loans to RZhD as the fund is experiencing severe fiscal problems of its own. According to research by the third-largest state-owned bank in Russia, Gazprombank’s Center for Economic Forecasting (CEF), the FNB’s liquid assets, which the government uses to compensate for the budget’s shortfall in projected oil and gas revenues, could be completely depleted in just over a year if oil prices remain at current levels (The Moscow Times, January 29). According to a report from the Russian Ministry of Finance, as of January 1, the FNB amounted to $174.8 billion (13.415 trillion rubles) (Russian Ministry of Finance, January 19).
Government officials also discussed converting $5.2 billion (400 billion rubles) of RZhD debt into shares for purchase by the country’s largest state-owned bank. The idea was later abandoned, however, after resistance from the TsB RF, which warned of significant risks to the national economy. The CEO of Russia’s second-largest bank, Vneshnetorgovnyi Bank (VTB), Andrei Kostin, explained that the TsB RF opposes such large investments in non-core assets, believing the scheme would place additional strain on the capital of credit institutions. First Deputy Chairman Dmitry Pianov also ruled out this scenario (Lenta.ru, January 13).
As a result, in the current tight credit market, RZhD is considering selling some physical assets. Under discussion is the possible sale of RZhD’s 49 percent stake in Federal Freight Company (FGC), RZhD’s largest freight operating subsidiary and Russia’s second-largest rail operator, for approximately $573 million (44 billion rubles). FGC manages 134,300 items of rolling stock (TASS, January 16). Another asset under consideration for sale is RZhD’s Moscow Towers in the Moscow-City district, valued at $2.8 billion (220 billion rubles), purchased in 2024 for $2.5 billion (193.1 billion rubles) (Vedomosti, February 3).
It is a measure of both the seriousness of RZhD’s fiscal issues and the options being considered. Despite being a state-owned monopoly, RZhD also intends to issue an initial public offering later this year to raise revenue (Retail.ru, January 15). The move is not without risks. Russian analysts report that more than 70 percent of Russian companies that went public in the past two years have gone negative, with their shares falling on average by 40 percent. Of the 18 newly public companies, only five increased their share prices, while the rest declined (Izvestiia, January 15).
Expensive projects have also been abandoned in RZhD’s budget cutting, most notably the proposed nearly 2,000-kilometer-long (1242 miles) Northern Siberian Railway (Sevsib) railway from Siberia’s Khanty-Mansi autonomous district, Nizhnevartovsk, to Ürümqi, the PRC’s Xinjiang Uyghur Autonomous Region’s capital, due to its massive cost from challenging terrain. Deputy Russian Prime Minister Vitalii Savelev reportedly told Russian President Vladimir Putin in a letter that after estimates put construction costs at approximately 50 trillion rubles ($644 billion), the government now declared Sevsib “unfeasible” (Kommersant, December 3, 2025).
All suggested solutions have drawbacks. A rise in railway tariffs would inflict additional damage on shippers, particularly the coal industry, which is already reeling from the economic effects of Western sanctions imposed in the wake of Russia’s war (see EDM, June 30, 2025). Record freight tariff hikes have driven more customers to road transport. Combined with service delays and equipment shortages, these increases have accelerated cargo loss to the trucking sector.
As RZhD’s operations account for 2.5 percent of Russia’s GDP, the company is widely considered “too big to fail.” RZhD will inexorably face mounting serious financial difficulties due to the war against Ukraine, increasing Western sanctions, and rising financing costs. As the simplest cost-saving solution, ending the war against Ukraine is apparently still not under serious consideration. The government continues to consider all options, including increasing cargo tariffs and/or subsidies, cutting taxes, and/or converting RZhD’s debts to company shares. According to Russian Transport Minister Andrei Nikitin, the ministry is also going to start shifting cargo flows from road to rail transport to improve RZhD’s finances, even though the transportation of many goods is cheaper and more convenient by lorry than by railway (Al’ta.Ru, January 13).
In what could be seen as either a desperate or a brilliant idea, RZhD is now testing global finance markets for investment capital. On February 6, Russian Railways press service announced, “This is the first issue in yuan [Renminbi (RMB)] for Russian Railways placed exchange-traded bonds in [RMB] on the Russian market for the first time—the volume of the issue amounted to 4 billion [RMB] [$576 million; 44.4 billion rubles] … the circulation period is 3 years and 7 months,” with a monthly coupon rate of 7.60 percent per annum (RZhD Press Service, February 6). RZhD First Deputy Head Vadim Mikhailov proudly noted that during the bonds’ offering, its initial volume was doubled from 2 to 4 billion RMB, confirming the interest of Russian investors in RMB currency derivatives, while Gazprombank First Vice President Denis Shulakov called RZhD’s issue of RMB bonds an important step in its strategy to diversify financing sources (TASS, February 6).
While RZhD’s RMB bond issue will provide the state monopoly with some interim economic relief, it is significant that it was issued in RMB rather than rubles. This is an apparent acknowledgement of Russian investors’ wariness of the ruble’s long-term stability. Beyond the RMB bond issue, until some of the other proposed fiscal remedies are applied for additional funding, however painful, RZhD will continue to lurch along in the interim only if the government can assist it via forced loans from state banks, direct cash infusions, or simple debt write-offs.
This article was originally published in Eurasia Daily Monitor.
Dr. John C. K. Daly is a Eurasian foreign affairs and defense policy expert for The Jamestown Foundation and a non-resident fellow at the Central Asia-Caucasus Institute in Washington DC.