The Economic Troubles Facing Russian Railways

Russian Railways, traditionally one of the pillars of the Russian state economy, now finds herself weighed down by a confluence of structural deficiencies, wartime pressures, sanctions and mismanagement. The enterprise, known in Russian as Rossiyskie Zheleznye Dorogi (RZD), has for two decades been celebrated domestically as a symbol of national integration and long-range infrastructure modernisation. Yet beneath the polished imagery of high-speed trains and trans-continental freight corridors lie severe financial and operational difficulties that were already apparent before the full-scale invasion of Ukraine in 2022 and have deepened since. The travails of RZD offer a window into the wider malaise of Russian state capitalism: centralised, politicised, and increasingly isolated from global markets.

RZD is one of the world’s largest railway companies, operating over eighty-five thousand kilometres of track and employing more than seven hundred thousand people. This is not merely a transport utility but a central instrument of state policy. The Kremlin has long treated the railway network as a strategic asset supporting internal cohesion, military logistics, and the movement of commodities such as coal, oil products and metals that underwrite Russia’s fiscal stability. Because of this strategic role, RZD is expected to deliver social and political objectives as much as commercial ones. Tariffs are often kept artificially low to placate regional governors and industrial lobbies. Loss-making passenger routes are maintained in sparsely populated regions as a form of social subsidy. Freight pricing is used to favour politically important sectors rather than to recover costs. These expectations seriously distort the company’s financial foundations.

The first source of strain is decades of underinvestment. Russia inherited from the Soviet Union a vast but ageing railway network. Although some modernisation schemes were launched in the early 2000s, notably the development of the Sapsan high-speed service between Moscow and St Petersburg, the bulk of the system remains reliant upon outdated rolling stock, fragile signalling technology, and overburdened freight corridors. Bottlenecks in the Urals and Eastern Siberia have been acute for years, limiting export potential to Asian markets even before sanctions began to bite. Maintenance costs rise each year as the network expands but the quality of physical assets declines. Political reluctance to allow substantial tariff rises leaves RZD perpetually short of funds. Consequently the company has accumulated rising levels of debt relative to its earnings, obliging it to refinance continually on increasingly unfavourable terms.

The second major difficulty arises from the structure of the Russian economy. Rail freight accounts for more than forty per cent of all cargo movement in Russia, and the overwhelming majority of this consists of bulk commodities. Coal, metals, fertilisers, and oil products dominate the freight stream. When global commodity markets weaken or sanctions restrict demand, RZD’s revenue collapses. The company is therefore a hostage to global price cycles. In the aftermath of the 2022 invasion of Ukraine, European demand for Russian oil products and coal fell sharply. Even where alternative markets were available, such as China or India, transport distances were often longer and required new logistical arrangements that the existing network could not easily support. The result was lower utilisation of freight wagons, congestion in key nodes, and reduced revenue. Freight operators sought tariff discounts or deferred payments, placing additional strain upon RZD’s already fragile balance sheet.

Sanctions have intensified these problems. Although RZD itself has faced various rounds of Western sanctions, the more damaging effect has been indirect. The company is heavily reliant on imported components for locomotives, signalling systems and power equipment. European and Japanese suppliers, who historically supplied high-quality parts and technical expertise, have withdrawn. Domestic substitutes are often inferior or more costly, and supply chains have become unpredictable. This has led to delays in maintenance cycles, reduced reliability across the network, and safety concerns that the company is reluctant to acknowledge publicly. Meanwhile, foreign investors have divested from ruble-denominated bonds issued by RZD. The company has found it increasingly difficult to raise capital abroad at tolerable costs, forcing her to rely on state support and domestic banks whose own liquidity is constrained by wartime budgets.

The war in Ukraine has further exposed the fragility of Russian Railways. The network has been mobilised for military logistics, transporting troops, armour and ammunition across vast distances. This surge in military transport comes at the expense of routine maintenance. Tracks and rolling stock are run more intensively than planned, accelerating wear. Military priorities also disrupt civilian freight flows, causing delays that anger industrial clients. Regions close to the Ukrainian border have experienced sabotage and drone attacks, including strikes against fuel depots and marshalling yards. Although the Kremlin censors reports on the damage, it is clear that parts of the network require heightened security expenditure. These realities impose unbudgeted costs that worsen RZD’s financial condition.

In parallel, demographic pressures and labour constraints hinder the company’s performance. The Russian labour market has tightened due to mobilisation, migration and falling birth rates. RZD traditionally offers stable employment in provincial cities, but wages have not kept pace with inflation, and skilled technicians are increasingly scarce. Training programmes are underfunded, and younger workers are reluctant to join an enterprise perceived as both politically sensitive and technologically stagnant. The shortage of qualified staff aggravates delays, reduces safety margins, and increases the risk of operational errors.

The company’s governance structure compounds the difficulties. RZD is nominally a joint-stock company but remains entirely state-owned, with its senior management appointed by the Kremlin. This means that investment priorities are often politically motivated. Large capital programmes are announced with great fanfare but implemented slowly or diverted to politically connected contractors. Transparency is limited, and external audit mechanisms are weak. Efforts made in the 2010s to corporatise parts of the company, including attempts to introduce greater competition into freight and rolling-stock leasing, have been largely reversed as the Russian state has grown more centralised and defensive. The reversal of these reforms has discouraged private investment and entrenched bureaucratic inertia.

Looking forward, the economic troubles confronting Russian Railways are unlikely to ease. The Kremlin plans to expand east-bound export infrastructure to serve Asian markets, including upgrades to the Baikal–Amur Mainline and the Trans-Siberian Railway. Yet these projects require tens of billions of dollars and advanced engineering capacity, neither of which is readily available under sanctions. Without significant external finance or technology transfers, these ambitions may remain confined to political speeches rather than realised improvements. Meanwhile the structural reliance on bulk commodity exports is unlikely to diminish soon, especially as Russia seeks to redirect trade away from Europe. This will place continued pressure on the eastern corridors, which are already overstretched.

In a broader sense, the predicament of RZD exemplifies the internal contradictions of Russia’s wartime economy. The state demands modernity but forbids integration with global markets. It promises growth but suppresses independent capital. It celebrates strategic autonomy but depends upon imported technology that sanctions have cut off. Russian Railways, which physically binds the nation’s far-flung territories together, reveals these contradictions with particular clarity. The company’s difficulties are not merely financial or technical; they are political. So long as she is treated primarily as an instrument of state policy rather than a commercial enterprise, her troubles will endure.

Russian Railways thus stands at a crossroads. She can continue along the current path of political subordination, mounting debt and declining service quality. Or, in some distant future when Russia seeks reintegration with international markets, she may be restructured to prioritise transparency, efficiency and technological renewal. For the present, however, the weight of war, sanctions and structural inefficiency suggests further decline. The economic troubles of Russian Railways are therefore not an isolated artefact of misfortune but a symptom of a deeper malaise within the Russian state itself.