Russian Railways Grapples with Over $50 Billion Debt Amid War and Sanctions

Mounting Financial Pressures on Russian Railways

Russian Railways (RZD), the state-owned railway monopoly and one of Russia's largest employers, is reportedly facing significant financial difficulties, with its total debt exceeding $50 billion (approximately 4 trillion rubles). This crisis is attributed to a confluence of factors, including the ongoing war in Ukraine, Western sanctions, and rapidly escalating financing costs. Analysts warn that RZD's inability to meet its financial obligations could have a ripple effect on the broader Russian banking system, particularly impacting state-owned banks like VTB.

Declining Revenues and Operational Strain

The company, which operates approximately 85,000 kilometers of railway and employs around 700,000 people, has seen a substantial decline in revenues and freight volumes. Data indicates that freight volumes in 2024 were 4% lower than in 2021, before the invasion, marking the lowest level since the 2009 global financial crisis. The decline accelerated in the first nine months of 2025, with a 6.7% drop in cargo volumes. RZD's net profit reportedly fell by 70% in 2023 to 50.7 billion rubles, and the company recorded a net loss of 4.2 billion rubles in January-September 2025.

Operational challenges have intensified due to the conflict. The government's prioritization of military transport, imposed since 2024, has disrupted civilian trade flows and punctuality. Western sanctions, implemented after the February 2022 invasion, have led to a critical shortage of essential spare parts, including locomotive components, bearings, and electronics, forcing RZD to seek alternative suppliers from countries like China, Hong Kong, and the UAE. Furthermore, war mobilization has resulted in significant labor shortages, impacting maintenance crews and train drivers.

Government Intervention and Systemic Risks

In response to the escalating crisis, the Russian government is exploring various measures to prevent RZD's default. One notable action includes ordering the sale of the Moscow Towers office complex, a 62-story building in the Moscow City financial district, which RZD acquired in 2024 for approximately 193 billion rubles (about $2.4 billion). This sale is considered an emergency step to help service the company's debt and avoid a sharp increase in rail freight rates.

Other potential solutions under discussion include:

• Raising cargo prices
• Increasing state subsidies
• Cutting taxes
• Utilizing funds from the National Wealth Fund
• Capping interest rates for RZD
• Converting a portion of the debt into shares, effectively giving state banks a stake in the company.

However, a derivatives panel already ruled RZD in default in April 2022 after it failed to make a bond interest payment, with funds reportedly blocked due to 'legal and regulatory compliance obligations within the correspondent banking network' following sanctions.

The financial strain on RZD is seen as a symptom of broader economic challenges in Russia. Analysts from the Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF) have warned of a rising probability of a systemic banking crisis in Russia, citing increasing bad debts and pressure on businesses from high interest rates. RZD's heavy indebtedness to state banks, particularly VTB, means its financial instability could pose a significant risk to the stability of the entire Russian banking system.