Transneft, Russia‘s state-owned oil pipeline monopoly, has been ordered by Vladimir Putin to shelve a report outlining its financial position.

Transneft is a critical component of Russia‘s energy infrastructure, operating a vast network of pipelines that transport crude oil and petroleum products across the nation and to key international markets.

Historically, it has been a significant revenue generator, underpinning Russia‘s oil-dominated economy.

However, Western sanctions triggered by Russia’s invasion of Ukraine, dwindling European demand for Russian energy, and the increasing cost of pivoting its exports towards Asia, have severely strained its financial resources.

Georgy Kaptelin, Transneft’s press secretary, told state-aligned news agency Interfax: “Based on the decree of the President of the Russian Federation dated November 27, 2023, No. 903, Transneft PJSC has the opportunity not to publish its financial statements for the first 9 months of 2024.

“The company has exercised this right.”

Transneft’s net profit attributable to shareholders under International Financial Reporting Standards (IFRS) in the second quarter amounted to £540million (72.5 billion Russian Rubles), 22% less than in the same period last year, Kaptelin said.

Revenue for the reporting quarter amounted to £2.6 billion (RUB 348.1 billion) compared to RUB £2.4billion (RUB 322.5 billion a year earlier).

For the first half of 2024, net profit fell by 9.4% year-on-year, to £1.22 billion (RUB 164.4 billion), while revenue increased by 12.6%, to £5.33 billion (RUB 717.2 billion).

Russia’s The State Duma piled on the pressure earlier this week by adopting a law increasing the profit tax of Transneft to 40% for six years.

Currently, the profit tax of Transneft is calculated at 20% – but from January 1, 2025, it will increase to 25%, and in the tax period from 2025 to 2030, it will rise to 40 percent.

The financial difficulties of Transneft are deeply intertwined with the economic fallout from Russia‘s invasion of Ukraine.

The war has led to unprecedented sanctions, including price caps on Russian oil, that have eroded the country’s primary source of hard currency.

Transneft, as the conduit for much of this oil, has seen its revenues squeezed. Compounding this are the logistical and infrastructural challenges of redirecting crude flows to Asian markets including China and India, which demand significant investment in pipeline expansions and new routes.

Such costs come at a time when the company is facing restricted access to Western financing and technology, leaving it to rely heavily on domestic resources, which are increasingly stretched.

Transneft’s predicament also underscores the company’s close ties to President Vladimir Putin and his administration. Its leadership and strategy have long been shaped by Kremlin directives, reflecting the regime’s reliance on energy exports to sustain its economy and political control.

The company has played a key role in Putin’s broader geopolitical ambitions, from ensuring the flow of oil to allies to using energy as a lever of influence over Europe.

This alignment with state policy has made Transneft a primary target of Western sanctions and exposed it to the broader vulnerabilities of Russia’s war-driven economy.