Russia's Pipe Only Runs One Way: How Strikes on Refineries Broke the Kremlin's War Economy

In Russia, people spend a full day and night queuing for gasoline. In China, fuel prices are being cut for the third time running. The United States is bombing Iran, oil spikes and falls within a single day, and not one Russian contract holds until morning. Behind the chaos lies one simple thing that Moscow still refuses to admit: a country that believed itself the owner of the world's reserves is, in fact, merely a middleman. And the system already threw it out once for trying to pass itself off as something more.

On why the fuel crisis turned out to be not a glitch but a verdict, why Trump redraws the rules of the game daily and denies the Kremlin any coherent strategy, what China actually wants, and why Russia has entered the terminal stage of its war economy, historian and publicist Oleg Cheslavsky spoke on Viktor Korenivsky's broadcast. The conversation runs through the lens of Giovanni Arrighi's systemic cycles of accumulation and Cheslavsky's own framework of the "economics of losses."

A striking piece of news: while people in Russia queue for a day or two for fuel, China is cutting fuel prices for the third time in a row - and this while the United States is bombing Iran. Is China really so confident that Russia's prospects are grim, and that it can keep buying Russian oil even below international market prices?

First we have to establish what Russia's role actually is. We are badly mistaken when we see in it a country that supposedly owns resources. In truth, it sells rent. De facto it is a middleman: it sells what flows out of those territories that I regard as colonies of Moscow.

In 2022 there was a collapse. They made an enormous amount of money that had to be laundered off somewhere rather than returned to Russia's budget. And they ran into a problem: they slightly overestimated their role in the world economy and decided that they were the proprietor of the world's reserves lying in these colonies, not the middleman. The system threw them out for it. They started a war believing they held global influence, that they could redraw borders, landscapes, anything at all. But no. The system saw this and refused to let itself be raped. Since then Russia has been in permanent collapse.

And here is what is interesting: now they have blundered into a crisis with their own hydrocarbon reserves. Because how does the system work? It was built from the 1970s onward to sell all this oil, all these hydrocarbons. It has only a pipe leading out. There is no pipe leading in. Russian economists themselves derived the formula: currency is Russia, no currency, no Russia. The collapse of the 1990s happened precisely because the currency inflows into the USSR stopped coming.

Now imagine something no one could have imagined: the pipe from which everything pours outward must now pump backward. And not merely pump, but in large volumes. Because a country at war needs currency to fight. And it needs currency to buy the very gasoline it now lacks on its own capacity. But the pipe does not work both ways. They pour outward through it: they service the Chinese economy, the Indian economy, they pour out at maximum volume to fill the currency reserve, which goes entirely to the war, and they get nothing back.

And another curious point - the ruble exchange rate. They drove it down as far as it would go and profited from the fact that the market was closed. But now it turns out they sell oil supposedly for hard currency, under contracts with that same China, while they will have to buy at their own idiotic rate. So with that rate they strike their own economy all over again.

And what about China?

China is genuinely trying to reprofile its economy toward something more social. And the fuel price cuts are, in effect, a gesture toward its people, which within a socialist, communist economy needs no separate explanation. The other question is why this possibility arose at all. It arose because of the surplus hydrocarbon reserves they are now extracting from Russia, while Russia simply demands that they buy more, because it has to sell all of it. As the saying goes, demand creates supply and vice versa. There is now so much Russian oil that it has to be offloaded somehow. And given the volume of electric vehicles in China - a staggering volume - the oil that used to go to those markets has to be placed somewhere. So cutting the price is an entirely logical move: you have to sell a product you have in surplus. And prices will keep falling, because the surplus will not go away: electric vehicles are displacing diesel and gasoline cars. There is nothing criminal about it.

The other point - and I keep returning to it - is that Russia is on its knees before China, begging it to take more oil, and can get nothing in return. There is no pipeline, no route by which refined oil could be delivered back into Russia. They never dealt with this. And what they are trying to do now is impossible: it is like turning a tap in reverse so that it sucks water out of the apartment and pours it into all the fuel tanks. That will not happen.

What are they doing? They redirect most of the flows through Belarus, they try to pull fuel out of Kazakhstan, which stubbornly refuses to sell gasoline to the Russians, they hook up Kyrgyzstan, anything they can. And it is very telling that we hear essentially nothing about Azerbaijan. The most oil-rich region does not even raise the question of how it will supply the Russian market with petroleum products - though we can say with full confidence that Azerbaijan today is one of the largest suppliers of petroleum products to the Ukrainian and European markets. Curious that Putin does not turn to Aliyev at all.

What game is Trump playing? His operation against Iran instantly pushed oil prices up, and it seemed that now Putin would fuel the war even harder. There was a fear the U.S. would forget about Ukraine. Instead the opposite happened: the U.S. suddenly forgot about Russia and gave Ukraine what amounts to carte blanche to hit everything on Russian territory. What game is Trump playing? Can you crystallize his logic in this whole global situation?

Back in 2022 I wrote that this war had an artificial look, precisely because they were not striking oil refining, not stopping the gas and oil flows. And when they began shutting down pipelines, that same Medvedchuk pipe that supplied diesel, when the first missiles flew, I understood that the war had finally begun. Because what we were seeing on the battlefield was a small part of the overall war. It became a real war precisely when missiles started flying at the refineries.

As for Trump, I would call this model Trumponomics, because what he is doing to the world is shaking it apart. The United States lost a great deal by moving by the rules, demanding rules, dictating rules. And he said: why do we need rules? Let's shake this economy, distort it however we like. And what he is doing in Iran now is theater. He starts the war himself, he makes peace himself, he makes concessions himself, he suddenly attacks Iran himself. No one can make sense of it. He says: the Strait of Hormuz is closed. No, we will make money on the passage through Hormuz. Every day a new headline cancels the previous one. No logic whatsoever.

And everyone thinks he is playing into Russia's hands. In fact, no. He constantly prevents Russia from forming any strategy at all. They saw oil go up: we're winning, now we'll saturate the front with drones and missiles, we have plenty of money. Bang - peace breaks out. They charter something, start delivering at new prices - no, refusal. And that is instant economic collapse. No one can grasp that Trump is simply mocking Russia's economic model. He knows how it works, he knows Putin's ties with the Russians very well, because more than once he had economic dealings with them. They cannot work out any policy, any strategy, because he changes it every single day.

And the fact that we have now been allowed to do whatever we want with these refineries is a very powerful boost to our victorious campaign. In a few months, 35% of Russia's refineries have been destroyed. And these are only the ones we can barely reach with our missiles. And there is more to come, and it continues. Even the strikes we now see on Kyiv and on Ukrainian energy infrastructure were not nearly as precise as ours.

I recently read, incidentally, the U.S. army's strategy on Vietnam and Korea. They too began by hitting energy infrastructure, and it is clear that this has no effect whatsoever on the course of a war. But cutting off oil and gas supplies has the greatest effect of all. If you deny people electricity, they will find another way. But if there is no oil, nothing to fuel those tanks, everything grinds to a halt very fast.

Trump pressed Infantino and the International Olympic Committee, and Russian athletes are suddenly being readmitted everywhere - right after the scandal with the U.S. team at the world championship. Is this a demonstration to Putin that he can act with both stick and carrot?

Trump is the first president who has felt the power the United States actually holds, and he shows in full what he can do with the planet. He hands out gifts that are worth nothing. All these IOC gestures decide nothing politically. And meanwhile, every day, he is destroying the Russian economy economically. Putin receives some useless trinkets, supposedly for victory, but he cannot for a single day get onto a track that could carry him toward that victory. These diplomas, admissions and non-admissions decide nothing on the battlefield. But inside Russia it is served up as a victory.

And here is why it works. Let us not forget that the entire frontline logistics rests on diesel. If the Russian army has no diesel, the army goes nowhere. Yes, soldiers can march 30 or 40 kilometers if you drive them. But you have to drag an enormous amount of equipment behind you, and it will not move on its own. Without diesel it does not move. It is not even about tanks: they can shuttle the army to other sectors, but it does not go. If tomorrow there is no diesel - and for now there still is - the front will stall.

Is China able to support Russia here, to start supplying it with diesel and fuel?

If it is very profitable, yes. But Russia demands the same discounts for itself that China gets, and China will not do that. It is easier for it to say: lads, we can't, we are very worried about you, but you see, we don't have enough ourselves, Hormuz is closed, we don't know what tomorrow brings. In reality China very much wants Russia on its knees, with its head bowed lower still. A strong Russia is of no use to China whatsoever. And they are doing everything to make Putin even more dependent on China specifically. And Putin does not mind, because no other center supports him.

A typical example. Korean workers do not want to go to Russia to work. North Korean workers say that your wages are lower than in our labor camp. What does that tell you? That Russia has built the perfect labor camp, in which the native population of the colony is needed only to service this oil-and-gas structure. For kopecks. Literally for kopecks. Any wage, compared with how much Russia extracts of these reserves, is zero.

And if even the North Koreans say your wages are low, then what is there to compare it to? Low wages in Ukraine can still be excused by the fact that we don't have even a tenth of what Russia has. But excuse me, Russia has everything. It has the capacity to produce whatever it wants and to pay people decent pensions and wages. And it doesn't. So China will carry its policy of maximally humiliating Russia through to the end. Any day now it will start receiving gas and oil at new prices, because Russia, too, has to get that currency from somewhere. And China wins this war.

Is Trump pressuring China itself? A large share of oil went to China from Iran. In the north, logistics are almost entirely blocked by the war; in the south, flows through Iran have been destabilized; in the Caucasus the U.S. has moved in and controls everything; and now Iran too has been destabilized. Doesn't it follow that Trump is simultaneously squeezing China, whose ability to support Russia is shrinking, so that Russia's potential gradually fades?

Globally, China does not want to support Russia. Globally, it wants to swallow it, like a boa constrictor, and dissolve it inside its own body. But globally, China depends very heavily on the United States: it is one of its largest markets and the most powerful technological giant, which sells it technology. Their rare-earth metals they process by practically cave-age methods. And they are now demanding that the U.S. share its technologies. But the U.S. will not do that, that is a fact.

China is blocked when it comes to scientific work. China is blocked when it comes to artificial intelligence. China is blocked in everything tied to raising earnings. It earns now by very primitive means, and that suits the United States: on the strength of its technological sovereignty it is winning this war, while leaving China its place as the factory that works for everyone. And blocking the oil flows does not hurt China all that much.

We have to understand that China, politically, never bought even at a super-price 100% of its oil or gas from Russia. They know what the German experience led to - Germany got hooked and then could not jump off the needle. So politically they never buy more than 20% from a single source of oil or gas. They can buy for a kopeck from Russia and, roughly speaking, for a hryvnia from the United States, so as not to depend on one source.

China was allowed to fill all its oil storage; it is substantial, with at least half a year's reserve. They already supply U.S. gas today, and I think they will supply U.S. oil too. The U.S. closed China's old markets but gave it new ones. And in doing so the U.S. helps itself in exactly the same way: it sells this oil without the insane discounts Russia offers. If oil spikes at Hormuz, once again it is the U.S. that wins. And China has a half-year horizon over which it can adjust prices out of its own reserves. So it can even cut prices for the population. They would never cut prices - they would raise them - if the reserves were not in surplus.

Strategically, China is winning, because it actually has a strategy, and it builds that strategy around the United States. Russia has no strategy and never had one. And now that Trump has begun shaking the system, they simply do not know what to do: a new twist every day.

And let us be honest: a great deal of Russian oil and petroleum products always entered the European market, coming precisely from Russia. That same Polish Orlen - however much they beat their chests - it is Russian oil. Re-flagged from somewhere like Cameroon or Cambodia, but in fact still Russian. And let us not forget problem number one: they need somehow to receive petroleum products, gasoline specifically, and there is not a single terminal for it. They never built them, because they never bought gasoline. And today, when 10%, 20% of supply has dropped out, and 35% besides, in another two or three weeks half the refineries will be out of operation. And now it is sowing season, the harvest has to be brought in, an enormous load on diesel. And where is all of it to come from? There is none.

People increasingly float the scenario that China might launch a war over Taiwan. The situation you describe, with half-year reserves, closely resembles Japan on the eve of Pearl Harbor, when the U.S. cut off oil supplies to Japan and Japan took the risk. Could China take such a risk?

No, China will not take the risk under any circumstances. Such a war simply will not happen. It is political speculation. Because, jokes aside, the Taiwanese elite vacation at Chinese resorts and arrange their post-retirement lives there. It is theater for us. I do not know the ultimate aim of this theater, but China will take Taiwan without a single shot. Only it will be somewhere in the 2030s, the mid-2030s.

Just as Russia, through the plans of Medvedchuk and Kozak, was meant to devour Ukraine softly: through concessions, through bribing our deputies and politicians. They would have eaten Ukraine had it not been for the war. And China understands in the same way: if it attacks Taiwan, it becomes the enemy of the world, one more country escalating violence. No one needs that. Why would China, which sees itself as the elephant of politics, need it? The elephant will calmly reach Taiwan and crush its independence with a single blow, and the Taiwanese will fall in under China's colors and chant glory to Xi, or to some successor of his. Soft power works confidently here. China will go on with its slow, soft expansion, going around, encircling, absorbing Taiwan gradually, like a boa constrictor.

As for this show of militarist escalation - perhaps there is some arrangement with the United States. Because if someone displays vast volumes of weapons, all the other countries have to match them; they too begin to arm, and that raises the stakes and the margins of this market. Just yesterday there was a Washington Post article that Trump and his circle earned billions of dollars precisely on military supplies that quietly went to his family. Somehow no one noticed, but somehow it coincided: when the fighting began, it turned out that his family was responsible for certain highly profitable directions. It coincided.

So the parallel case is that the U.S. earns more and more on armaments. Every country is now trying to break into this market; they have all thrown themselves into it. It has once again shown its insane margins. And it is a market of losses, an economics of losses. You cannot calculate how many shells or missiles you need for victory, or how much that costs. Which means you can set any price and write off any sum. So war remains the most gorgeous way of simply annihilating a state's money, destroying it.

All the world's economies are now moving away from social programs and shifting into a militarist phase: we must arm ourselves for our own security. And in the same way there will now be concessions on freedom of speech and on democratic values, all so that a country has the means to hold the front. It is a global trend. Enormous sums are being made on this, and no one can deny himself the chance to profit on this market. In effect, wars have turned into an instrument for burning off that colossal surplus money supply that was being inflated ever more from 2007 onward, until they realized the financial bubble was swelling, and now all of it is being drained through war.

And this market is growing. Today it is growing more than anything, perhaps, apart from artificial intelligence. If they say AI is growing at 1,000%, then military tech is growing no less, we are seeing hundreds of percent. Every country is somehow trying to get into miltech, to offer something, to find new developments. And these are developments that bring insane profits, because we cannot calculate the value of a single shot in economic terms. The question is not whether it is cheaper or more expensive. The question is how it relates to our economic capacity. Can a militarist country become wealthier afterward than one that invests in developing the very same artificial intelligence?

So sustaining the armed conflict in Ukraine is also profitable for many players: as long as the war goes on, you can burn off the surplus money supply and rearm. Europe has already begun rearming, with plans running to 2030.

As I have written: Russia is now in the terminal stage of this process. Now, however much they throw in, they only lose. At the start of the war, everything they invested brought them superprofits. Now everything they spend on the war brings them only losses. They have passed that stage, and now they have to shut this project down. Not that we have to - they, economically, are at the stage where they must somehow reformat their spending. They no longer make money on the war. That is the moment I wrote about in my book: in August Russia has to stop, because nothing good awaits it beyond that. It could genuinely fall apart, because economically it can no longer carry this war.

Very interesting. It seems Viktor Yagun also said that Russia is now at its peak, and that from the autumn it will simply start to crumble.

Yes. Economically it has passed the stage where money could be made on the war. All the stages have been passed: the signal stage is over, now comes the terminal one, and beyond it only disintegration. And that disintegration is inconvenient, unprofitable, both for the United States and for China. To them, Russia as it is now is very convenient, because it has the lowest operating costs for these colonies. No one else can pay these natives so little, working in these refineries, in this mine. Only Russia is capable of that. And they understand that it is better to buy this oil from the chekists than to enter this market, invest in roads, in infrastructure, modernize something. Why? Those are insane costs. They will not invest in old projects; it is not the superprofitable sector that miltech or artificial intelligence is.

Russia also has the problem of what is called the Siberian curse.

Yes. All this extraction, and the whole system created for developing the North, were built under Stalin, when you did not have to reckon with human resources at all, when you did not even have to maintain a normal standard of life, only the level of keeping the organism alive. You could build in gulags. And every time some liberalization begins, this system simply cannot withstand it. Because in order to extract these resources, you also have to expend colossal resources.

And Russia is caught in the trap: it cannot raise living standards enough, because for most of the year you cannot get anything up there. In winter you can still somehow supply these northern lands, when they lay railway over the ice. But in summer, when Ukraine strikes the oil refining, they have no fuel to power the aviation needed to deliver even, quite literally, vegetables to the north. And control over these regions is lost. If you hold this phase of the war too long, either famine or revolt begins there. And you cannot even get a unit up there to suppress that revolt from inside. Russia starts coming apart.

And what was it you said about Keynes?

I recall John Maynard Keynes, who came to Russia after the revolution, when some new economic model was being worked out. And he put a question to those chekist gentlemen: do you actually understand that your model is possible only under one condition? They: which one? Free labor. Do you understand that you effectively have to create a country of slaves, because your model is built on not paying people for their labor at all?

Where you can read this, honestly, I do not recall, but I read it somewhere once. He understood that they were building a gulag; he just did not know it would be called that. And what we see today is that nothing has changed. Even those insane millions of rubles that were supposedly meant to help the families who sold their fathers to the front - they do not help. They cut those rubles in stacks, they issue trillions of waste paper, and the economy devours them. The money supply they created is not enough even for the country to develop, and it is not being filled up, even as they hand out large sums to families who have lost their occupiers.

Russia's economy has to be studied under a magnifying glass, because there are a great many processes in it that do not correspond to the word "economy" at all. They simply keep, on a low flame, these small families living in Siberia, who sustain this economic model, because to them they are free. They can wipe out any cities and not even notice, because the oil-and-gas system yields such insane profits that they simply will not notice if dozens of cities vanish - they will just import new slaves. The underpayment of labor in Russia is a mechanism built in from the very start, and it is what lets it live. In any other country, in such a situation, people would flee. But here, no. They are like hostages, like slaves in chains on the galleys, who see no other way out. Maybe they do not much like it, but they do nothing to refuse it.

If we look at Putin's electoral cycles, at one time he did genuinely stabilize Russia's economy and that disintegration, when the regions were beginning to fall apart. But then his ratings began to sag, and had it not been for the military conflicts, it is unclear what would have become of the regime.

You see how artificial the system of elections and ratings is: they reflect for the plebs whatever they want. But through their own artificiality they have overplayed it so far that now they will probably cancel elections. They understand that they have drifted so far from reality that they can no longer, using the mechanisms that once handed them a painted victory, hold on to power any further. So they will cancel elections, declare war, mobilization, anything, or they will fall apart. But that is where they are heading. They understand that they no longer control the situation; it has slipped beyond the perimeter. Because, once again, no currency, no Russia, and there is no currency. And Trump does whatever he likes with these flows.

They supposedly open the tap today at 120, and the next day at 65. And what are we to do? Every day some freight rates they cannot possibly predict. All the old contracts are torn up. No one can either sustain this market or enter it. Why buy something when you do not know what it will cost tomorrow? There is no stability. And the currency that comes in is either the Indian rupee or the Chinese yuan, for which you can buy only Indian or Chinese goods respectively. They milk Russia beautifully too. It is not the dollar, not the euro. Dollars and euros do come in, but not in sufficient amounts.

It is a trap they fought for themselves. It was they who walked out of the dollar zone: let's not settle in these accursed dollars, let's switch to our own currencies. They switched. And China really does regulate the sale of every yuan. You cannot just sell yuan on the market; you have to clear every sale with the Bank of China. So what is Russia to do? They need drones, components, but China will not do it: it will not go under sanctions, and it will not supply through third countries. It will build some logistics chains, but it will not agree to supply components directly in exchange for Russian oil.

Mr. Cheslavsky, thank you very much for such an interesting conversation and for unpacking this whole geopolitical picture.

You're welcome.

The conclusion is simple, and it needs no pathos. Russia has passed the point at which the war brought superprofits. Now every ruble poured into it turns into a loss, every month into a minus that can no longer be covered. It has no terminal to receive gasoline, no pipe leading in, no currency - and without currency, by its own formula, no Russia either.

Trump knows this and shakes the system daily, faster than Moscow can even understand it. China knows this and unhurriedly milks its neighbor, waiting for it to slide lower still. And Russia itself does the only thing it knows how to do: it prints waste paper, ships in new people to replace the destroyed, and pretends to control a process that long ago slipped beyond the perimeter. The question is no longer whether it will stop. The question is how much longer the pipe will hold - the pipe there is nothing left to pump through.