The Russian government in 2014 identified the industrial sectors it viewed as key to the country’s very survival. Among them were the obvious candidates: defense, which includes the sprawling military-industrial complex (OPK), and energy, which continues to provide the financial lifeblood of the regime. Also included, however, were the Russian railroads—a choice that seems entirely logical. By any metric, Russia is a vast nation, yet it is also one with a historically tenuous logistical system that has repeatedly hampered the nation’s ability to wage war and establish economic resilience. The current war and sanctions regime are no exception. Russia now faces a downward spiral of logistical struggle as its rail network—its primary means of transport—experiences a precipitous decline. Although the war against Ukraine briefly boosted rail usage for military cargo, the resulting economic bump was fleeting. It seems probable that the Russian state will soon face a stark choice: pour an ever-increasing share of its diminishing funds into the transport system or watch its breakdown accelerate an already rapid economic contraction.
First, it is important to note that the Russian state has long considered transport—especially the railroads—fundamental to its security. The USSR even maintained dedicated military forces whose role was the defense, security, and construction of the railroads, a capability the Russian Federation has preserved. This is entirely logical given Russia’s vast territorial expanse and the need to move not only troops and matériel to the front lines but also raw materials and industrial goods between far-flung cities. Riverine transport and shipping are impractical for much of Russia’s geography, while trucking and air transport can move only a fraction of the volume that rail can over long distances. Although trucking nominally accounts for 74% of Russian cargo, this figure is misleading because it includes all journeys, including last-mile delivery for goods already transported by rail. In reality, rail remains essential for the majority of Russia’s long-distance transport. Thus, the health of the railroads serves as an excellent barometer for the health of the broader Russian economy, and the available data indicate that both the rail sector and the wider economy are in serious decline.
The Russian Rail Industry
Under the USSR, the railroads were a fully nationalized state monopoly. When the Soviet Union collapsed in the 1990s, the infrastructure passed to the new Russian Federation. In 2003, the railways were reorganized into a state-owned joint-stock company, Russian Railways (RZD), which retains a near-total monopoly on freight and passenger transport across the country. For most of its history, the company operated profitably, with the usual caveat that it has been rife with graft and corruption, one notable example being the construction of a new Moscow headquarters that reportedly absorbed one-eighth of the company’s entire annual budget. Before the full-scale invasion of Ukraine, there had been discussion of privatizing the railroads, but those plans have been paused over fears that privatization could trigger serious social disruption.
Despite generally operating in the black, RZD spends most of its revenue servicing debt. The business model requires borrowing upfront to cover high capital costs, particularly infrastructure maintenance—before repaying bondholders later. That run of good financial fortune now appears to be ending. By August 2025, profits had plummeted to 2.7 billion rubles, a 96% decline; by October, the company was officially posting losses. Western sources report that RZD is now carrying roughly $ 51 billion in debt with no clear resolution in sight. Rail transport demands efficiency and constant resource allocation to function properly. Idle wagons and locomotives cannot simply be mothballed; they clog sidings and main lines, creating congestion and a cascading effect of further inefficiency. While opinions differ on the acceptable percentage of idle rolling stock, a 5% idle-wagon rate in India during the 1990s was already considered a sign of recession. Russia currently has around 20% of its wagons sitting idle, and that figure is rising.
The majority of Russian rail freight comes from the so-called «big six» raw materials: coal, oil, ore, construction materials, fertilizers, and metals. Demand for these commodities has collapsed, sharply reducing the need to move them across the country—before one even accounts for the massive drop in exports that has further hammered the railroads. Timber exports have fallen 18%, metals 8%, ore and coal 5% each. Even non-sanctioned goods like fertilizer have seen a 7% export decline. Tellingly, the steepest drops have not been in long-haul traffic (which typically reflects exports) but in shorter-haul domestic transit, revealing collapsing internal demand.
Downward Spiral
Like much of the Russian economy, the railroad sector was already in serious trouble before the renewed war with Ukraine began in 2022 (and even before the 2014 annexation of Crimea). Expansion plans east of the Urals had been repeatedly delayed, and investment in new projects is now routinely curtailed despite frequent government promises of modernization and increased funding. The core problem is that railroads are capital-intensive and depend on keeping most wagons and passenger cars in motion to generate revenue that covers their high fixed costs. With the surge in idle rolling stock, RZD is now asking more employees to take three unpaid days off per month, meaning fewer staff are available to resolve problems when they arise—further slowing traffic and deferring maintenance. Even bloated management layers are being trimmed. Since the company employs over 700,000 people, these measures carry significant knock-on effects for the broader economy, especially as they coincide with rising inflation and similar work-reduction patterns in other major industries. Meanwhile, skilled workers have been lured into military service with large signing bonuses, leaving RZD short of up to 5,000 critical technicians and unable to operate as many as 200 trains per day. There is no clear plan to replace these specialists, little money to train new ones, and the company is simultaneously trying to shed staff to cut costs.
Staff reductions not only impair routine operations but also exacerbate bottlenecks caused by natural and man-made disruptions. Natural disasters and accidental derailments can paralyze sections of the network for weeks. Trains face growing risks from floods, landslides, and wildfires—threats that are intensifying with climate change. Additionally, trains and key choke points have become deliberate targets in the war. Ukraine has struck locomotives, rail bridges, and depots near the front lines or in occupied territory. There are also credible reports of sabotage deep inside Russia—carried out by Ukrainian special forces, local sympathizers, or anti-Putin partisan groups—aimed at derailing trains. The cumulative result is further disruption, heightened risk to scarce skilled personnel, and a degraded ability to supply the military reliably—an area where Russia remains particularly dependent on rail.
No Good Solution
What is clear is that the Russian rail system is sliding into a deepening crisis with no obvious remedy and several structural factors that will only worsen the situation. The state has a number of levers it can pull to keep the railroads limping along, but none address the underlying collapse in demand. Reportedly, the government is considering tax breaks, direct subsidies, and drawing on the National Wealth Fund. None of these appear viable: the National Wealth Fund is projected to be depleted by 2026−2027, while tax breaks and subsidies do nothing to boost actual freight volumes and simply add to the fiscal burden. Another idea—converting RZD debt into equity held by the state banks that provided most of the loans—would merely spread the risk, saddling already over-leveraged bank balance sheets with a large unprofitable asset and virtually guaranteeing that, when a broader financial collapse arrives, RZD will be dragged into bankruptcy carrying massive liabilities.
Forcing oligarchs to buy shares or selling the company off in pieces are also floated options, yet both risk severe social instability. The railroad remains a lifeline for much of rural Russia, and the 1990s demonstrated that oligarchs and their associates are far more likely to loot newly acquired assets than to manage them for growth.
There is also a precipitous decline in the production and availability of locomotives themselves, driven by poor maintenance, neglect, accidents, and direct Ukrainian attacks. All of these factors are driving up the cost of operating whatever fleet remains. One possible lifeline would be large-scale imports of foreign-built locomotives, particularly from China. Yet, despite plenty of lofty rhetoric, tangible Chinese investment in the Russian economy remains extremely limited. Beijing is instead using Russia’s rail collapse as an opportunity to insert itself deeper into Central Asia, building Belt and Road bypass routes that avoid Russian territory altogether. Chinese businesses remain wary of deep, sustained engagement with Russia because of secondary-sanctions risk, rampant fraud, and theft. Major, long-term investment in the Russian rail network from China—beyond a handful of regional projects that directly benefit Chinese border areas—is extremely unlikely.
At its current rate of degradation, the Russian rail industry will continue to shamble along only as long as the state can prop it up through forced loans from state banks, direct cash infusions, or simple debt write-offs. None of the currently proposed measures, however, will resolve the fundamental problem: a broad economic contraction—especially in resource extraction and heavy industry—has turned the railway system into an ever-heavier burden on the state’s already overstretched coffers.
The railways’ worsening state is unlikely to directly cripple frontline military supply in the near term, because military freight will always receive priority and the military can commandeer essentially any state asset it needs. Enough locomotives, rolling stock, and skilled technicians still exist to keep the front lines adequately supplied. Step back from the battlefield, however, and the bigger picture quickly emerges: the Russian railways are a microcosm of a much broader economic contraction and incipient collapse. They are massively in debt, unable to invest in upgrades or even routine maintenance for assets not dedicated to the war, and are being hammered by a shrinking industrial base that looks increasingly like the prelude to a major depression.
As this contraction deepens, the railroads will have no viable recourse. They are already a state-owned entity drowning in debt, with both physical infrastructure and human capital allowed to decay. Because rail underpins Russia’s core industries, the crisis is self-reinforcing: key industries cannot export or move goods at higher volumes because rail capacity is insufficient, which in turn means the railroad earns even less revenue to expand or repair that capacity, perpetuating the bottleneck.
Recovery from the current state of affairs would likely take many years and require a massive infusion of capital. Yet the Russian state is rapidly running out of hard currency, and there is very little incentive for any external actor to invest in Russian railways—especially as China moves aggressively to dominate the Central Asian transit market and bypass Russia entirely. Other nations such as India may be willing to sell locomotives or offer limited investment, but the scale of expertise and cash required to put the railroads back on a sustainable footing simply does not appear to be on the horizon.
