Russia�s War Economy Starves Crucial Oil Industry of Manpower

Army, weapons-makers compete for labor with energy companies
War has made long-term demographic issues even more acute
By Bloomberg News
May 6, 2024 at 4:00 AM UTC
Russia�s oil and gas industry has been crucial for bankrolling the
invasion of Ukraine, giving the Kremlin the funds to keep fighting even
as
the conflict drags on through its third year. But the industry is facing
a shortage of manpower as the full mobilization of Russia�s economy for war
exacerbates a longstanding demographic crunch. In a nation where Gazprom
PJSC�s �Dreams Come True� slogan has long summed up the career
aspirations
of many citizens, high-paying energy companies now find themselves having
to compete for workers against the Russian army and weapons
manufacturers,
according to analysts and recruiters working with the industry. The
sign-up bonus alone for a soldier fighting in Ukraine may be equivalent
to
nearly a year�s salary for an average oil and gas field worker. This
problem isn�t entirely new � Russia has faced a shrinking working-age
population for almost two decades. The collapse in birth rates in the
1990s was a root cause and the Covid pandemic added to the challenge, but
the invasion of Ukraine has made it much more acute. Lack of personnel is
now hitting businesses across all parts of the economy, according to
recent reports from Russia�s central bank. While the oil and gas industry
appears to be ticking along smoothly, there may be a longer-term impact.
�Staff shortages have affected even the wealthy industries,� said Alexei
Zakharov, president of online recruiter Superjob.ru. �The oil and gas
sector can afford to attract employees with higher salaries, but the
state
competes by offering military contracts.� Russia's Oil and Gas Is Looking
for People Number of required employees more than tripled in seven years

Russia�s oil and gas sector lacks some 40,000 employees this year,
according to estimates from Moscow-based Kasatkin Consulting, formerly
Deloitte�s research center in the region. The industry raised the number
of online job listings in the first quarter by 24% compared to a year
before, looking not just for qualified personnel but also low-skilled
workers, show data from major Russian recruitment platform hh.ru. �This
industry has open vacancies for electricians, drivers, mechanics,
welders,
machinists, general workers, sales managers, design engineers, salesmen,�
said Anna Osipova, head of regional external communications at hh.ru. See
also: Russia�s War Fuels a Wage Spiral That Threatens Army Recruitment
Russia�s Energy Ministry didn�t respond to Bloomberg request for comment.
Lucrative Industry
Source: Bloomberg calculations based on Federal Statistics Service data
Note: Oil and gas industry includes production, services, refining,
pipeline shipments and storage. Data for 2024 is based on average for the
first two months of the year The oil and gas industry has long been one
of
Russia�s highest-paying employers, offering a wage that exceeded the
national average by at least two thirds since 2017, according to
Bloomberg
calculations based on data from the Federal Statistics Service. In
January
and February, the monthly nominal salary in the industry � including
workers in oil and gas production, services, refining, pipeline shipments
and storage � averaged some 125,200 rubles ($1,340). That sum no longer
competes with what the Russian army is offering to contract soldiers. In
addition to the flat nationwide sign-on bonus of 195,000 rubles, each
Russian region offers its own one-time payment to a new recruit, rising
to
as much as 1 million rubles. �Competition with salaries in the armed
forces and military industrial complex has certainly had an impact,� on
workforce availability for the Russian oil and gas industry, said Dmitry
Kasatkin, a partner at Moscow-based Kasatkin Consulting. A worker at
Gazprom�s Chayandinskoye oil, gas and condensate field.Photographer:
Bloomberg/Bloomberg If a worker doesn�t want to fight in Ukraine - where
the UK Ministry of Defence estimates more than 450,000 Russian soldiers
have been killed or wounded since President Vladimir Putin decided to
invade in February 2022 � there are also lucrative contracts available
with military manufacturers. Demand for tanks, armored vehicles and
weapons has soared and arms factories have been searching for workers in
the tight labor market. Last year, Russia�s state defense corporation,
Rostec, raised salaries by an average 17.2%. �We still need people,�
Chief
Executive Officer Sergey Chemezov told Vladimir Putin in August. �Many of
our facilities have been working on the weekends, on bank holidays, and
at
night.� Demographic Crunch
Putin�s decision to mobilize Russia�s economy for war has worsened a
longstanding demographic problem. In the 1990s, the economic turmoil
after
the breakup of the Soviet Union sent fertility rates plunging. Between
2007 and the end of 2021, the nation�s working-age population shrank by
5.8 million people, according to statistical data. The pandemic
exacerbated the issue. From 2020 to 2022, almost 750,000 people died in
Russia with Covid-19 listed as the main cause, according to Federal
Statistics Service data. The share of employees under 30 years in the
Russian labor market dropped to 14.9% in 2022, the lowest since early
1990, according to estimates of audit and consulting firm FinExpertiza.
Fire department workers at Gazprom�s Chayandinskoye field.Photographer:
Andrey Rudakov/Bloomberg Another consequence of Russia�s military
aggression against Ukraine has been to limit the flow of laborers from
abroad. International sanctions have weakened the ruble, boosted
inflation
and complicated international money transfers, making Russia less
attractive for migrants from ex-Soviet countries. Last year, the official
net inflow of foreign migrants into the country was almost 110,000
people,
just a quarter of the level in 2021, the last year of statistics before
the war started. That level of immigration is just a drop in the ocean
compared with Russia�s demand for labor. At the end of March, the nation
needed 1.86 million extra workers, according to data from Federal
Statistics Service based on companies� requests to job centers. Employee
Perks �The northern regions are starving for more workforce, there are
just not enough people,� said Denis, a 41 year-old who left the Russian
energy industry last August to pursue another career in Moscow. As
salaries alone are not enough to attract a new workforce, Russian oil and
gas companies, which often run their core operations in remote areas with
harsh climates, have been offering further perks. A field worker doing
monthly shifts somewhere in Siberia or the Arctic can expect �hot meals
three times a day� and regular medical check-ups covered by the employer,
according to job listings at hh.ru. Some employers also throw in
Soviet-style incentives such as �New-Year presents for kids� and trips to
corporate resorts, according to recent listings on the site. An oil
worker
inspects a pumping jack at an oil field operated by Bashneft in the
village of Otrada.Photographer: Bloomberg/Bloomberg To widen the circle
of
potential employees, some companies have introduced a policy of �bring
your friend and get paid,� offering around $50 to $100 per new hire.
That�s not much by western standards, but in Russia it�s enough to buy
the
minimum level of food necessary for one person for a month. All those
perks are still not enough to lure the most desirable young skilled
workers to the energy industry. That�s forcing companies to turn to older
workers. �The oil industry used to encourage people to retire on time �
You are close to the retirement age? Here�s a big bonus for you and we�ll
see you off with honor, to make room for the younger generation,� said
Superjob.ru�s Zakharov. Now the companies are phasing these programs out
and encouraging the personnel �to work as long as possible,� he said. Key
Industry Since the invasion of Ukraine, Russia�s oil and gas sector has
been targeted by an ever-tightening net of international sanctions
designed to curb the flow of petrodollars. Yet the industry has continued
to operate smoothly, giving Moscow the funds needed to keep sending
soldiers to the front line and purchase weapons to attack Ukrainian
cities
and infrastructure. Last year�s oil-production drilling rates set a
post-Soviet record, while Russia�s crude exports remain robust even as
the
country makes output cuts in partnership with the Organization of
Petroleum Exporting Countries. The country�s natural gas production is
rebounding after a sharp drop in 2022 and 2023 when pipeline flows to
Europe were mostly halted. The government expects pipeline exports of the
fuel to recover by almost a fifth this year due to higher flows to China.
The labor shortages raise questions about whether Russia�s oil and gas
industry can sustain this performance in the longer-term. �Restricted
access to Western high-tech oil services creates a risk for maintaining
and increasing profitable production and refining of oil and gas,� said
Sofia Mangileva, an analyst at Moscow-based consultant Yakov & Partners.
�The lack of qualified personnel aggravates this challenge, since the
task
now is not only to operate the equipment, but also to develop our own
technologies.�