Executive Summary

This report examines the strategic importance of the North Caucasus region for Russia, focusing on its role as a critical energy transit hub and local energy production area.

Following the Ukraine conflict and the rising energy demands, the enhancement of energy infrastructure, including both local and transnational oil and gas pipelines, has become a key focus of the Kremlin policy. Major challenges include energy security, political stability, and infrastructure modernisation, while the region is also involved in energy transition projects, such as renewable energy.

Key Takeaways

• The North Caucasus remains a pivotal energy region for Russia, with ongoing infrastructure modernisation plans.
• Main challenges Ukrainian drone strikes, infrastructure vulnerabilities, and sanctions affecting technology transfers and investment.
• The North Caucasus, along with Kamchatka, is one of the most promising territories of the country in terms of the use of geothermal energy.
• Russia holds the third-largest lithium reserves globally, but its current production is minimal. Dagestan has promising reservoirs.

Information Background

The North Caucasus Federal District (NCFD) has significant untapped potential for oil and gas extraction, with major deposits located in Dagestan, Chechnya, and the Stavropol Territory. The North Stavropol underground gas storage facility is the biggest worldwide, with a capacity of 90 billion cubic meters of active gas.

Dagestan’s thermal waters represent a promising industrial hydro-mineral resource rich in rare metals, utilised for heat and electricity generation. These high-temperature, highly mineralised waters contain significant reserves of calcined magnesia, rubidium, cesium, lithium carbonate, strontium, manganese, calcium, and table salt. Geothermal power generation from these waters is both efficient and environmentally friendly.

The Tarumov deposit area is among the most promising, with six wells that could enable e production of over 7,000 tons of lithium carbonate annually. While Russia holds the third-largest lithium reserves globally, it currently produces only slightly more than 1% of the world’s total output.

Analysis

According to Rosstat, industrial production in the NCFD grew by 6.1% in 2023 compared to 2022, with the most significant increases observed in mineral extraction, manufacturing, and thermal and electrical energy production. This development reflects Russia’s increased demand for advanced technology and equipment across the country’s high-tech sectors.

In the wake of sanctions, lithium plays a crucial role in import substitution, as a significant portion of this resource is allocated to Russia’s nuclear and defence industries. Russian reservoirs of this material would not only meet the Federation’s domestic needs but also establish the country as a large-scale exporter. Given Russia’s strategic pivot to China, Beijing may express interest.

With the NCFD growing strategic role in the Kremlin’s development strategy, focusing on security remains essential. Ukrainian drone attacks on Russian energy infrastructure have sharply increased since January 2025, with a record number of strikes on oil refineries. At the beginning of February 2025, the strikes targeted Gazprom’s Astrakhan Gas Processing Plant (a key supplier of gas to the Astrakhan region and the republics of the North Caucasus) and Lukoil’s Volgograd oil refinery. The Astrakhan plant is also Russia’s leading sulphur producer, accounting for up to 66% of national production and 7% of global output. On February 17, Ukrainian drones attacked the Caspian Pipeline Consortium (CPC).

If these strikes persist or intensify, they could force Moscow to divert additional military and security resources to the North Caucasus. The possibility of Western intelligence support for such operations could indicate a broader strategy aimed at undermining Russia’s internal energy security.

The NCFD’s role in alternative energy export routes bypassing Western-controlled markets, particularly through the Caspian Sea, could grow in significance. This could also strengthen cooperation with Iran, an already strategic partner in the region’s port infrastructure.

Russia’s ability to establish non-dollar-denominated trade mechanisms for critical minerals, including lithium, could mitigate Western restrictions.

Conclusion

In the first half of 2023, industrial revenues in the NCFD contributed to more than one-third of the region’s gross value added, reflecting a shift in market priorities from external to internal resources amid the ongoing crisis. While the NCFD remains a crucial energy hub for Russia, it is also undergoing significant infrastructure modernisation and expanding its role in both traditional and renewable energy sectors.

Security challenges, including Ukrainian drone strikes and Western sanctions, pose significant risks to the region’s stability and energy security. However, Russia’s strategic focus on domestic resource development, lithium production, and alternative export routes through the Caspian Sea could reinforce its energy resilience.

Author: Silvia Boltuc

*Cover image: Topographic map of North Caucasus (Credits: North_Caucasus_topographic_map-fr.svg: Bourrichon – fr:Bourrichon)derivative work: Iltever, CC BY-SA 3.0, via Wikimedia Commons)

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