Despite the ongoing geopolitical tensions and economic pressures, Russia’s economy has proven more resilient than many had anticipated. While optimists have portrayed the Russian economy as a “house of cards”, vulnerable to external shocks, a closer examination suggests that the Kremlin has successfully rewired its economic framework to withstand the challenges it faces.
The threat of falling oil prices, prompted by the United States’ plans to seize control of Venezuela’s oil industry, has been a source of concern for the Kremlin. Crude oil has been the lifeblood of the Russian economy for decades, far more than natural gas exports to Europe. However, the International Monetary Fund has predicted modest economic growth of 0.6% in 2025 and 1% in 2026, indicating that the Russian economy is not on the brink of collapse.
Sanctions imposed on Russian oil giants Rosneft and Lukoil, as well as the rise in the ruble, have already reduced Moscow’s oil revenue. Optimists argue that after four years of war in Ukraine, Putin is increasingly vulnerable due to Russia’s precarious financial position, and a fall in oil prices would have a catastrophic effect on his ability to fund the war and continue grinding down Ukrainian resistance.
Yet, this analysis overlooks the successful rewiring of the Russian economy by Putin’s administration, which has proved more adept in its handling of domestic politics and government finances than it did the military in the first three years of the war. Russia can, and should, be hurt financially by further sanctions, but European leaders and Ukraine’s allies in the US Congress should not delude themselves into thinking that the Russian economy is on the verge of collapse.
While economic growth has slowed to a near standstill, the broader strategy resembles a “medically induced coma” – designed to insulate the patient from unwanted outside interference. The Kremlin has found internal resources to fill the void, primarily through higher taxes on households and businesses.
Richard Connolly, an analyst at the Royal United Services Institute think tank, notes that “the Kremlin has succeeded in selling the war, not as a battle with its near neighbour – its brothers and sisters in Ukraine – but as a war with the West.” He adds that “we are not near the economy being a decisive factor in the Kremlin’s thinking about how to pursue the war.”
Russia’s debt-to-GDP ratio is just below 20%, while the annual spending deficit is about to hit 3.5% – modest by international standards, particularly when compared to the UK’s 11% deficit in the year COVID-19 hit and a debt-to-GDP ratio of about 95%.
While there is no doubt that Putin is turning the Russian economy into a “junkyard, full of ageing and increasingly dysfunctional factories”, he can continue to fund the conflict without fearing economic collapse in the short term. China remains a friend and buyer of oil, and North Korea supplies people and equipment, even as India and other beneficiaries of trade with Russia turn away under a tougher sanctions regime.
The message for Europe is clear: it must help Ukraine push back harder militarily, ignoring Putin’s empty nuclear threats, while tightening the tourniquet on Russian trade. A tougher stance on trade may not trigger an economic collapse, but Europe needs to work every angle to bring the war to an end.