In a major move against Russia, US President Donald Trump recently imposed sweeping sanctions on two of its largest oil companies, Rosneft and Lukoil, which together account for nearly half of Russian oil exports. Ukrainian President Volodymyr Zelenskyy described these sanctions as “one of the most painful blows for Putin.” However, according to Zelesky, Russia’s economic data paints a neutral picture.
Russia can signal to the world all it wants that sanctions supposedly don’t affect its economy, but everyone can see the truth – gas station lines inside Russia, bankrupt regions, federal budget deficit. Sanctions remain one of the most painful blows for Putin. pic.twitter.com/n4gauh4s1d
— Volodymyr Zelenskyy / Володимир Зеленський (@ZelenskyyUa) October 24, 2025
Has Russia Managed To Survive Sanctions?
Western sanctions, imposed after Russia’s full-scale invasion of Ukraine in 2022, targeted banks, trade, and technology imports, with many predicting a collapse similar to the post-Soviet crisis of the 1990s. That scenario did not materialize.
Reports from Chatham House show that while Russia’s economy contracted by 1.4% in 2022, it bounced back with more than 4% growth in both 2023 and 2024. By mid-2025, growth slowed to about 1% year-on-year, affected by inflation, higher interest rates, and borrowing costs.
Structural reforms dating back to 2014 helped Russia absorb the sanctions. Debt was reduced, and foreign-exchange reserves surpassed $600 billion, providing a buffer against economic shocks. Yet, growth is now largely driven by state-directed sectors, particularly defense. Around 25% of industrial workers are employed in arms production, keeping factories in cities like Tula and Nizhny Novgorod active. Meanwhile, civilian industries and consumer markets are weakening.
The Defence-Fuelled Boom: Real Growth or Mirage?
Much of Russia’s apparent economic stability is tied to defense spending. In the 2026–2028 federal budget, defense and internal security account for nearly 40% of government expenditure, roughly 8% of GDP unprecedented in modern Russian history.
Industrial activity looks strong, with construction projects ongoing and low unemployment. However, this growth is concentrated in sectors serving the state. Civilian industries like automotive and consumer goods remain stagnant. Analysts call this a “managed war economy,” where government spending replaces market demand.
Behind the surface, strain is growing. Sovereign wealth funds are largely depleted, domestic borrowing is rising, credit for households and small businesses is scarce, and real incomes outside defense hubs are falling. Economists warn that this “defense bubble” sustains output now but cannot create lasting wealth.
Budget Black Hole: Where’s The Money Coming From?
Russia’s true budget deficit is deeper than official figures suggest. While the 2024 deficit was officially 2.6% of GDP, the Free Russia Foundation estimates the 2025 deficit at nearly nine trillion rubles the largest in almost 20 years.
To cover the gap, the Kremlin has relied on higher taxes, domestic borrowing, and reallocating classified reserves. The 2026–2028 draft budget plans to raise VAT from 20% to 22% and cut benefits for small businesses. Experts describe this as a “tax-financed war economy,” shifting the burden onto citizens and private firms while internal borrowing grows.
Has Oil Been Russia’s Lifeline?
Oil remains crucial to Russia’s survival. Despite sanctions, Moscow continues to export millions of barrels daily, redirecting flows to India, China, and other Asian buyers, sometimes through shadow networks. While this helps maintain revenue, profits are narrower, and sanctions have reduced Russia’s fiscal flexibility.
Pipeline gas exports to Europe are down over 80% since the war began, and projects like Arctic LNG-2 face delays. Oil and gas are expected to contribute about 22% of federal revenue in 2026 enough to prevent collapse but insufficient for strong growth.
Is Everyday Life In Russia Back To Normal?
For most Russians, the economy presents a mixed picture. In defense-linked cities, employment and wages remain strong. Elsewhere, inflation (8–9%) continues, prices rise faster than incomes, and consumer lending stagnates. Imports are scarce, and many rely on state support or remittances. Real disposable incomes have fallen for three consecutive years.
Shadow Networks and Sanction Evasion: Has the West Lost Control?
Sanctions have limited Russia’s access to finance and technology but have not completely isolated it. Components for missiles and drones are sourced through intermediaries in Turkey, Kazakhstan, the UAE, and Armenia. Payment systems now increasingly use yuan, rupees, or domestic networks like MIR and UnionPay.
Conclusion: Surviving, But Fragile
Russia’s economy shows signs of life positive growth, low unemployment, and strong output in state sectors. Yet the foundations are weak. Productivity is declining, private investment is shrinking, and capital flight continues. Real GDP is about 12% lower than it would have been without the war, with cumulative losses over $1.6 trillion and $400 billion in frozen assets.
The economy is now dependent on war spending and government subsidies. While sanctions have not shattered Russia, they have reshaped it into a “war economy” focused on military priorities rather than broad-based growth. History suggests sanctions alone rarely stop authoritarian states, and Russia is adapting as it has in past decades though at significant long-term cost.
