The Russian Economy in the Fog of War | New Report

A new report highlights the growing instability of the Russian economy as it grapples with the effects of war and sanctions. Official figures on inflation and GDP growth present an overly optimistic picture, according to the Stockholm Institute of Transition Economics (SITE). The report reveals that Russia’s fiscal resources are under severe strain, threatening its economic future.

Economic Instability in the Russian War Economy

Russia’s war in Ukraine has caused unprecedented challenges for its economy. The report shows that Russia’s heavy reliance on oil exports remains a double-edged sword. International oil prices continue to dictate economic performance, but sanctions and declining demand have strained this vital revenue stream. This has deepened the instability in the Russian war economy.

Sanctions have blocked Russia from Western markets, forcing it to use costly and inefficient trade routes through China and other “friendly” nations. As a result, costs have surged and profits have shrunk, further destabilizing the economy.

Key Research Findings

• Official statistics likely understate the real inflation rate and overestimate GDP growth.
• Russia’s financial reserves, vital for war spending, may be depleted within a year, raising economic risks.
• Fiscal policies are unsustainable, with rising public spending at odds with monetary tightening.
• Sanctions are undermining long-term economic growth, especially in the energy sector.

Sanctions and Long-term Risks for the Russian War Economy

The report explains how international sanctions are driving the Russian economy toward long-term decline. Sanctions are not only limiting financial resources but also cutting off access to key technology and raising trade costs. This erosion of Russia’s industrial base, coupled with heavy war spending, has reduced investment in critical infrastructure and innovation. The future of the Russian war economy looks bleak, with the risks continuing to grow as the conflict drags on.

Read the Full Report “The Russian Economy in the Fog of War”

For a comprehensive understanding of Russia’s economic challenges in the context of war, read the full report by the Stockholm Institute of Transition Economics (SITE). Access the complete report on the Institute’s website.

About SITE

SITE was set up as a research institute at the Stockholm School of Economics (SSE) in 1989 with the mandate of studying developments in the Soviet Union and Eastern Europe. Today, SITE is a leading research-based policy institute on these issues. SITE has also built a network of research institutes in the region (FREE Network) that includes the Kyiv School of Economics (KSE). KSE not only provides a premier economics education to future leaders in Ukraine but is also involved in the analysis of the Ukrainian, as well as the Russian, economy, including analysis of the role of sanctions in limiting Russia’s destructive capacity. KSE has been an important contributor of the data and analysis that underlies this report. For more information, visit SITE’s homepage.

To read more policy briefs published by SITE’s experts, visit the Institute’s page on the FREE Network’s website.

Disclaimer: The opinions expressed in policy briefs, news posts, and other publications are those of the authors and do not necessarily reflect the views of the FREE Network and its research institutes.