Location: Russia

Torbjörn Becker on Russia’s Hidden Economic Troubles

Posted on September 14, 2025 | News

As Western leaders consider new sanctions on Russia, The Guardian sheds light on Russia’s hidden economic troubles and growing doubts about Moscow’s ability to sustain its war-driven economy. The article examines President Donald Trump’s renewed threats of financial measures and the ongoing debate among U.S. and EU officials over coordinated sanctions.

Despite extensive restrictions since 2022, Russia’s economy continues to function. But experts warn that the reality may be far worse than official data suggest.

“Russia’s official economic data are questionable. The situation is worse than it appears. Inflation and deficits are understated, and GDP is overstated. Russia will struggle to maintain the war at its current level by mid-2026,” said Torbjörn Becker, Director of the Stockholm Institute of Transition Economics (SITE).

The Guardian report also examines the limits of current sanctions, loopholes in the oil and gas trade, and the role of non-Western intermediaries that help Moscow circumvent restrictions. With Trump signaling openness to “major sanctions” if NATO allies align, analysts emphasize that political unity and global coordination will be critical to any future economic pressure on Russia.

Read the full article and Torbjörn Becker’s expert analysis in The Guardian / CNN Prima News.

Further Reading

Energy exports remain central to Russia’s economy, serving as a major source of geopolitical leverage. Sanctions targeting the Russian energy sector aim to reduce state revenues and curb Moscow’s global influence. Explore the latest research on sanctions, energy exports, and Russia’s economy in the Sanctions Portal Evidence Base.

For more economic insights and expert commentary, visit the SITE website.

Russia Budget Deficit Surges as Oil Revenues Fall

Posted on September 1, 2025 | News

Russia’s public finances are under strain as oil and gas revenues slide. The budget deficit of Russia has ballooned in 2025, while spending keeps rising. Buffers like the National Welfare Fund are shrinking, and growth is stalling. These findings come from the KSE Institute’s August 2025 Russia Chartbook by Benjamin Hilgenstock, Yuliia Pavytska, and Matvii Talalaievskyi. 

What’s Driving the Gap: Context Behind the Numbers

Russia’s oil export earnings rose to $14.3 billion in July, supported by slightly higher global oil prices that kept Russian export prices near $60 per barrel. Still, the global oil market outlook points to lower prices for Russian exports through the rest of this year and into the first half of 2026. As a result, budgetary pressures are expected to persist. While oil and gas revenues increased in July compared to June due to quarterly tax payments, they were more than 30% lower in May–July than during the same period last year. Extraction tax receipts remain very weak and are unlikely to recover soon.

Challenging Outlook for Russian Oil and Gas Exports

Sanctions are increasingly squeezing Russia’s ability to move oil abroad. The number of sanctioned shadow tankers has climbed to 535, with 124 of them directly listed by the EU, UK, and US. This means that nearly two-thirds of the shadow fleet is now under sanctions, raising pressure on Moscow’s export routes.

Stronger enforcement will be key, as gaps still allow some shipments to move despite restrictions. In July, the shadow fleet’s share in Russian oil exports rose slightly, likely helped by higher global prices. This suggests that Russia is leaning even more on risky channels to keep its oil flowing, leaving its energy revenues vulnerable to tighter controls in the months ahead.

Russian Budget Deficit Deepens as Revenues Fall

Russia’s public finances came under heavy strain in July. The monthly budget deficit soared to 1.5 trillion rubles, driven by weak oil and gas revenues combined with surging expenditures.

This pushed the cumulative shortfall for January–July 2025 to 4.9 trillion rubles, a sharp increase from just 1.1 trillion during the same period in 2024. Alarmingly, the deficit has already reached 129% of the full-year target set after the most recent budget revision.

The rapid deterioration highlights how falling energy revenues and rising spending are creating mounting fiscal risks for Moscow.

Key Research Findings

  • Oil and gas revenues fell 19% year over year, while expenditures jumped 21%, driving the Russian budget deficit wider.
  • The liquid part of the National Welfare Fund is about 4.0 trillion rubles and could be used up within 6–12 months.
  • Domestic debt issuance (OFZ) reached 3.0 trillion rubles in Jan–Jul, with falling yields showing strong bank demand.
  • Growth slowed to 1.1% year over year in Q2, signaling a stalling economy; inflation eased to 8.8% while the policy rate stands at 18%.

What it Means: Risks and Next Steps

If oil prices drift toward $60 Brent into 2026, budget pressure will persist. The state may lean more on domestic borrowing and the National Welfare Fund, raising financial stability risks as buffers thin. With limited labor and capital, output has little room to grow, and policy goals clash: restrain prices or fund spending. Further monitoring of the Russian budget deficit and oil price trends is essential. 

Meet The Researchers

  • Benjamin Hilgenstock — KSE Institute. 
  • Yuliia Pavytska — KSE Institute. 
  • Matvii Talalaievskyi — KSE Institute.

Read The Full Report

Explore the full findings and detailed analysis by reading the complete report on the KSE Institute’s website. Additionally, you can view more policy briefs from the KSE Institute on the FREE Network’s website.

Explore Other Editions of KSE Institute’s Russia Chartbook

Corporate Complicity: Global Firms Funded Russia with $20B in 2024

Posted on August 29, 2025 | News

Destroyed city street with damaged buildings and construction cranes — symbolizing the consequences of war and corporate complicity in conflict zones.

A new report by the KSE Institute and B4Ukraine reveals that many global corporations continued doing business in Russia throughout 2024. These companies paid $20 billion in taxes to the Russian government, indirectly helping fund the war. This corporate complicity has drawn widespread criticism for undermining sanctions and supporting aggression.

Global Business and War: A Dangerous Link

Since Russia’s full-scale invasion of Ukraine in 2022, the international response included economic sanctions and public pressure for firms to exit Russia. Yet as of mid-2025, only 12% of global firms had fully withdrawn. 1377 firms or 33% have officially declared that they are completely shutting down, or have announced they are temporarily reducing operations, but haven’t yet fully exited. A staggering 55% remain active in Russia, paying taxes, generating profit, and keeping operations running.

Many companies claim to have paused or scaled back operations. However, their tax contributions tell another story. In 2024 alone, foreign firms earned $201 billion in Russia and paid $20 billion in taxes—enough to fund more than one million soldiers based on Russia’s $18,400 recruitment bonus per soldier.

Why Companies Choose to Stay

Some firms chose profits over principles. The finance and consumer goods sectors led the way, with banks and brands like PepsiCo, Nestlé, and Mars topping revenue and tax lists. Despite early promises to leave, many companies either delayed their exit or quietly expanded. Others, like Mondelez and Coca-Cola, have been accused of masking their continued presence with rebranding or shifting operations to subsidiaries.

Key Research Findings on Corporate Complicity

  • In 2024, foreign companies earned $201 billion and paid $20 billion in taxes to Russia.
  • Only 12% of firms fully exited the Russian market; 55% stayed.
  • U.S. and EU firms paid more than $3.8 billion in profit taxes combined.
  • The finance and consumer sectors were the top contributors to the Russian war economy.

Western Values Undermined by Business-as-Usual

The report argues that continued business in Russia by Western firms directly undermines their governments’ aid to Ukraine. Companies headquartered in the U.S., Germany, and France are among the largest contributors to Russia’s tax base.

The report highlights that increasing numbers of foreign firms have stopped publishing their financial reports, a trend particularly noticeable among large corporations. Of the 100 largest foreign companies operating in Russia in 2021, 86 disclosed their financials in 2023. This number has halved in 2024 to just 43. The decision not to disclose financial statements may reflect an effort by companies to avoid further reputational damage linked to the scale of their economic support for the war effort.

Read the Full Report

Explore the full findings and detailed analysis by reading the complete report on the Kyiv School of Economics website. Additionally, you can view more policy briefs from the KSE Institute on the FREE Network’s website.

Learn More About the Russian War Economy and Sanctions

To learn more about Western sanctions and Russia’s countermeasures, visit the Sanctions Timeline. And for details on sanctions imposed on Russia and their effects, see the Evidence Base section of the sanctions portal. Explore more policy briefs on sanctioning Russia here.

Russian War Economy Faces Slowdown Despite Resilience

Posted on August 21, 2025 | News

Russian war economy under pressure symbolized by ruble coin squeezed in pliers

Since 2022, the Russian economy has surprised many with its resilience under Western sanctions. Growth was fueled by wartime spending and high energy revenues. Now, signs suggest this “war bump” is fading. In a recent Financial Times interview, Elina Ribakova explains why the Russian war economy faces serious challenges ahead. Elina Ribakova is vice-president for foreign policy at the Kyiv School of Economics. She spoke with Sam Fleming, economics editor at the Financial Times.

Sanctions and Short-Term Resilience

When Western nations imposed sanctions on Russia, many expected a collapse. Instead, wartime spending and high oil revenues propped up growth. Ribakova notes that Russia’s ability to redirect resources into military production created a temporary boom. But this resilience came at the cost of long-term growth in the Russian war economy.

Why the Russian War Economy Is Slowing

Russia is now hitting hard limits. Labor shortages, soaring inflation, and overstretched industrial capacity are beginning to bite. Ribakova points out that unemployment has fallen to unsustainably low levels, while non-military sectors are stagnating. Even the defense industry, once booming, is showing signs of strain across the Russian war economy.

China’s Critical Role

One reason Russia has endured sanctions is its growing reliance on China. Ribakova highlights how Chinese exports—from consumer goods to vital military components—have allowed Moscow to sustain its war economy. Yet this partnership is highly lopsided: for China, Russia is a marginal partner; for Russia, China is a lifeline.

The Postwar Challenge

Looking ahead, Ribakova warns that ending the war will not mean an easy recovery. Russia faces deep demographic challenges, heavy reliance on military production, and decades of failed economic diversification. Rebuilding a sustainable postwar economy may prove “devastatingly hard” for the Russian war economy.

Listen to the Original Interview

The slowdown of the Russian war economy is more than an economic story; it shapes global energy markets, security, and geopolitics. To hear the full conversation and Ribakova’s detailed analysis, listen to the original Financial Times interview here.

Learn More About the Russian War Economy and Sanctions

To learn more about Western sanctions and Russia’s countermeasures, visit the Sanctions Timeline. And for details on sanctions imposed on Russia and their effects, see the Evidence Base section of the sanctions portal. Explore more policy briefs on sanctioning Russia here.

Are the Sanctions on Russia Finally Working?

Posted on August 21, 2025 | Videos

Spasskaya Tower of the Moscow Kremlin under dark storm clouds, symbolizing uncertainty around the question, Are Sanctions Working.

Russia’s brutal war in Ukraine is now in its fourth year. In recent weeks, President Donald Trump has held several high-level meetings to explore ways to end the conflict. How serious are these efforts, and what would it take to ensure Ukraine’s long-term security?

When Russian forces invaded in February 2022, many expected Western sanctions to cripple Moscow’s economy and limit its ability to fight. Yet, Russia’s economy has remained surprisingly strong. What explains this resilience? And what could the international community have done differently?

Today, signs of economic slowdown are becoming clear in Russia. Could this downturn finally start to weaken the Kremlin’s war machine? What effect might a recession have on the battlefield? And how can Ukraine’s allies keep supporting the country while preparing for reconstruction and future EU membership?

These questions were discussed by:

  • Cecilia Malmström, Nonresident Senior Fellow at the Peterson Institute for International Economics (PIIE)
  • Torbjörn Becker, Director of the Stockholm Institute of Transition Economics at the Stockholm School of Economics,
  • Jacob Funk Kirkegaard, Nonresident Senior Fellow at PIIE.

For more information about the event, visit the Peterson Institute for International Economics.

To learn more about sanctions on Russia and Russian economic retaliation, explore the SITE Sanctions Project — a hub that collects, organizes, and shares insights, data, and analysis on the evolving landscape of sanctions against Russia.

EU Adopts 18th Sanctions Package Against Russia to Cut War Funding

Posted on August 18, 2025 | News

The European Union has adopted its 18th sanctions package against Russia, marking one of the toughest measures since the start of the war in Ukraine. The new package targets Russia’s oil revenues, banking system, and trade routes that have been used to bypass earlier restrictions. Slovakia had initially blocked the move but lifted its veto after negotiations. The authors of the package described it as crucial to closing loopholes and weakening Russia’s wartime economy.

Why the EU Tightened Sanctions?

Russia has repeatedly adapted to previous sanctions by finding new trade partners and exploiting loopholes. As a result, the EU introduced the 18th sanctions package against Russia to strengthen enforcement rather than create entirely new bans. Sanctions are part of a constant economic battle, with the EU closing gaps as Russia discovers new ways to evade them.

What are the Main Goals of the New Package?

The 18th sanctions package focuses on reducing Russia’s energy income and financial resources. It aims to block the shadow fleet of tankers, target Russian banks, and restrict access to military technology.

What are the New Measures of the 18th Sanctions Package?

  • The oil price cap has been lowered to about $47.6 per barrel, with dynamic adjustments.
  • Imports of refined oil made from Russian crude in third countries are now banned.
  • Twenty-two more Russian banks face transaction bans, including those linked to Nord Stream projects.
  • Over 105 new vessels were blacklisted, bringing the “shadow fleet” count to more than 400.
  • Export restrictions on military-use technology have been tightened.
  • Sanctions now extend to third-country actors helping Russia evade restrictions.
  • New limits on liquefied natural gas (LNG) aim to reduce Russia’s long-term energy revenues.

Why These Measures Matter?

The 18th sanctions package against Russia is not just about new bans; it is about ensuring old rules work. Energy is still Russia’s biggest source of money, and cutting this income weakens its ability to fund the war. However, Russia has proven resilient by redirecting oil exports to Asia, relying on smuggling networks, and depleting its National Wealth Fund to cover deficits.

To learn more about the 18th sanctions package, how Russia is adapting, what tools the EU has left, how well the EU is responding to Russian countermeasures, and how long Russia can hold out, visit the Sanctions Hub—a website that collects data and insights on sanctions against Russia and its economic retaliation (read more).

To learn more about Western sanctions and Russia’s countermeasures, visit the Sanctions Timeline. And for details on sanctions imposed on Russia and their effects, see the Evidence Base section of the sanctions portal.

Russia Budget Deficit Nears Full-Year Target in Just Six Months

Posted on July 30, 2025 | News

Dark clouds over the Kremlin star symbolizing economic challenges and the growing Russia Budget Deficit.

Russia’s budget deficit has surged to alarming levels, hitting 97% of its full-year target by mid-2025. Falling oil and gas revenues, combined with a sharp rise in government spending, are putting unprecedented strain on the country’s finances. The Russia budget deficit is now the largest for the first half of any year since the war began. The findings come from a new report by Benjamin Hilgenstock, Yuliia Pavytska, and Matvii Talalaievskyi of the KSE Institute.

Economic Strains Push Russia’s Finances to the Brink

In early 2025, low global oil prices dealt a major blow to Russia’s revenue streams. Although prices briefly spiked in June due to Middle East tensions, they soon fell back to $50–55 per barrel. This sustained drop cut oil and gas income by 17% year-on-year, leaving the government struggling to meet budget plans and worsening the Russia budget deficit.

Mounting Pressure on State Finances

By June, the budget deficit had climbed to 3.7 trillion rubles—over five times higher than in the same period of 2024. Government spending rose 20%, while non-oil revenues increased by just 13%. The Russia budget deficit has already nearly equaled the planned total for the year, making it almost certain the target will be missed.

Key Research Findings

  • The Russian budget deficit reached 97% of the annual target in just six months.
  • Oil and gas revenues dropped 17% year-on-year, while government spending rose 20%.
  • Domestic debt issuance in H1 2025 was 90% higher than in the same period last year.
  • The National Welfare Fund’s liquid assets exceed the mid-year deficit by only 12%.

Outlook: Risks and Financing Challenges

If oil prices remain low, the Russia budget deficit will likely surpass forecasts by a significant margin. This could force the government to draw heavily on the National Welfare Fund and increase domestic debt issuance. While demand for bonds from Russian banks remains strong, the long-term sustainability of financing is questionable without a rebound in export revenues.

Meet the Researchers

  • Benjamin Hilgenstock: Head of Macroeconomic Research and Strategy, KSE Institute
  • Yuliia Pavytska: Manager of the Sanctions Programme, KSE Institute
  • Matvii Talalaievskyi: Analyst, KSE Institute

Read the Full Report

Explore the full findings and detailed analysis by reading the complete report on the KSE Institute website. You can also explore more policy briefs covering sanctions against Russia and Russian counter-sanctions in the FREE Network’s policy briefs section.

Explore Other Editions of KSE Institute’s Russia Chartbook

Russian Oil Revenues Dip to $12.6 Billion as Sanctions Bite

Posted on July 21, 2025 | News

Oil pump jacks operating at sunset, symbolizing the global oil trade and its impact on Russian oil revenues.

In May 2025, Russian oil export revenues fell by $0.4 billion to $12.6 billion due to lower prices and export volumes. Seaborne oil shipments declined, with oil products dropping sharply. The shadow fleet’s role in exports grew, raising environmental and enforcement concerns. The findings come from the latest Russian Oil Tracker by the KSE Institute, authored by Borys Dodonov, Benjamin Hilgenstock, Anatolii Kravtsev, Yuliia Pavytska, and Nataliia Shapoval.

Falling Oil Exports Amid Sanctions Pressure

Global oil prices remained weak in May, keeping all Russian crude grades within the G7/EU price cap. Export volumes slipped, with overall seaborne shipments down 3.1% month-on-month. Reliance on Western-insured tankers dropped to 42%, while older, uninsured “shadow fleet” tankers carried most crude exports. India remained Russia’s largest crude buyer, taking 51% of shipments, while Turkey led in oil product imports.

Tracking Sanctions Evasion and Enforcement

KSE Institute data shows that 165 Russian-affiliated tankers operated in May without international insurance, 89% of them over 15 years old. Many had previously been sanctioned, yet enforcement gaps persist. Between March and May, 135 sanctioned vessels were still loaded at Russian ports. The US and EU maintain stricter compliance, while UK and Canadian enforcement remains weaker.

Key Research Findings

  • Russian oil revenues fell to $12.6 billion in May 2025, the second-lowest since the invasion.
  • Oil product exports dropped 7% month-on-month, with Pacific ports seeing a 21.9% collapse.
  • Shadow fleet tankers carried 82% of crude exports, most over 15 years old.
  • In a strict sanctions scenario, annual revenues could drop to $111 billion in 2025.

Economic and Policy Implications

If sanctions enforcement remains weak, Russia could still earn $163 billion from oil in 2025. Stronger enforcement and tighter price caps could sharply cut revenues, limiting war financing. The growing shadow fleet also raises environmental risks due to poor maintenance and flag evasion. Future monitoring will focus on how sanctions coalitions adapt to these tactics.

Meet the Researchers

  • Borys Dodonov: KSE Institute
  • Benjamin Hilgenstock: KSE Institute
  • Anatolii Kravtsev: KSE Institute
  • Yuliia Pavytska: KSE Institute
  • Nataliia Shapoval: KSE Institute

Read the Full Report

Explore the complete findings and detailed charts in the Russian Oil Tracker on the KSE Institute’s website.

The Case for Seizing Russian State Assets

Posted on June 18, 2025 | Policy Brief

Facade of the Central Bank of Russia with Russian flag, symbolizing the debate around seizing Russian state assets to support Ukraine.

This brief examines the legal and economic arguments in the ongoing debate over whether to confiscate Russian state assets frozen in Western democracies and redirect them toward supporting Ukraine’s resilience and reconstruction. It also outlines concrete proposals for how such a measure could be undertaken in compliance with international law and with manageable economic consequences.

At the outset of Russia’s full-scale invasion of Ukraine, substantial Russian state assets held in Western countries were frozen. While not all countries have disclosed precise figures, estimates place the total between $290–330 billion, most of it held within European jurisdictions. These numbers can be put in perspective to the total global support to Ukraine so far, €267 billion according to the Kiel Institute’s Ukraine Support Tracker. A lively discussion has emerged around the legal, economic, and political feasibility of seizing these assets to support Ukraine. As evident, this would constitute a very substantial addition to the support for the country. Thus far, agreement has only been reached on utilizing the returns on the assets to service a $50 billion loan to Ukraine under the Extraordinary Revenue Acceleration (ERA) mechanism. It has been argued that $50 billion should be enough, but Western contributions to the defence of Ukraine have been around €80 billion per year. The ERA is thus only a partial and very short-term financial solution for Ukraine, while a €300 billion fund based on the seizure of the assets would last perhaps 3-5 years. In short, the size of the fund matter and the principal amount is significantly larger than the fund that has been set up based solely on taxing the returns of the frozen assets.

This brief survey’s the main areas of contention and proposes viable pathways forward. It focuses on the legal and economic dimensions, setting aside moral arguments—which are broadly accepted given Russia’s unprovoked aggression and the destruction it has caused. Ultimately, the question is a political one: whether the legal justification and economic trade-offs favour asset seizure over other financing methods.

The Legal Arguments

Opposition to seizure often cites the principle of sovereign immunity. Yet, international law permits exceptions through countermeasures—acts that would otherwise be unlawful but are allowed in response to grave violations by another state. Additionally, asset confiscation may be lawful when enforcing international judgments (other possible legal avenues are for instance explored in Webb (2024), though in the end deemed as less likely to gain traction and legal approval). In both cases, the goal is to induce compliance with international obligations and secure reparations. A further legal basis lies in the doctrine of collective self-defense, which permits states not directly attacked to aid those that are, in response to unlawful aggression (Vlasyuk, 2024).

Critics often note that countermeasures should be temporary and reversible. However, as Vlasyuk (2024) points out, international law qualifies reversibility as being required only “as far as possible.” This implies that in cases of severe violations—where reversible countermeasures have failed—non-reversible actions may be justified. One proposed mechanism ties the frozen assets to future war reparations, allowing permanent transfers only if Russia refuses to comply with a future reparations ruling. Since reparation should go to the victim of Russia’s aggression, it also means that it is Ukraine that has the ultimate claim on the frozen Russian assets. This implies that any decision of confiscation and governance structure for transferring funds to Ukraine should be made with the consent of Ukraine. Put differently; even if the money is in Western financial institutions, there are good reasons to make sure the resources are used according to Ukrainian preferences.

The Economic Arguments

The principal economic concerns surrounding asset seizure are its potential impact on confidence in European capital markets, including risks of capital flight, increased interest rates, and diminished credibility of the euro. There are also fears of reciprocal actions by Russia against remaining Western investments.

These concerns, however, are increasingly overstated. The major shock to financial markets occurred when the assets were first frozen; any anticipated impact should now be fully priced in. Moreover, a viable reserve currency must be supported by convertibility, sound economic governance, and rule of law—features absent in countries like China, Gulf states, or most other emerging economies. The yen and Swiss franc lack either scale or stability. Despite previous sanctions and the 2022 asset freeze, the dollar and euro still account for around 80 percent of global foreign exchange reserves (The International Working Group on Russian Sanctions, 2023). Given the current crisis of confidence in U.S. fiscal governance, the euro remains especially robust.

The extraordinary nature of the situation also diminishes fears of setting a destabilizing precedent. Investors alarmed by this measure may not be long-term assets to Western markets but rather criminal states or individuals that should not be protected by the West’s financial and legal systems. More broadly, it signals to authoritarian regimes that aggressive actions will carry financial consequences. Western firms still operating in Russia have had ample time to disinvest, and those that remain should not constrain public policy.

Importantly, the costs of inaction must be considered. Financing Ukraine through increased public borrowing could raise interest rates across the eurozone and widen yield spreads between fiscally stronger and weaker member states. Seizing Russian assets, by contrast, may be economically safer, more equitable, and legally sound (International Working Group on Russian Sanctions, 2023).

Suggested Approaches

Several proposals aim to facilitate asset transfer in ways consistent with international law and economic stability.

Zelikow (2025) proposes the establishment of a trust fund to lawfully assume custody of frozen assets. This fund—grounded in the legal doctrine of countermeasures—would not represent outright confiscation but a conditional hold. Assets would remain Russia’s property until disbursed to victims of its aggression. A board of trustees would oversee disbursements—for example, servicing ERA loans or financing reconstruction. In this proposal, the fund would broadly define “victims” to include Ukraine and neighbouring states that have borne costs, such as accommodating refugees. This can perhaps help build political support among Western countries for the trust fund, but it has the obvious drawback that it may imply less support to Ukraine. Zelikow (2025) argues that institutions like the Bank of England or World Bank could manage the fund, given past experience with similar arrangements, potentially issuing bonds backed by the assets to accelerate support.

Vlasyuk (2024) proposes a multilateral treaty among coalition states recognizing Russia’s grave breaches of international law. This would provide a unified legal basis for transferring central bank assets to Ukraine via a compensation fund. National legislation would follow—similar to the U.S. REPO Act—tailored narrowly to address such violations. These laws should include safeguards, such as provisions to suspend asset seizure if hostilities end and reparations are paid.

Dixon et al. (2024) propose a “reparation loan” backed by Ukraine’s reparations claims. The EU or G7 would lend to Ukraine, using these claims as collateral. If Russia fails to pay after a ruling by a UN-backed claims commission, the frozen assets could be seized. This approach aligns well with the requirement for reversibility in countermeasures and may also reassure financial markets.

Conclusions

In summary, compelling legal arguments support the transfer or confiscation of Russian state assets under international law. Meanwhile, fears of damaging economic consequences appear increasingly unfounded. Any meaningful support for Ukraine—whether through asset seizure or public borrowing—will carry financial implications. However, using Russian rather than Western taxpayer resources is both morally and politically compelling.

What is now needed is coordinated political will and a practical, legally sound mechanism to operationalize asset transfers. With sound governance, such a step would not only finance Ukraine’s recovery but reinforce the international legal order and deter future aggression. An arrangement that makes sure all resources go to Ukraine—and not toward covering losses incurred by supporting Western countries—should be prioritized.

References

  • Dixon, H., Buchheit, L. C., & Singh, D. (2024). Ukrainian reparation loan: How it would work. The International Working Group on Russian Sanctions.
  • The International Working Group on Russian Sanctions. (2023). Working Group paper #15. Stanford University.
  • Vlasyuk, A. (2024). Legal report on confiscation of Russian state assets for the reconstruction of Ukraine. KSE Institute.
  • Webb, P. (2024). Legal options for confiscation of Russian state assets to support the reconstruction of Ukraine. European Parliament.
  • Zelikow, P. (2025). A fresh look at the Russian assets: A proposal for international resolution of sanctioned accounts (Hoover Institution Essay). Hoover Institution Press.

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

Russia’s Counter Sanctions: Forward to the Past!

Posted on May 12, 2025 | Policy Brief

Since February 2022, Russia has introduced a series of counter sanctions in response to the international sanctions introduced following the country’s full-scale invasion of Ukraine. These measures aimed to counteract external economic pressure while shielding the domestic economy from further destabilization. However, their broad implementation has led to mixed effects across various sectors while simultaneously increasing the administrative burden. This policy brief argues that Russia’s countersanctions reinforced state control over key industries, worsened market competition and fiscal sustainability, which contributed to a systematic move towards a planned economy.

Russia’s Counter Sanctions and the Expansion of State Control

Since February 2022, Russia has introduced a series of countersanctions in response to the international sanctions imposed following its invasion of Ukraine. A broad range of economic, financial, and trade restrictions have been implemented, including nationalization of foreign assets, price control, capital flow restrictions, export bans, and state-directed subsidies – all aimed at mitigating external economic pressure while reinforcing state control over key industries (Garant, 2025).

While it is widely accepted that, in times of crisis, governments may intervene in the economy to provide necessary support, such intervention should remain limited in scope and duration. Prolonged state involvement, particularly through subsidies and market controls, can distort price signals, crowd out private investment, and erode the foundations of competitive market dynamics (Friedman, 2020).

In the case of Russia, intensive government economic interventions, specifically after 2022, have led to mounting inefficiencies, increased inflationary pressures, and weakening long-term growth prospects (SITE, 2024; SITE, 2025). This policy brief discusses how the recent surge in presidential decrees, the sharp expansion of targeted subsidies across nearly all sectors, and the tightening of price regulations reflect the Kremlin’s strategic use of counter sanctions as a means of consolidating economic power and reinforcing centralized control.

An Expansion of Presidential Control

Since 2022, presidential decrees account for 25 percent of all anti-sanctions legislative measures, indicating a significant consolidation of executive control over economic policymaking.  The trend of expanding presidential control through issued decrees is illustrated in Figure 1. As shown in the figure, the total number of presidential decrees has nearly doubled since 2019, amounting to 1131 in 2024. The largest share of this decree increase, however, occurred post February 2022.

Figure 1. Number of Presidential Decrees in Russia

Line chart showing the number of presidential decrees in Russia from 2019 to 2024, illustrating an upward trend potentially linked to Russia counter sanctions.

Source: ConsultantPlus, 2025.

Beyond the expansion in the number of decrees, what is particularly noteworthy is the breadth of topics they cover. They range from significant interventions on nationalization and economic control to quite detailed low-impact orders.

Among the highly impactful presidential decrees, Decree No. 79 (February 28, 2022) should be mentioned. The decree introduced a mandate that Russian residents engaged in foreign economic activities sell 80 percent of their foreign currency earnings. Further, Decree No. 302 (April 25, 2023), allowed the Russian state to seize foreign assets from “unfriendly states” if necessary for national security or in retaliation for asset confiscations abroad. Global companies from Germany (Uniper), Finland (Fortum), France (Danone), and Denmark (Carlsberg) are among those affected by these expropriations (Garant, 2025). Seized foreign assets were transferred to state-controlled entities, which drastically reduced competition and increased inefficiencies within key Russian industries.

Similarly, Decree No. 416 (June 30, 2022) on the Nationalization of Sakhalin-2, transferred oil and gas projects from foreign operators (Shell, Mitsubishi and Mitsui) to a Russian-controlled legal entity. Moreover, foreign companies from “unfriendly” countries were required to sell their Russian assets at a minimum 50 percent discount when exiting the market. Additionally, they were obliged to pay a “voluntary contribution” to the Russian federal budget at 15 percent of asset value (Garant, 2025).

At the same time, numerous presidential decrees have been adopted to address very specific low-level administrative issues. While their economic impact has been quite limited, they have largely contributed to a growing micromanagement and regulatory complexity (for instance, Decree No. 982 (December 22, 2023) on Temporary State Control Over a Car Dealership, Decree No. 1096 (June 17, 2022) on Transport Credit Holidays etc.).

Apart from the potential negative effects of direct government intervention in the economy, there are several issues with Presidential Decrees. Most importantly, presidential decrees, unlike statutes or other forms of legislation, are not subject to parliamentary approval. Thus, they are bypassing legislative debate and accountability, which makes them less transparent and balanced. Presidential decrees serve as tools to avoid legislative resistance since the Russian judiciary rarely challenges presidential authority, meaning decrees are difficult to contest or reverse through legal means. Further, they often overlap with other legislation, thus duplicating the functions of other legislative (and executive) authorities, leading to regulatory uncertainty. This, in turn, undermines implementation and expands bureaucratic oversight, further increasing inefficiencies and costs (see for instance, Remington, 2014; Pertsev, 2025).

Altogether, the surge in presidential decrees in Russia contributes to increasing institutional instability, an increasing administrative burden and a centralization of power. However, the full impact of these measures on the macro level is yet to unfold.

Targeted Subsidies and Industry Dependence

A key tool in Russia’s counter sanctions strategy is the expansion of state subsidies. Since 2022, substantial subsidies have been directed toward the energy sector; industrial and technological development – including aviation, pharmaceuticals, electronics, and shipbuilding; agriculture and food security; transportation and infrastructure; the banking sector; housing; and consumer lending. The scale of these subsidies indicates growing imbalances and escalating fiscal risks in the Russian economy (Garant, 2025).

However, estimating the total resources going to subsidies is quite challenging. Precise subsidy figures are only explicitly stated in few legislative acts. Most legislative documents mention the form of subsidy without specifying the amount or the source of financing. Nevertheless, some estimates have been made by both Russian and Western experts.

For instance, Russia spent approximately 12 RUB trillion (126 USD billion) on fossil fuel subsidies in 2023 (Gerasimchuk et al., 2024). Subsidies to the agricultural sector were estimated at 1 trillion RUB between 2022 and 2024 (Statista, 2025). Since 2022, Russia has allocated approximately 1.09 trillion RUB (12 billion USD) in subsidies to the aviation sector to maintain operations (Stolyarov, 2023; Garant, 2025). Around 100 billion RUB were allocated to support the tourism industry during 2023–2024 (Ministry of Economic Development of the Russian Federation, 2024; Garant, 2025).

To understand the order of magnitude, it’s worth noting that, for instance, budget revenues from oil and gas amounted to 8.8 trillion RUB in 2023 and 11.1 trillion RUB in 2024 (Figure 2).

Figure 2. Budget revenues and expenditures

Line chart showing Russia’s budget revenues from oil, gas, and non-oil sectors, and expenditures on defense, security, law enforcement, and other areas from 2010 to 2024, highlighting fiscal trends potentially influenced by Russia counter sanctions.

Source: SITE, 2025.

In addition, state subsidies for mortgages nearly doubled since 2022, with the total amount reaching 1.7 trillion RUB between 2022 and 2024 (CBR, 2024). Thus, the Russian mortgage market has become heavily dependent on state support, with subsidized mortgage programs accounting for nearly 70 percent of the growth in mortgage lending in early 2024 (CBR, 2024). Although the so-called standard preferential mortgage program was terminated on July 1, 2024, its discontinuation does not remove the substantial fiscal burden created by earlier subsidy schemes.

Moreover, the Russian government has expanded subsidized lending programs to support both businesses and individuals. For instance, preferential loans and credit holidays have been granted to small, medium and large enterprises (see for instance, Presidential Decree: No. 121, March 2022, Federal Law 08.03.2022 No. 46-FZ, and others (Garant, 2025)), further straining the government’s finances.

In many cases, subsidies allocated to state-owned enterprises double as a mechanism for off-budget military financing. For instance, defense-industrial conglomerates like Rostec not only receive targeted support but play also a pivotal role in facilitating military acquisitions and production activities outside of the formal federal budget framework (Kennedy, 2025). This not only obscures the true scale of budget expenditures but again increases the long-term fiscal burden.

As such, these measures have fostered a heavy reliance on state funding, resulting in the accelerated depletion of financial reserves and contributing to increased fiscal risks.

Price Controls, State Regulation and Planned Procurement

As mentioned earlier, the set of countermeasures recently implemented by Russia also indicates a shift toward a planned economy, with hallmark features such as price controls gradually re-emerging as policy tools. As in Belarus, where state-led economic management has long been the norm, the Russian government’s direct intervention in price-setting mechanisms, particularly for essential goods, erodes market signals.

Since 2022, a series of decrees have introduced price controls on essential goods and services to cushion households against rising costs amid inflation. These measures include caps on fare increases for public transportation, limits on tariffs for heating, water supply, and wastewater services; price limits on essential medicines, and staple agricultural products (Garant, 2025).

By limiting the price growth of necessities, these interventions aim to support households in the short term. However, prolonged price controls may entail distorted market signals, increased subsidies dependency for producers, and higher administrative costs for control enforcement.

The deviation from market mechanisms has been even more amplified in procurement, through Federal Law No. 272-FZ (July 14, 2022), which compels businesses to accept government contracts if they receive state subsidies or operate in strategic sectors. In practice, companies cannot refuse government contracts if their products or services are required for so-called counterterrorism and military operations abroad. Refusal to comply with procurement orders may result in criminal liability, as non-performance can be interpreted as economic sabotage under this law.

In addition, the Russian government provides up to 90 percent of procurement contracts in advance (Government Decree No. 505, March 29, 2022). This arrangement weakens the role of contracts, prices, and competition, while increasing the fiscal risks. In effect, it reinforces a central planning logic and undermines competitive procurement, where outcomes should be driven by performance and value rather than access to state funding.

With Russian companies cut off from foreign investment and other external financing due to sanctions, large-scale government support has become even more critical – intensifying dependence on state subsidies and, by extension, state control. The legal changes outlined above have turned procurement into a key instrument of political control over businesses. The scale of these subsidies is contributing to a damaging shift toward a centrally planned system, restricting competition and undermining long-term growth potential.

Fiscal Sustainability at Risk

The extensive use of subsidies, preferential loans, and government-backed financial interventions has placed an increasing burden on Russia’s fiscal system. While these measures were introduced to mitigate the effects of international sanctions, stabilize key industries and support households, they have led to significant structural imbalances, growing budget deficits, and rising financial risks.

State-subsidized loans have surged across multiple sectors, including construction, IT, housing, energy, infrastructure, and agriculture. The result has been a sharp increase in corporate and consumer debt, with unsecured consumer loans growing at an annual rate of 17 percent as of April 2024. Overdue debt on loans to individuals reached 1.34 trillion RUB by February 2025, signaling mounting financial distress for households despite the support measures (CBR, 2025).

The high concentration of corporate debt has further destabilized the financial system. By early 2024, the debt of the five largest companies accounted for 56 percent of the banking sector’s capital, indicating systemic vulnerabilities (CBR, 2025). In addition, the government has implemented new policies that exacerbate the risks connected to state interventions in banking operations. For instance, in March 2022, it introduced a moratorium on bankruptcy proceedings, effectively delaying the official declaration of businesses as insolvent or financially distressed. At the same time, the Central Bank required commercial banks to restructure loans rather than classify them as defaults – masking financial distress and exacerbating long-term risks to the banking sector (Garant, 2025).

Moreover, a growing share of Russia’s war-related spending now flows through off-budget channels – such as state-owned enterprises and regional programs – rather than the federal budget. According to a recent analysis, as much as one-third of military and strategic expenditures bypass formal budget reporting altogether (Kennedy, 2025).

These hidden expenditures distort the actual fiscal position, reduce transparency, and increase the long-term burden on the public sector by masking the true scale of liabilities – raising further questions about the sustainability and accountability of Russia’s fiscal policy.

Conclusions

Since February 2022, Russia’s counter-sanctions measures have markedly shifted its economic governance toward greater state control and elements reminiscent of Soviet-era central planning. Large-scale subsidies, administrative pricing, and deep state involvement in production and procurement have suppressed market competition and efficiency. These interventions have distorted incentives and curtailed the role of market signals, contributing to growing inefficiency across key sectors.

Looking ahead, the long-term economic outlook for Russia is increasingly negative. While the counter-sanctions measures may have softened the initial blow of international sanctions, they have entrenched structural vulnerabilities, reduced fiscal flexibility, and amplified systemic risks, particularly in the financial and real estate sectors. Moreover, by undermining innovation and productivity, Russia’s counter sanctions are accelerating its trajectory toward deeper economic isolation and a centrally managed model, with severe implications for sustainable growth.

References

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.