Beneath the Surface: Russia's Economic Resilience Amidst Chaos

Since the illegal invasion of Ukraine in 2022, Russia has faced unprecedented sanctions, yet its economy has shown remarkable resilience. In 2024, official figures suggest that Russia’s economy outpaced growth compared to all G7 nations, with a 4.3% growth contrasted against 1.1% in the UK and 2.8% in the US. This surge is largely attributed to the Kremlin’s record military spending and a shift in oil exports from Europe to China and India, facilitated by a shadow fleet of tankers helping to bypass sanctions. Notably, the rouble has recovered significantly, emerging as the best-performing currency of the year with a 40% gain.

However, as 2026 approaches, economic concerns are surfacing. Persistent inflation at nearly 9.9% and soaring interest rates of 20% pose significant challenges, alongside a notable worker shortage of 2.6 million due to those leaving for war or fleeing abroad. Some analysts warn of a looming recession, predicting defaults and bankruptcies, although economist Yevgeny Nadorshin downplays the potential for a catastrophic collapse, pointing to a low unemployment rate of 2.3%.

Despite this, warnings grow about stagnation as oil and gas revenues plummet by 35%, leading to increased budget shortfalls and cuts to essential infrastructure spending. The military’s funding priorities are hindering investments in critical sectors, causing a decline in the quality of public services.

Although Russia has maneuvered sanctions better than expected, their effects are persistent, hindering technological imports and damaging industries such as automotive manufacturing. The EU has moved to phase out Russian energy imports, further complicating economic prospects. Nevertheless, should a peace deal between Ukraine and Russia materialize, there could be some easing of the pressures, although European sanctions are likely to remain.

Regardless of future peace negotiations, the long-term impacts on Russia’s economy appear daunting, with the Kremlin facing diminishing options for economic recovery as the war continues to extract significant costs.