Russia’s Economy is Collapsing But Not Fast Enough

Sanctions and a costly war are taking their toll.

WSJ (“Russia’s Economy Is Starting to Come Undone“):

The opening months of Russia’s invasion of Ukraine last year drove an increase in oil and natural-gas prices that brought a windfall for Moscow. Those days are over.

As the war continues into its second year and Western sanctions bite harder, Russia’s government revenue is being squeezed and its economy has shifted to a lower-growth trajectory, likely for the long term.

The country’s biggest exports, gas and oil, have lost major customers. Government finances are strained. The ruble is down over 20% since November against the dollar. The labor force has shrunk as young people are sent to the front or flee the country over fears of being drafted. Uncertainty has curbed business investment.

“Russia’s economy is entering a long-term regression,” predicted Alexandra Prokopenko, a former Russian Central Bank official who left the country shortly after the invasion.

Given that Russia is engaged in a murderous campaign of wanton destruction in Ukraine, this would seem to be good news. It would indicate that Western sanctions are having their desired effect and that Putin’s war machine may come grinding to a halt soon.

Alas, not so much.

There is no sign the economic difficulties are bad enough to pose a short-term threat to Russia’s ability to wage war. But state revenue shortfalls suggest an intensifying dilemma over how to reconcile ballooning military expenditures with the subsidies and social spending that have helped President Vladimir Putin shield civilians from hardship.

Russian billionaire Oleg Deripaska warned this month that Russia is running out of cash. “There will be no money next year, we need foreign investors,” the raw-materials magnate said at an economic conference.

Having largely lost its European market next door, and with other Western investors pulling out, Moscow is becoming ever more reliant on China, threatening to realize long-simmering fears in Moscow of becoming an economic colony of its dominant southern neighbor.

“Despite Russia’s resilience in the short term, the long-term picture is bleak: Moscow will be much more inward-looking and overly dependent on China,” said Maria Shagina, a senior fellow at the International Institute for Strategic Studies think tank in London.

A big part of the dimming outlook stems from a bad bet by Mr. Putin last year that he could use Russian energy supplies to limit Western Europe’s support for Ukraine.

European governments, instead of tempering their support for Kyiv, moved rapidly to find new sources of natural gas and oil. Most Russian gas flows to Europe stopped, and after an initial jump, global gas prices fell sharply. Moscow now says it will cut its oil production by 5% until June from its previous level. It is selling its oil at a discount to global prices.

As a result, the government’s energy revenue fell by nearly half in the first two months of this year compared with last year, while the budget deficit deepened. The fiscal gap hit $34 billion in those first two months, the equivalent of more than 1.5% of the country’s total economic output. That is forcing Moscow to dip deeper into its sovereign-wealth fund, one of its main anti-crisis buffers.

The government can still borrow domestically, and the sovereign-wealth fund still has $147 billion, even after shrinking by $28 billion since before the invasion. Russia has found ways to sell its oil to China and India. China has stepped in to provide many parts Russia used to get from the West.

Russian officials have acknowledged the difficulties but say the economy has been quick to adapt. Mr. Putin has said his government has been effective in countering the threats to the economy.

The country and its oligarchs are paying a steep price for the Ukraine invasion and it may well be a permanent one. Even after sanctions lift, Western Europe may be reluctant to go back to relying on an autocratic regime for their energy supply.

“You know, there is a maxim, guns versus butter,” Mr. Putin said in a state-of-the-nation address last month. “Of course, national defense is the top priority, but in resolving strategic tasks in this area, we should not repeat the mistakes of the past and should not destroy our own economy.”

For much of Mr. Putin’s more than 20 years in charge, high oil and gas revenue underpinned a social contract that saw most Russians largely staying out of opposition politics and protests in exchange for rising living standards.

The International Monetary Fund has estimated that Russia’s potential growth rate—the rate at which it could grow without courting inflation—was around 3.5% before 2014, the year it seized Crimea from Ukraine. That has now fallen to around 1%, some economists say, as productivity declines and the economy becomes technologically backward and more isolated.

“For an economy like Russia, 1% is nothing; it’s not even a maintenance level,” said Ms. Prokopenko, the former central bank official.

The fall in exports, tight labor market and increased government spending are worsening inflation risks, the central bank said this month. Russia’s inflation was running at around 11% in February compared with that month last year. That rate will temporarily fall below 4% in the coming months, the central bank said, though that is because of the high comparison base of the post-invasion surge in prices last year. A number of other economic indicators will also temporarily improve in the coming months due to such base effects, economists say.

Unfortunately, Putin is quite insulated from these effects. Unless the oligarchs turn on him in unison, he’s going to be able to carry on indefinitely despite these setbacks.

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James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College. He's a former Army officer and Desert Storm veteran. Views expressed here are his own. Follow James on Twitter @DrJJoyner.


  1. daryl and his brother darryl says:

    Putin is being propped up by China, though.
    Certainly not to the extent he would like, but still, that takes some of the edge off the sanctions.
    I agree with you in general though…unless, and until, the Oligarchs get tired of the BS nothing will change.

  2. Kathy says:

    Short of economic collapse along with widespread malnutrition, don’t count on an economic solution to this crisis.

    Russia is far from being Germany under blockade and running a massive total war in 1918.

  3. JohnMc says:

    Prof Sonnenfelt of the Yale SOM has an interesting contrarian point of view which is essentially that Russia is mostly successful at hiding total economic failure.

    Not wise enough to judge myself but recommend giving him a look. He seems to back it up.

  4. Michael Reynolds says:

    If anyone knocks Putin off his throne it won’t be the oligarchs, it’ll be the military.

    If you look at Russia as a still photo, they’re coping. But this is a race, Russia is in an economic, technological, military race with the US, Europe, China and our Pacific allies. It’s less about where Russia is today, how well it is feeding its people, or how much is left in their sovereign wealth fund, and much more about whether Russia is keeping up as other nations race ahead.

    Russia was already behind economically and technologically, and now the Russian military has been unmasked as a barely-competent, second-rate force. They had two things: fossil fuels and weapons. What have they got now? A fossil fuel industry that’s largely bottled up, and a lagging weapons industry. Can Russia catch up? No. Demographics, their self-inflicted brain drain, demographic hollowness, instability that scares off investors, there are too many negatives. Russia’s future is Chinese.

  5. MarkedMan says:

    @JohnMc: Do you happen to have a link?

  6. Jay L Gischer says:

    @Michael Reynolds: I’m not really willing to call Russia’s military “second rate” as yet. For instance, they aren’t defending their homeland, as much as Putin tries to say they are.

    They have a lot of equipment that is anything but “second rate”. They have the best SAMs of anyone in the world, which is why they haven’t established air superiority over Ukraine – because Ukraine possesses those same SAMs.

    Their other equipment is fundamentally sound, but has been compromised by corruption and graft. These are potentially fixable. Their doctrine would work, except for a culture of vranyo*. Bad information leads to bad decisions.

    The tree is rotting from the top, not the roots. This means that it could potentially be fixed. I would stake more on the military being the ones to oust Putin if it weren’t for the fact that the military brass and their corruption and love of vranyo are part of the problem.

    *Vranyo is when one person lies to another person, and the second person knows it is a lie, but doesn’t challenge it, but rather simply accepts it as normal. There is a lengthy analysis here on the effect that has when mixed with how Russian military doctrine. Hint: It’s not good.

    I think it is highly significant that starting after 2014, Ukraine got NATO training. The focus of NATO, since its inception, was countering Soviet/Russian forces and doctrines, which have not changed since WWII. Meanwhile, the Ukranians know even more than NATO did about Russian doctrine and equipment. So of course they were able to come up with good counters to it, especially when they had equipment designed for that purpose in sufficient quantities.

    Russia still holds vast swaths of Ukraine. Again, I’m not really willing to call them “second rate” yet. I’m rooting for Ukraine, for sure. I just don’t like the whole “underestimate the enemy” thing.

  7. Michael Reynolds says:

    @Jay L Gischer:
    They are by definition second rate. There’s only one first, and that’s us. A few nice pieces of equipment are not enough. Russia has fallen back on dumb artillery – WW1 technology – empty nuclear threats, and Iranian drones, that’s not a sign of a well-functioning military. But the problem goes deeper than systemic corruption, pop-top tanks and an absence of trucks, Russia is militarily behind, and will remain so, because they can’t train their soldiers to the level necessary to carry out modern warfare.

  8. DK says:

    @Jay L Gischer: Your comment is fascinating and informative, but also a little bit odd in that it seems contradictory.

    You say ussia’s military isn’t 2nd rate and then…describe various ways Russia has made its military 2nd rate.

    It is implied Russia’s SAMs are world best, then noted Ukraine has the same, which would mean Russia’s SAMs are not superior, but equal at best.

    Then we hear Russia’s military is undermined by a pervasive lying habit, yet also told its problems are top-down not bottom-up. I submit that a culture of dishonesty is by definition a root/core issue.

    If Russian military issues are potentially fixable, these would not be a mere bandaid or tactical change. The fixes seem to require a wholesale cultural shift, not just militarily but in the wider country. Because a Russia that starts truth-telling is a Russia stops waging wars predicated on lies.

    When the US got tired of the Bush administration’s mendacity, we elected Obama who (effectively) drew down the ill-advised Iraq war. When the US got tired of Trump’s lies, it elected by Biden, who ended the overlong Afghanistan conflict.

    When the Russian people get tired of being lied to, they will recognize the threat to Russia’s progress and success is not NATO — which has never attacked them — but Vladimir Putin’s regime. A Russia that embraces truth-telling is a Russia eschews imperialistic warmongering. And that would end this Ukraine misadventure as effectively as Russia’s or Ukraine’s battlefield defeat or as a negotiated stalemate.

    I don’t see Russian culture making such a leap anytime soon, so maybe options B or C are all there is.

  9. DK says:

    @Michael Reynolds:

    They had two things: fossil fuels and weapons. What have they got now? A fossil fuel industry that’s largely bottled up, and a lagging weapons industry.

    To wit, this CNN headline from yesterday:

    US has replaced Russia as Europe’s top crude oil supplier:

    In December, 18% of the bloc’s crude imports came from America, EU data office Eurostat said Tuesday.

    That is a big turnaround. Russia was until recently the bloc’s top supplier of crude, accounting for as much as 31% of total imports until the end of January 2022, according to Eurostat. The US, meanwhile, came a distant second…

    I hope Biden, Democrats, and Senate Republicans are flagging this data point, for when House Republicans, Trump, or DeFascist suggest that our $100 billion yearly investment in Ukraine isn’t worth it, that Ukraine should be cutoff so Putin can win.

    Strategically, this alone is worth the price tag — let alone all other stuff (opposing genocidal war crimes, undermining Putin’s global alliance of white supremacists and authoritarians, supporting our demoratic European allies, uniting the free world against creeping fascism and imperialistic warmongering, the war prompting shifts away from fossil fuels).

  10. JohnMc says:

    @MarkedMan: I’m spending some months out of pocket (looking after my 99yr old mom), so my meager skills w computer are totally overmatched. Just have learned to text!

    Go to youtube, use his name in search. He’ll show up.

  11. Kathy says:

    @Michael Reynolds:

    How would a US military unit do against, say, a similarly matched British or German unit?

    Or to make a near analogy between Russia and Ukraine: could the US conquer Ontario?

  12. Rick DeMent says:


    … could the US conquer Ontario?

    Hell no, those “South Detroiters” are pretty bad ass 🙂

  13. steve says:

    The top Canadian troops against our top troops would be a pretty even match. At scale, we have a much larger military and a lot more resources. Our airpower would overwhelm theirs and if we were willing to commit enough forces I think we could sort of replicate Iraq in taking over the place, but also like Iraq it would be hell to keep it. Canadians have lots of guns. I would bet that a number of other countries would be willing to supply them weapons for an insurgency but they likely wouldn’t get the constant influx of fresh fighters we saw in Iraq. Still, lots of places to hide in Ontario. We vacation up there.


  14. JohnSF says:

    @Jay L Gischer:
    The S-300 is of Soviet vintage, original version 1978.
    Though updated since; and signs are the Ukrainian upgrades have been rather more effective than the Russian ones.
    Both Turks and Israelis have shown few qualms about operating in S-300 contested airspace.
    And the S-400 is hyped a lot; but how would it fare against latest generation US aircraft and anti-radiation missiles?
    And a lot of the Russian equipment in general is good on paper (though their MBT are really nowhere near NATO grade) but plagued by hopeless production/inpection standards.
    The whole army would need to be largely re-equipped (even if with nominally “same” systems) from the ground up to come up to par.
    And it’s pretty evident that a lot of training was wafer thin as well, outside a few show-pony units.
    And “vast swathes of Ukraine”? Russia currently holds c. 16.5% of Ukraine; and seeing as they held 6.5% (Donbas/Crimea) from 2014/15 at the start, that’s a gain of 10% net.
    Not that land control is the primary point, but it’s important secondarily.

  15. JohnSF says:

    Most NATO units are on a par; if operational.
    But that, lately, is a big if. The training is to the same standard, the equipment also.
    Probly only European MBT’s like Challenger, Leopard Leclerc could go toe-to-toe with a Abrams and have a prayer of surviving the encounter. European artillery systems are first rate; the French and Swedish are probably better than the US.
    SAM systems are about par.
    A Typhoon or a Rafale would be no easy meat even for an F-35 or F-22, depending on the airspace control environment.

    The big problem is, that the Germans in particular, and in the “heavy metal kids” the UK to some extent (the Special Forces ran off with all the money) operational readiness of equipment is shockingly low. I’ts going to take time and money to fix.

    Probably the best European army right now, in terms of operational readiness and equipment functional versus to nominal of heavy formations, is the French.

  16. Kathy says:


    My thinking is that the US has not faced an opponent of similar capability since WWII, maybe since the Korean War. Although the Vietnamese had a Soviet-provided air defense. If they faced a peer or nearly so, they probably wouldn’t fare as well.

    Mad Vlad’s big problem is that he clearly did not plan for the war he’s fighting. Initial movements indicated an attempt to encircle and take Kyiv. Very likely with the intent to overthrow and massacre the current government and replace it with a puppet regime.

    His bigger problem is he did not account for long-term, sustained, useful NATO help.

    The latter will largely decide the outcome: who gets tired first?

  17. Andy says:

    I’m not sure what people expected, considering the very many historical examples of how sanctions actually work.

    Unfortunately, Putin is quite insulated from these effects. Unless the oligarchs turn on him in unison, he’s going to be able to carry on indefinitely despite these setbacks.

    Sorry, but for the umpteenth time, Putin controls the oligarchs, not the other way around.

    Like the movie the Glass Onion, they will only abandon him when he’s already fallen.

    As for China, it’s been a staple of US foreign policy since shortly after I was born to keep Russia/USSR and China from forming an alliance. We need to realize that the hard-line we are justifiably taking with both countries right now is pushing them together.

    @Michael Reynolds:

    They are by definition second rate. There’s only one first, and that’s us.

    Well, by that standard, every other military is definitionally second-rate. Not that it matters because we are not fighting the Russians. And having the best military doesn’t guarantee you win wars.


    How would a US military unit do against, say, a similarly matched British or German unit?

    Or to make a near analogy between Russia and Ukraine: could the US conquer Ontario?

    Unit quality is only one factor. Wars are not, in reality, fought by similarly matched individual units. The best unit in the world can get wiped out in an artillery or airstrike.

    What makes the US excel is not the capability of our individual units – although they are generally excellent, but all the other factors and the integration that’s required for combined arms warfare.

  18. dazedandconfused says:


    I suspect the issue will be decided by the Russian military’s moral. I expect the Ukrainians will be able to push them back to the 2022 lines, but to take back all of Luhansk and Donetsk will mean taking back those large towns and cities.

    Urban warfare is nasty stuff. Takes guys willing to put it all on the line and you must be willing to sacrifice a lot of them, as defense is far less costly than assault. IF the Russians have the people to fight tooth and nail for those cities the butcher’s bill for taking them back will likely be deemed not worth it and the alternative of flattening those cities is unlikely to be supported by the West.

    We hear a lot about how low the Russian moral has been, maybe still is, but the acid test is yet to come. Defense is the stronger form of warfare, both physically and psychologically.

  19. JohnSF says:

    My ill-informed guess is that, with DNR/LNR and Crimea, Ukraine won’t bull head-on into the urban areas, at a massive blood-price, but try to bypass where practicable, cut the road and rail links, stand off, and bleed them.
    Attrition; but smart attrition, not the dumb “Verdun Mk.2” version the Russians are trying.

  20. dazedandconfused says:

    @JohnSF: A lot easier imagined than done. Everybody would prefer to do that way, including the Russians now.

  21. JohnSF says:

    If the Russian really preferred that, they wouldn’t still be hitting Bakhmut head-on.

  22. dazedandconfused says:


    Preference is not always what you get in war.

  23. JohnSF says:

    The Russians could close down the Bakhmut operation any time they wish.
    That they have not is an indication of operational idiocy.
    They are wasting an appreciable proportion of their assets trying to take a location of very little value, and where and when a victory could not be exploited due to the situation and the weather.
    It is one of the most stupid military operations in history.

    Bakhmut is being driven by Prizoghins ego and Putin’s pique. Russia wants a “win” there, and is burning their mobilized forces to achieve one.

    By contrast, if you look at the pattern of Ukrainian offensives in late summer/autumn last year, they tended to avoid urban assaults when possible.
    See their caution re. Kherson.