The Economist: Russia’s economy slows but sanctions haven’t broken it

In a striking metaphor, US Treasury Secretary Scott Bessent recently framed the Russo-Ukrainian war as a race: “How long can the Ukrainian military hold up versus how long can the Russian economy hold up?” The underlying assumption driving Western policy is that severe sanctions could force Vladimir Putin to negotiate. Yet, while Russia now faces some of the most intensive sanctions in history, its economy has repeatedly defied predictions of collapse, raising questions about the efficacy of economic pressure, accoring to The Economist.

Since the start of the conflict, the EU has passed 18 sanctions packages, with a 19th proposed in September. The United States has targeted roughly 5,000 individuals and entities. Still, despite these measures, Russia’s economy rebounded after a brief recession in 2022, posting growth in 2023 and 2024. Only now is the pace of economic activity slowing: in July 2025, GDP grew a mere 0.4% year-on-year, while real-time indices suggest contracting manufacturing activity. Corporate profits are weak, stock market gains have slowed, and wage growth is decelerating. In short, the post-pandemic economic boom is over, replaced by a period of stagnation.

Several factors explain this slowdown. Fiscal policy has shifted: a 5% GDP spending boost in 2023 has turned into mild consolidation, curbing infrastructure and military-industrial outlays. The central bank’s sharp interest rate hikes have made borrowing expensive, incentivizing saving over spending. Yet the impact of sanctions remains ambiguous. Oil production — a sector heavily targeted by Western barriers — has fallen, with exports from January to March totaling $96 billion, down from $155 billion in early 2022. Yet this decline is partly due to global market conditions, such as low oil prices, rouble appreciation, and high financing costs, rather than sanctions alone.

Sanctions enforcement also proves difficult. EU attempts to punish firms that purchase oil in violation of sanctions are hampered by transshipment networks and opaque supply chains. Russia has circumvented barriers through barter deals, exchanging wheat for vehicles, and by using third-country intermediaries. As Goldman Sachs notes, tracing the source of crude and products remains a challenge, highlighting how sanctions can be “leaky”.

Even with stagnating growth, Russia’s domestic situation remains resilient. Unemployment is at historic lows, real wages are at record highs, and consumer sentiment is strong. In contrast, Ukraine’s financial position is increasingly strained, highlighting the asymmetry in economic endurance. This dynamic implies that, while slow growth may eventually pressure Moscow, sanctions alone are unlikely to force rapid concessions.

Western policymakers face a strategic challenge: holding Ukraine’s military while gradually eroding Russian economic resilience. The “race” that Bessent describes may hinge less on immediate economic collapse and more on sustained financial, military, and logistical support for Ukraine. Without bolstering Kyiv’s resources, even prolonged stagnation in Russia may not translate into battlefield advantage.

By Vugar Khalilov