Russia flaunts resilience in the face of new US and EU sanctions. The Kremlin’s spokesperson, Dmitry Peskov, has openly declared that it is impossible to force Moscow to change its course on Ukraine, Reuters reports. 

Kremlin dismisses Western sanctions

“No sanctions will be able to force the Russian Federation to change its consistent position, which our president has repeatedly voiced,” says Peskov.

The Kremlin’s spokesperson’s words aren’t far from the truth. Despite thousands of sanctions imposed after the annexation of Crimea in 2014 and the full-scale invasion in 2022, the Russian economy has stayed afloat.

Russia’s economy even grew by 4.1% in 2023 and 4.3% in 2024. But this year, growth has slowed sharply due to high interest rates and the costs of war. 

Ukraine calls for real security

Meanwhile, Ukrainian presidential sanctions adviser Vladyslav Vlasiuk has calculated that Russia has lost at least $150 billion due to sanctions, yet retains its military potential. The country remains the most sanctioned state in the world. 

At the same time, President Volodymyr Zelenskyy has stressed that real security guarantees, which can protect Ukraine from Russia, can only come from a strong Ukrainian army backed by support from its Western allies. 

However, as Washington has delayed a new package of military aid to Kyiv, the fighting between Russia and Ukraine is dragging on into a war of attrition for both sides.

Western sanctions against Russia are working and are already hitting the aggressor’s economy hard, according to Ukraine’s Foreign Intelligence Service, which cited declines in key sectors. At the same time, the Kremlin is trying to offset its losses by looting temporarily occupied Ukrainian lands.

Sanctions squeeze the Russian economy

Business activity in Russia continues to fall. The manufacturing PMI, calculated by S&P Global, dropped to 48.7 in August out of 100 points, marking the third consecutive month in contraction territory.

Sunflower oil production in Russia also fell by 11% year-on-year. The coal sector is even worse off: 23 enterprises have halted operations due to the crisis, while 129 mines and open-pit sites, responsible for up to 85% of the country’s coal output, are seeking government support.

Coal and grain from occupied territories

Despite the crisis, Russia is trying to keep its economy afloat by plundering Ukrainian lands. New images from temporarily occupied Mariupol have shown how Russian forces are loading ships with stolen grain and coal. 

“Mariupol port. Two ships are being loaded at the same time… We expect the coal ship to head to the port of Temryuk for export clearance to Algeria, and the bulk carrier with grain to go to Egypt. Looting has predictably resumed,” reported Petro Andriushchenko, head of the Center for the Study of Occupation.

Stolen grain becomes the Kremlin’s business

According to the Center for National Resistance, Russia has turned stolen Ukrainian grain into a global business. Wheat that Moscow claims as “Russian” is purchased by 70 countries, including Egypt, Türkiye, and Iran. 

Russia’s metallurgy industry suffered its worst performance since Moscow launched its full-scale invasion of Ukraine, with production plummeting 10.2% in July compared to the same month last year, according to Rosstat data cited by Ukraine’s Center for Countering Disinformation.

The metallurgy collapse delivers concrete evidence that Western sanctions are systematically degrading Russia’s capacity to sustain its war against Ukraine and signals that Moscow faces mounting difficulties maintaining current military production levels.

Key metallurgy companies report massive losses

The industry’s flagship enterprises are buckling under the pressure.

Magnitogorsk Metallurgical Plant—a critical supplier for Russia’s defense sector—slashed steel output by 18%. In comparison, Mechel reduced sales by 11% and Tubular Metallurgical Company lost up to 22% of sales. Companies are reporting billion-ruble losses.

Magnitogorsk reported profits plummeting ninefold to 5.6 billion rubles ($62 million) in the first half of 2025, while revenues dropped by a third. The company’s cash flow turned negative, with expenses exceeding income by 4.9 billion rubles (approximately $55 million) in the second quarter alone.

Magnitogorsk supplies steel for armored vehicles and artillery systems, while companies like Tubular Metallurgical produce materials essential for missile manufacturing. Each percentage point of production decline means fewer tanks, shells, and weapons systems reaching Russian forces.

Broader corporate crisis grips Russian economy

The metallurgy sector’s troubles reflect a deeper crisis across Russian industry. According to Rosstat data cited by Izvestia, nearly one-third of Russian companies reported losses in the first half of 2025—the highest level since the pandemic.

Coal mining enterprises suffered the most, along with utilities, transportation, and scientific research businesses—all sectors supporting military-industrial production.

The Purchasing Managers’ Index (PMI)—a key indicator that measures changes in business conditions with readings below 50 signaling declining activity—fell to 47.0 in July for Russian manufacturing, down from 47.5 in June, marking the steepest decline since March 2022.

Sanctions systematically choke supply chains

Already a month ago, Reuters reported companies reducing their production levels, client demand declining, and customers having financial difficulties—all of this impacting both output and new orders.

Ukraine’s Center for Countering Disinformation identified what it called “obvious” causes behind the metallurgy collapse: sanctions, loss of foreign markets, sharp drops in domestic metal demand in construction and machinery, plus restrictive Central Bank policies limiting investment.

Experts cite expensive credit, weak demand, tax increases, sanctions, and rising costs as the main drivers of corporate losses.

Weak demand could leave steelmakers unable to sell up to 6 million tons of production—nearly 10% of last year’s output.

Industry outlook

Severstal CEO Alexander Shevelyov called the second quarter “extremely difficult for the industry,” estimating that weak demand could prevent steelmakers from selling up to 6 million tons of production. This represents a massive loss of potential military materials.

For Ukraine’s allies, the data suggests their sanctions strategy is working as intended—systematically degrading Russia’s long-term military capacity rather than delivering immediate knockout blows.

The Center for Countering Disinformation assessment warns of the collapse risks “mass layoffs, factory shutdowns, and further economic decline in regions critically dependent on metallurgy”—problems that will further constrain Russia’s defense production capacity while creating domestic political pressure on the Kremlin.

On paper, Russia’s economy looks like a fortress: GDP rising, defense spending at record highs, oil billions still rolling in. No wonder many ask if sanctions have failed — or if Putin’s war economy is strong enough to sustain his war in Ukraine indefinitely. But a June 2025 report from CSIS — one of Washington’s most respected think tanks — warns that this fortress is hollow, and the cracks are already spreading.

1

Russia’s economy only shrank in 2022 but grew in 2023 and 2024. Why do experts say it’s collapsing?

Russia’s “growth” is fake — a wartime sugar high before the crash.
Yes, GDP fell 2.1% in 2022, then rebounded with 3.6% growth in 2023 and 4.1% in 2024. But that wasn’t real recovery — it was deficit spending on weapons that get blown up in Ukraine.

Moscow poured a record 13.5 trillion rubles ($145B) — 6.3% of GDP — into its war machine in 2025. That kind of “military Keynesianism” doesn’t build prosperity; it just keeps factories busy cranking out tanks.

Now the bill is coming due:

• GDP growth slowed to just 1.4% in Q1 2025, with a 1.2% contraction after adjustment.

• Inflation hit 10.2% in April.

• The central bank is stuck at 21% interest rates to avoid collapse.

• The budget deficit is swelling to 1.7% of GDP.

This is classic stagflation: fake war-driven growth hiding a shrinking economy and soaring prices. Putin can brag today — but Russia is already sliding into crisis.

2

How can Russia have a labor shortage with 140 million people?

Russia is in a self-inflicted “labor famine.” Since February 2022, 1–2 million workers have vanished from its economy:

• 600k–1M fled abroad to escape the war
• 300k–500k conscripted in mobilization
• 800k volunteered to fight in Ukraine
• ~1M killed, wounded, or missing

The result: 73% of businesses are understaffed, while defense plants poach workers with salaries 40,000 rubles ($500) above civilian jobs.

The cracks are already visible:

• March 2025: manufacturing suffered its worst slump in 3 years
• April 2025: Russia’s top business lobby warned of “zero growth”
• Even Putin admitted in March 2025 that the fight against inflation was “strangling growth.”

And it’s not just Russia. Western companies that rely on Russian suppliers are watching production shrink in real time — proof that the war is choking not only Russia’s economy, but global supply chains too.

3

Why should I care about Russian inflation when I don’t live in Russia?

Because Russian inflation is already in your wallet — you just don’t see it yet.

Russia’s inflation hit 10.2% in April 2025, forcing interest rates up to 21%. That pain doesn’t stay inside Russia. To dodge sanctions, Russian firms burn $10–30 billion a year on shady commissions, and those costs get passed into the global price of oil, metals, fertilizer, and grain — the building blocks of everything from your phone to your food.

Here’s the hidden link: disrupted supply chains and higher transport/insurance costs drive up commodity prices everywhere. Russia makes critical inputs for semiconductors, aircraft parts, and agriculture. As Russia’s costs spiral, global alternatives rise too. Their inflation becomes your higher grocery bill and gas price.

4

Isn’t Russia still making billions from oil sales? Doesn’t that make its economy invincible?

Russia’s oil revenues are collapsing in slow motion — and Putin’s war budget hangs on them more than he admits.

Oil made up 42% of the budget in 2022, but by 2024 it was down to 30% — even with high global prices. Sanctions forced Moscow to sell crude at a 15% discount, with shipping to India adding $10–15 per barrel.

Here’s the danger: Russia’s 2025 budget assumed $69.7 oil, but forecasts are already down to $56. In April 2025, Trump’s tariff threats sent Urals crude below $50. Every $10 drop = $10–15B lost revenue. If oil hit $30 again — as during COVID — Russia would lose as much money as it spends on the entire war.

Bottom line: Putin can brag about oil billions, but his lifeline is a knife-edge. One global shock, and the war chest collapses.

5

If Russia has China, why would Western pressure matter?

China is keeping Russia afloat — but that makes Moscow weaker, not stronger.

In 2024, Russia imported $115B in goods from China — 72% above pre-war levels. By 2023, 76% of battlefield-related deliveries came from China and Hong Kong. And now, 53% of all Russian imports are Chinese — meaning Beijing could cripple Russia’s war effort overnight by simply enforcing existing sanctions.

Despite talk of “yuanization,” Russia still can’t escape its need for dollars and euros. Meanwhile, China enjoys steep discounts on Russian oil, gas, and raw materials.

This isn’t partnership — it’s economic colonization. Beijing gains leverage, Moscow loses sovereignty. And for the West, the pressure point is clear: make China choose between Putin and global markets, and Russia’s lifeline snaps.

6

I keep hearing Russia’s banking system is stable. What’s the real risk?

Russia’s banking system looks stable — but it’s built on quicksand.

Businesses owe $446B in loans, half to defense firms on subsidized rates of 5–6%, while everyone else pays 18–19%. At the same time, with interest rates at 21% and inflation near 9%, Russian savers get 11% real returns just by parking money in banks — deposits jumped 70% in 2024.

The entire system now depends on depositors’ trust. But here’s the trap: nearly half of government debt is floating-rate. If the central bank raises rates, debt costs explode; if it cuts, inflation spirals.

That’s the classic setup for a banking crisis — politically connected loans propped up by nervous savers. A shock — sanctions, a battlefield loss, or a ruble collapse — could spark a bank run and bring the system down in weeks.

7

How long before Russia’s war economy cracks?

Based on 2025 data, Russia can probably grind along for another 2–3 years under current sanctions — but only if nothing goes wrong.

What could speed up collapse:

• Oil < $50/barrel: Already happened in April 2025, hitting budget revenues immediately

• Stricter sanctions enforcement: Especially on China’s dual-use exports to Russia

• Global recession: Trump’s tariff threats already rattled commodity markets this spring

• Banking crisis: 21% interest rates keep savers in banks — until confidence cracks

Russia’s National Welfare Fund — the rainy-day reserve — dropped 24% in early 2025 to just ₽3.39T ($39B). At current burn rates, that cushion won’t last long; even the central bank has warned it could be emptied if oil collapses.

And remember: Russia is running its economy on war spending — defense outlays at 6%+ of GDP — the highest since the Cold War. That means Moscow’s “growth” depends on pouring money into weapons that get destroyed in Ukraine, not building lasting prosperity.

Bottom line: The system works — until it doesn’t. History says Russia might stagger on for 2–5 years, but unlike the USSR, today’s Russia can’t wall itself off. Global markets, sanctions, and war costs make it vulnerable to shocks that could accelerate the crash overnight.

For Ukraine and the West: the pressure is working. But it’s a test of stamina — keep it up, and Putin’s war economy will eventually break.

8

What this means for you

Russia’s collapse isn’t guaranteed — but the odds are rising. Labor shortages, runaway inflation, oil dependency, and record war spending are the same pressures that have broken other wartime economies.

• Investors: steer clear of Russian commodities and watch for ripple effects in global supply chains.

• Policymakers: sanctions are working, but only if pressure is steady and sustained — collapse takes years, not months.

• Everyone else: Russia is more dangerous now, but less sustainable long term. The next 2–3 years will decide whether Putin’s war economy holds — or breaks.

×

After losing a key investor and facing production disruptions, AO Kronshtadt faces imminent bankruptcy. According to NV Biznes, 40 lawsuits totaling 626.3 million rubles ($7.76 million) have been filed against the company in just the past three months.

The financial collapse of the drone producer demonstrates how Western sanctions, combined with battlefield realities, are systematically undermining Moscow’s defense production capabilities.

Kronshtadt’s drones, including the Orion and Sirius systems sometimes compared to American Gray Eagles, provided crucial long-endurance surveillance and strike capabilities that Russia has deployed heavily in Ukraine since February 2022.

Creditor avalanche buries defense giant

Russian media reports suggest the situation could lead to bankruptcy, as subcontractors who provided services or supplied products but have not been paid are “massively filing lawsuits to be included in the creditor registry,“ according to NV Biznes.

Military and aviation outlet War Wings Daily reports that by May 2025, total claims had already reached one billion rubles, with some sources estimating up to 1.5 billion rubles ($18.75 million) in debts over six months.

Kronshtadt’s last published financial data from 2020 showed losses of 3.6 billion rubles ($45 million), indicating long-standing financial struggles.

Two years of mounting pressure

Kronshtadt has experienced financial difficulties for two years, with the crisis stemming from the 2022 withdrawal of AFK Sistema, the company’s strategic investor and main financing source. According to the NV Biznes report, this sharply worsened investment access and increased debt burden.

US and EU sanctions cut off access to critical foreign-made components while inflating costs and creating production delays. Simultaneously, massive government orders placed heavy production demands precisely when supply chains faced maximum stress.

Ukrainian forces added a third pressure point, striking Kronshtadt’s Dubna production facility on 28 May 2025. Ukrainian drones hit the plant’s roof eight times, severely damaging industrial capacity at the facility producing systems central to Russia’s unmanned warfare strategy.

Industry experts predict collapse

Nikolai Ryashin, general director of Rusdronport, suggested the company is headed toward collapse.

“The company will go the way of bankruptcy, so subcontractors are now rushing to file claims and get closer to the front of the line,” Ryashin said to Defence Blog, an independent defense and security news outlet.

Russia scrambles for alternatives

As Kronshtadt struggles, Russia has sought alternative production methods.

In Khabarovsk, state-funded company Aero-hit built a plant with Chinese partners and became a major drone supplier for Russian operations in partially occupied Kherson Oblast. The facility produces multifunctional Veles drones and plans to reach 10,000 units monthly this year while expanding to more advanced models.

However, this doesn’t solve Kronshtadt’s problems. On the contrary, it might worsen them, as the state is finding alternatives to the ailing company.

Strategic implications multiply

The company’s collapse reveals a fundamental contradiction in Russia’s war economy: the state places massive orders but leaves manufacturers to struggle under sanctions pressure.

Whether Kronshtadt can be restructured or absorbed into another defense conglomerate remains uncertain. Still, the mounting lawsuits and expert assessments suggest Russia’s leading drone manufacturer is facing an inevitable path toward bankruptcy.

This development could significantly impact Moscow’s ability to maintain its drone-intensive warfare strategy in Ukraine.

A strike at the heart of Russia’s gas empire! Ukrainian forces hit a gas processing complex in Russia’s Ust-Luga, Leningrad Oblast, a strategic facility of the aggressor country in the Baltic region, according to Armiia TV. 

Target and consequences of the strike

“Ukrainian drones struck the gas processing complex of Novatek, the largest liquefied gas producer in Russia. The hit targeted the cryogenic fractionation unit for gas condensate/gas, which is the ‘heart’ of the facility’s technological processes,” the sources say.

This is the second successful attack on the Ust-Luga port in 2025, the first occurring in early January.

Strategic importance of Ust-Luga’s object

“Ust-Luga is Russia’s largest maritime hub in the Baltic. Shadow fleet, sanctioned oil — everything passes through there,” Lieutenant Andrii Kovalenko, head of the Center for Countering Disinformation at the National Security and Defense Council, stated. 

Thanks to precise drone strikes, the operation disrupted the work of a key Russian logistics hub supplying liquefied gas and oil to external markets.

Russia's economy, which defied initial sanctions and saw growth propelled by massive military spending and robust oil exports, is now showing significant signs of a downturn.

Recent economic indicators are flashing red, with manufacturing activity declining, consumer spending tightening, and inflation remaining stubbornly high, straining the national budget, the Wall Street Journal (WSJ) reported on July 4.

Russian officials are openly acknowledging the risks of a recession. Economy Minister Maxim Reshetnikov warned last month that Russia was on the "verge of a recession," while Finance Minister Anton Siluanov described the situation as a "perfect storm." Companies, from agricultural machinery producers to furniture makers, are reducing output. The central bank announced on July 3 it would debate cutting its benchmark interest rate later this month, following a reduction in June.

While analysts suggest this economic sputtering is unlikely to immediately alter President Vladimir Putin’s war objectives—as his focus on "neutering Ukraine" overrides broader economic concerns—it exposes the limits of his war economy.

The slowdown indicates that Western sanctions, though not a knockout blow, are increasingly taking a toll. If sanctions intensify further or global oil prices fall, Russia’s economy could face more severe instability. This downturn undermines Putin's strategic bet that Russia can financially outlast Ukraine and its Western allies, suggesting Moscow may struggle to finance the war indefinitely.

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The Kyiv IndependentTim Zadorozhnyy

Experts warn that Russia's economic growth model, overly reliant on military spending, is unsustainable and necessitates a contraction of civilian economic capacities to free up workers for the war machine, which is not a viable long-term strategy. Putin recently dismissed suggestions that the war is stifling the economy, echoing Mark Twain by stating reports of its death "are greatly exaggerated." However, he also cautioned that a recession or stagflation "should not be allowed under any circumstances."

After a brief recession in 2022, military spending, which accounts for over 6% of gross domestic product this year (the highest since Soviet times) and approximately 40% of total government spending, had propped up Russia’s economy and blunted the impact of Western sanctions. Russia’s ability to reroute oil exports to China and Beijing’s support with electronics and machinery provided additional economic stimulus. This created an economic paradox: the most sanctioned major economy was, for a period, growing faster than many advanced economies.

However, this military spending "sugar rush" fueled runaway inflation, compelling the central bank to raise interest rates to a record 21% to try and tame it. Higher interest rates increased borrowing costs for businesses, curbing investment, expansion plans, and squeezing profits. The economic comedown has already begun.

Official data shows Russian GDP growth slowed to 1.4% in the first quarter compared to a year earlier, down significantly from 4.5% in the fourth quarter of 2024. S&P Global’s purchasing managers’ index indicated Russia’s manufacturing sector contracted at its sharpest rate in over three years in June, and new car sales dropped nearly 30% year-over-year in June.

Businesses across Russia are feeling the effects, according to the WSJ. Rostselmash, the country’s largest producer of agricultural machinery, announced in May it would cut production and investment, and pull forward mandatory annual leave for its 15,000 employees due to a lack of demand. In Siberia, electricity grid operator Rosseti Sibir stated it was on the verge of bankruptcy due to high debt, halting investments and proposing tariff hikes for industrial users.

While some analysts argue the Russian banking system remains stable, others warn of increasing instability. A recent report by the Washington, D.C.-based Center for Strategic and International Studies (CSIS) highlighted risks from a government decision to control war-related lending at major Russian banks. The state could direct banks to offer preferential loans, potentially forcing the government to absorb losses if high interest rates prevent companies from meeting obligations.

The Moscow-based Center for Macroeconomic Analysis and Short-Term Forecasting also assessed in May that the risk of a protracted systemic banking crisis in 2026 was "moderate" and growing.

These economic challenges intensify pressure on the Kremlin by reducing its financial capacity to fund its war in Ukraine. The government has operated with a budget deficit throughout the war and projects this will continue for at least two more years. This fiscal strain could provide an opening for Western nations to implement more powerful sanctions.

Falling oil prices present another significant risk for Russia, as energy sales account for about a third of its budget revenues. The price of Russian crude has consistently remained below the level assumed in this year’s budget, and Russia’s oil-and-gas revenue in June fell to its lowest level since January 2023, according to Finance Ministry data.

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The Kyiv IndependentTim Zadorozhnyy

Iran is reportedly preparing to mine the Strait of Hormuz, a move that would spike global oil prices and give a significant boost to the Russian economy and its war machine in Ukraine.

Reuters reported on July 1 that Iran loaded naval mines onto vessels in the Persian Gulf last month, citing two U.S. officials, who said the preparations had been detected after Israel launched its "preemptive" attack against Iran on June 13.

Amid the conflict with Israel which has currently settled into an uneasy ceasefire, Iran has repeatedly threatened to block the Strait of Hormuz as a means of deterrence.

If the Strait were mined, Iran could block one-fifth of global oil demand and spike world energy prices — a boon for Russia's oil-dependent economy.

"Any disruption to Gulf supplies would push up global crude prices. Prices for Russian crude would rise in line," John Gawthrop, Argus Eurasia Energy editor, told the Kyiv Independent.

Russia’s energy sector made up 35-40% of its budget revenues pre-full-scale invasion and is powering its war machine.

Western sanctions on Russian energy and the G7’s Russian oil price cap of $60 per barrel have hampered its profits, with Russia losing more than $150 billion over the last three years, but have yet to deal a crippling blow.

The conflict between Israel and Iran caused a spike in prices — Brent crude, the global benchmark, on June 13 jumped from $69.36 to $75 per barrel, a surge that looked like it could grant Russia's economy a reprieve.

Until the Israeli attacks, the future for Russian crude wasn’t looking so bright. Europe was planning its 18th sanctions package targeting Russia's energy sector, and the G7 was pushing for a $45 price cap. Hungary and Slovakia have since blocked the sanctions package.

Prices have since settled along with the conflict and on July 2 Brent crude was $67.50, but if Iran does go ahead with mining the Strait of Hormuz, blocking one-fifth of global oil demand, another surge would follow.

This would also mean Iran blocks its own oil exports too, so it would only be a last resort from Tehran, David Fyfe, chief economist at Argus Media, a market analyst group, told the Kyiv Independent last month.

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The Kyiv IndependentTim Zadorozhnyy

President Vladimir Putin claimed on June 20 that Russia's economy is strong despite war and sanctions, brushing off mounting warnings from his own officials about stagnation and looming recession.

Speaking at the St. Petersburg International Economic Forum, Putin was asked about reports that the ongoing war in Ukraine was "killing" the Russian economy.

"Rumors of my death are greatly exaggerated," he replied, quoting American writer Mark Twain.

The president claimed that Russia has outpaced global economic growth over the past two years, allegedly expanding by over 4% annually.

"Our most important task is to ensure the economy's transition to a balanced growth trajectory," Putin said. "At the same time, some specialists and experts point to the risks of stagnation and even recession. This should not be allowed under any circumstances."

The statement came just a day after Central Bank Governor Elvira Nabiullina warned on that Russia's wartime economic momentum is fading fast. She said the economy is approaching the limits of its growth potential, adding that previously effective tools are now exhausted.

Economy Minister Maxim Reshetnikov echoed the concerns, telling a separate forum audience on June 19 that Russia is "on the verge of a transition to recession." He emphasized that recession is not inevitable and that "everything depends on our decisions."

Moscow has experienced rapid inflation and historically high interest rates amid its full-scale invasion of Ukraine. The central bank raised rates repeatedly to combat inflation, but on June 6, it made its first cut in nearly two years, from 21% to 20%.

Putin has criticized the central bank's tight monetary policy for choking off private investment, especially in non-defense sectors.

Despite Putin's optimistic rhetoric, analysts attribute Russia's economic slowdown to sustained international sanctions, falling oil prices, rising wartime spending, and supply disruptions.

Russia's ever-mounting losses on the battlefield which recently passed the 1 million mark are also likely contrbuting to the economic turmoil as the Kremlin is having to pay people to sign up to fight rather than introduce what would be a hugely unpopular mass mobilization.

According to an analysis by economist Janis Kluge, Russia's daily bill just for sign-up bonuses is $24 million.

The ballooning bills come at a time when Russia's economy is already under huge strain from Western sanctions and falling oil and gas revenues.

"The implications for Russia are grave," energy security analyst Wojciech Jakobik wrote in an op-ed for the Kyiv Independent this week.

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The Kyiv IndependentKateryna Hodunova

Editor's note: This story was updated to include Russian President Vladimir Putin's remarks at the St. Petersburg International Economic Forum.

Russia's wartime economic momentum is fading fast, with key resources nearly exhausted, Russian Central Bank Governor Elvira Nabiullina said, warning that the country can no longer rely on the same tools that sustained growth in the first two years of the full-scale war against Ukraine, the Moscow Times reported on June 19.

Speaking at the St. Petersburg International Economic Forum, Nabiullina said that the Russian economy had been expanding on the back of "free resources," including labor, industrial capacity, bank capital reserves, and liquid assets from the National Wealth Fund (NWF) — all of which are now reportedly nearing depletion.

"We grew for two years at a fairly high pace because free resources were activated," she said. "We need to understand that many of those resources have truly been exhausted."

Speaking at the same forum, Russian President Vladimir Putin ordered officials "not to allow stagnation or recession" in the Russian economy under any circumstances.

"We must consistently change the structure of our economy," he said.

The comments come after Russia's ambassador to the U.K., Andrei Kelin, claimed in an interview with CNN this week that Russia is spending "only 5–7%" of its federal budget on the war. Kelin claimed that Russia can continue waging its war, saying Moscow "is winning."

According to the state statistics agency Rosstat, Russia's unemployment rate has dropped to a historic low of 2.3%. At the same time, mass emigration and large-scale wartime recruitment have created a labor shortage estimated at 2 million people. Industrial capacity utilization has surged beyond 80%, the highest in modern Russian history.

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The Kyiv IndependentThe Kyiv Independent news desk

Russia's economy is now "on the verge of a transition to recession," Russian Economy Minister Maxim Reshetnikov said at the same forum. Official data show that GDP growth slowed from 4.1% in late 2023 to just 1.4% in the first quarter of 2024, with the economy contracting quarter-on-quarter for the first time since 2022.

Business profits in March fell by one-third overall and dropped by half in the critical oil and gas sector. Industrial growth stagnated at 1.2% year-over-year between January and April, while civilian sectors of the economy began shrinking. Retail turnover growth slowed from 7.2% in December to just 2.4% in April.

An anonymous Russian analyst told Novaya Gazeta Europe that government technocrats are effectively telling Putin it's time to choose between "war or economy."

During its invasion of Ukraine, Russia has faced rising inflation due to record military spending, pushing the central bank to maintain high interest rates. Under government pressure, the bank cut the rate slightly from 21% to 20% earlier in June, despite concerns about weakened private investment.

Officials have scaled back key development projects and reduced shipments of metals and oil products. Early hopes for recovery in 2025, driven by talks with the U.S., have faded as inflation and sanctions weigh heavily on growth.

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The Kyiv IndependentChris York

The Russian economy appears to be "on the verge of a transition to recession," Russian Economy Minister Maxim Reshetnikov said on June 19, adding that the next step will be decisive.

The comments underscore Russia's mounting economic challenges as it continues its all-out war against Ukraine.

"According to figures, we have a cooling stage (in the economy). But all our numbers are like a rearview mirror," Reshetnikov said at the St. Petersburg International Economic Forum when asked about Russia's economic situation.

"According to current business perceptions, we are already, it seems, on the verge of a transition to a recession," the minister added. Reshetnikov clarified that recession is not inevitable and that "everything depends on our decisions."

Russia has faced soaring inflation during its invasion of Ukraine, driven by record wartime spending. This forced the central bank to set one of the highest key interest rates in decades, hurting private investments in non-defense-related sectors.

Facing government pressure, the central bank slashed the interest rate from 21% to 20% earlier this month.

Reshetnikov himself urged the central bank to cut rates in order to boost growth, aiming to achieve a 3% growth target set by Russian President Vladimir Putin.

Russia has been forced to slash key projects across various sectors in the face of an economic slowdown, brought on in part by plummeting oil prices. Major Russian exporters have also cut down on rail shipments of metals and oil products, even beyond earlier projected reductions.

After some positive signals earlier in 2025 due to U.S. President Donald Trump's outreach to Moscow and hopes for a ceasefire, more recent reports again indicate a sharp slowdown in Russia's economic growth.

Analysts have connected this development to the central bank policies, sanctions, low oil prices, supply difficulties, and high inflation.

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The Kyiv IndependentOlena Goncharova