Russia's economy depends on an outstretched helping hand or a stab in the back.
Back in mid-2024, most Western media echoed each other that the fortress of the Russian economy was invincible to the spears of Western sanctions. But the Russian authorities' once successful attempts to hide the real state of the economy are no longer working. Despite official statements that the situation is under control, the country's financial indicators show a critical level of instability. Sanctions, war and internal economic miscalculations are leading to a gradual but inevitable decline.
Risks to the economy
Inflation in Russia continues to gain momentum. According to official data, it amounted to 1.3% in January 2025. However, official data in 2024 did not correspond to independent research. Back in September 2024, the well-known “Ramir” organization in Russia found that real inflation had reached 22% on an annualized basis at that time. This means that the government is deliberately hiding real figures to maintain the appearance of stability, which means that even a monthly figure such as 1.3% inflation in January can be greatly understated. Earlier, the Central Bank increased the rate even with lower inflation — 0.7% per month.
Another hidden indicator of inflation is that in December 2024, the Central Bank of the RF increased the money supply by $60 billion, which is more than in the entire pre-war year of 2021. Opposition Russian economists predict inflation in 2025 at 30% or more.
The preferential mortgage program is being phased out, leading to a real collapse of the real estate market. This could lead to a cascade of bankruptcies of developers.
In addition, the financial situation in Russia is becoming more complicated due to the government's inability to control spending. The Cabinet of Ministers has already allocated $3 billion to additional capitalization of the Industrial Development Fund, while the Ministry of Finance has announced the need for additional $15 billion in spending due to the war and the mortgage crisis. According to a State Duma deputy, $1.5 billion needs to be found to index pensions by 2.5%. Such unpredictable expenses will snowball in the face of a steady deficit. And since Russia is cut off from the capital market, this is an additional burden for the budget.
The absence of external borrowing and the high rate of the Central Bank has become one of the factors of degradation - the yield of OFZs at 17+% leaves no chance for adequate restoration of fixed assets.
20% of high-tech companies spend 60% of their profits on loan repayments. This is an abnormal situation that prevents reinvestment in the industry.
The NWF, one of Russia's last financial cushions, is rapidly getting drained. If in 2021 only 36% of the NWF's assets were illiquid, in early 2025 this figure rose to 68%, which is about $80 billion. Many people do not understand why this is an illiquid part. The fact is that this part consists of securities that the Kremlin does not want to sell: controlling stakes in Sberbank (40% of the entire illiquid part of the NWF); investments in bonds of Russian companies implementing strategic investment projects; ownership of strategic stakes in Aeroflot and other large and important companies for the state; full control over Russian Railways, whose documentation is classified as secret information.
As of January 2025, the liquid part of the NWF is only $38 billion. This amount is almost the same as the officially declared budget deficit for 2024, which is 1.7% ($36 billion). The real deficit may be higher by $20 billion (if we recall the scheme of latent emission of funds by the Central Bank, due to the condition imposed on banks for “ruble repo” operations). This scheme has been analyzed by the Resurgam analytical community more than once.
The deficit projected by Russian government experts for the next 25 years is $40 billion. Obviously, the deficit will be covered by the following means: spending the NWF funds, the ruble exchange rate, emission and domestic borrowing (the latter process is constantly stalled due to the loss of trust and the impossibility of long planning horizons). Using the example of 2024, it is highly likely that this strategy will have limited resources, and the NWF will be close to completely running out.
Under such conditions, it is quite possible that the confiscation of household deposits will be possible by the end of 2025. A “Cyprus conversion” scheme is being discussed - part of the deposits will be transferred into bank shares. The population will be forced to become “happy investors”. Such schemes are not new to Russia; numerous examples from the Soviet era are illustrative and will certainly be taken as models.
One of the main factors accelerating Russia's economic decline is the sharp decline in exports. By the end of 2024, exports fell by 19% year-on-year, largely due to the disastrous performance in December. This trend indicates a systemic weakening of the country's export potential, which is associated not only with sanctions pressure but also with the general crisis in key industries such as energy.
An additional blow is caused by a reduction in the positive balance of foreign exchange inflows/outflows. While in 2022 this figure was +$30 billion per month, in early 2025 it fell to +$6 billion (5 times less). All of this is bringing the Russian economy closer to a state in which the currency from exports is barely enough to purchase critical imports.
Recent sanctions packages imposed by the West have made it much harder for the country to get foreign currency. Russian companies have to use the services of intermediaries to bypass sanctions restrictions, which leads to additional costs of 5-20%. All of this erodes profits, which sooner or later will lead to a critical refusal of a whole layer of companies to conduct foreign economic activity. At year-end, corporate profits fell by 15%. In addition to the problems for the companies themselves, this also means a reduction in the tax base.
On March 13, 2025, a ban on Russian banks making payments for energy resources will come into effect. Since oil and gas are still the main sources of foreign exchange earnings, this will endanger the entire system of Russian payments for foreign economic contracts. Problems with obtaining foreign currency could become critical as early as the second quarter of 2025, leading to a shortage of foreign currency and even stronger devaluation of the ruble.
Banking system
According to the Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF), the crisis in the banking system has already become irreversible. The biggest problems for banks are the non-performing loans that have accumulated in the real estate and defense sectors.
Developers unable to sell real estate due to the collapse in demand and the curtailment of preferential mortgages are becoming a source of toxic assets. At the same time, the military-industrial complex, which continues to operate at full capacity due to government orders, is increasingly accumulating debts to banks. The most notable example is the attempted bankruptcy of the “Uralvagonzavod”, the largest tank manufacturer in Russia, which allegedly could not service its financial obligations.
Political pressure from Putin's inner circle is an additional destructive factor for the banking sector. The military-industrial complex (MIC) remains a priority area for financing, forcing banks to issue preferential loans to defense companies, even if they are clearly unprofitable. This is partly due to military necessity, but to an even greater extent due to traditional corrupt ties between military and financial elites. Banks are forced to operate at high risk or even at a loss. This, in turn (given the state of the real estate market described above), increases the chances of a bubble bursting scenario.
Oil sector.
Under the sanctions burden and Ukrainian missile and drone strikes, the most important pillar of the Russian economy has also eventually weakened.
Sanctions pressure and drone strikes have already led to a 17% reduction in refinery capacity (as of the end of January 2025).
According to OPEC, oil production in Russia fell by 8% from 2022 to 2024. But the real crisis may unfold in the coming years: according to Russian geologists, the country's economically viable oil reserves will last only 3-8 years. This period will be further reduced if oil prices fall or if Russia fails to find new technologies to extract hard-to-reach reserves.
Therefore, a very painful step for the Russian Federation is the withdrawal of Western oilfield service giants from the Russian market. Experts estimate that the absence of these technologies will lead to an annual decline in oil production by 5%, and the effect will become noticeable as early as 2026.
The Kremlin is in a difficult trap: on the one hand, the authorities are trying to restrain the rise in fuel prices for the population, and on the other hand, they are forced to keep producers in the domestic market, which is much less profitable for them compared to exports. To maintain stability in the domestic oil market, the government uses the so-called damper mechanism, a system of budget subsidies for oil companies. In 2024, $18 billion was spent on compensation, which further increases the pressure on the budget.
Recent sanctions have complicated the transportation of Russian oil. The Russian Federation actively uses a shadow tanker fleet, but sanctions control is gradually narrowing the possibilities of circumventing restrictions. But for the sanctions to be effective, it is critical that they become more coordinated - it is unacceptable that some tankers are banned in Europe but can operate in the US; others are banned in the US but can enter EU ports. This gives Russia a maneuver to maintain exports.
To date, Ukrainian attacks on refineries have become a key factor in destabilizing the Russian oil refining sector. In mid-January, the country's largest refinery, the Ryazan refinery, was attacked,
and on January 30, the Volgograd refinery was attacked. Following the shutdown of the Ryazan refinery, gasoline prices on the St. Petersburg Mercantile Exchange rose by 8%, and the Federal Antimonopoly Service proposed extending the moratorium on gasoline exports to stabilize prices.
For the sake of simplicity, the oil depot is referred to as “just a closet” that does not include high-tech processes. At the same time, a series of steady, methodical attacks on the “cabinets”, in addition to the obvious knockout of military logistics, is gradually leading to the effect of depleting the storage infrastructure, and thus to the depletion of the oil transportation infrastructure. It has gotten to the point where Russia is using tankers as a wardrobe to unload transportation chains. It is possible, and logically acceptable, that the man-made disaster of two tankers with a fuel oil spill in the Black Sea was caused by the forced policy of using river tankers as storage facilities at sea during the storm season.
The crisis in the oil and gas sector is already manifesting itself in cost-cutting even for monopolists such as Gazprom. The company has begun a large-scale cut in its payroll, which is the first signal of serious financial problems.
Earlier, the global excess of demand over supply allowed OPEC countries to effectively manipulate prices, but now this value has decreased from 3 million barrels per day to 1.65 million, which significantly limits the strategies of OPEC countries in the market. Now, a strategy to lower prices is looking more and more workable. Under such conditions, Russian oil will not be able to compete with oil from the Middle East.
On February 27, a new package of sanctions will come into place, which may reduce Russian exports by 1 million barrels per day (or 15% of the total). However, this depends on the effectiveness of sanctions enforcement. If the control is tight, Russia's losses will be significant. If the Kremlin finds loopholes, the losses may be limited to only 1-2%.
Russia's countermeasures: Manipulations and information attacks
Since 2023, one of the key elements of the Kremlin's information strategy has been to conceal real economic indicators. Rosstat's development program until 2030 envisages complete classification of economic data, which makes it impossible to independently analyze the state of the Russian economy. This is done to prevent Western analysts from accurately assessing the level of Russia's economic weakness, and thus from predicting when the country will reach a critical level of financial exhaustion. This approach also allows the Kremlin to control domestic information policy, convincing the population that there is “no crisis,” even if the real indicators show the opposite.
Another important tool is information manipulation. I expect that Russia will launch one of the most massive campaigns aimed at demoralizing the Western political elite and the public who expect the Russian economy to collapse.
The first small elements of this campaign are already visible. Russia is spreading information through the European media about record growth in energy exports. However, the real figures show the opposite: the physical volume of oil exports has actually decreased by 350 thousand barrels per day. The Kremlin created this fake due to two main factors:
The collapse of the ruble exchange rate – ruble export revenues seem to be higher, but only because the national currency has devalued.
Increased tax burden – the Russian government has artificially raised taxes on oil companies, which has increased ruble budget revenues, but not real exports.
Such manipulations allow the Kremlin to temporarily maintain the appearance of stability, but the reality is the opposite – the Russian economy is sinking deeper into crisis.
The West should push Russia to the edge
Recently, former Russian President Medvedev said: “don't think that if we stop fighting, we will stop increasing military production.” This is another sign that Russia only wants to take a break, but will not give up its attempts to take over Eastern Europe.
The West, in fact, has no choice but to make the right decision - to bring Russia's economy to collapse. But the right decision, among other things, has the following characteristic: it must be made in time.
The policy of gradual economic pressure that the West is currently applying has only a partial effect and leads to adaptive processes. The Kremlin has time to rebuild the economic system, find alternative schemes and develop shadow financial mechanisms. Instead, we need a combined attack:
Economic sanctions that instantly cause irreparable damage, not just complicate the situation and toughen top managers
Massive Ukrainian strikes against Russia's oil infrastructure, which will help disrupt economic chains.
This comprehensive approach should have a massive psychological effect: managers and employees of the affected companies should feel hopeless and fearful for the future instead of confident that these are temporary troubles. This will lead to a drop in enthusiasm, reduced production, refusal to restore damaged facilities, and ultimately to labor emigration from cities, further destabilizing economic performance.
Europe's strategic goal, if it wants to be a player that dictates terms, is to help Ukraine disorganize (unbalance) Russia's production chains (refineries, terminals, ports, oil depots - all energy generation, transmission and storage facilities) without looking back. Ukraine, on the other hand, has the capability not only to unbalance but also to destroy this infrastructure.
The key economic hub, the imbalance of which could become the main lever of pressure on the Kremlin, is the port of Novorossiysk. Its large-scale destruction could not only weaken Russia's position in the negotiations, but also, given the state of the economy, raise the question of Russia's capitulation in the Ukrainian vision (withdrawal from Ukrainian territories).
However, there is a problem with this issue: it is likely that some Western countries are not interested in destroying the Novorossiysk port infrastructure. For Ukraine, this is an existential issue, and it should look for allies willing to help it ignore such restrictions.
Two states that may see a benefit in inflicting maximum economic losses on Russia over the long haul are the United Kingdom and France. Their participation in this strategy would not only put Russia in the lowest possible position in peace negotiations, but would also allow London and Paris to reestablish their global positions as key geopolitical players.
Hence:
1) Rising costs of middleman schemes and the Kremlin's inability to stabilize foreign exchange earnings and high inflation are bringing the country closer to the risk of economic collapse.
2) Russia's banking system is in a state of irreversible crisis due to the accumulation of toxic debts in real estate and the defense industry, increased political pressure and corruption schemes, which increases the risk of its complete collapse.
3) Russia's oil and gas sector, which has long been the backbone of the economy, is gradually declining due to sanctions, infrastructure damage, and technological deficits. Global oil market conditions, increased competition, and new sanctions threaten to further reduce exports, making Russian oil less and less competitive.
4) Russia is trying to artificially create the illusion of stability in its economy using the following tools: classification of data, disinformation campaigns, and psychological pressure on the Western audience.
5) The economic situation in Russia is “walking on the edge of an abyss,” but to ensure that there are no adaptation processes and to achieve the greatest geostrategic goals, the West must increase sanctions pressure and accelerate the process of destroying the Kremlin's key economic pillars, including by providing enhanced coordination to Ukraine in striking energy facilities.
6) The role of Europe and Ukraine as the main moderators of the erosion of the Russian economy will return the lost geostrategic positions to key European countries, and the EU will (finally) have the credibility of a predator in the world.