ANALYSIS: Have Western sanctions really stifled the Russian economy?

Figures That Defy Initial Forecasts

In 2022, Russia’s GDP fell by 1.4 percent, according to Chatham House. A severe blow, but well below the most pessimistic forecasts from the IMF and the OECD, which had projected a contraction of 2.5 percent at worst. Then, against all expectations, the Russian economy rebounded: +4.1 percent in 2023, followed by approximately +4 percent in 2024. Vladimir Putin himself acknowledged in February 2026 that growth for 2025 had reached only 1 percent.

Growing at 4 percent per year under massive sanctions is a sign not of a healthy economy, but of an economy propped up by military spending. The question is not “Is Russia growing?” but “What is it producing, and at what cost?”

The Military Engine as a Substitute for Productive Investment

Russian military spending rose from 3 to 4 percent of GDP in 2019–2021 to approximately 6.2 percent of GDP in 2025, according to the U.S. Congress. SWP-Berlin estimates that total defense and security spending amounts to between 7 and 8 percent of GDP. For 2024, the Russian military budget exceeded 106 billion euros, representing a 70 percent increase in one year, according to Revue Défense Nationale. The CEPII estimates this spending at nearly 140 billion dollars.

The Carnegie Endowment for International Peace describes this model as an “economic gamble” whose hidden costs are mounting. By the third quarter of 2024, GDP growth had already slowed to 3.1 percent. The NEST Centre describes the 2026–2028 budget as a “budget with no future,” predicting managed stagnation.

China and India as New Key Customers

The European oil embargo and the price cap mechanism introduced in December 2022 were intended to deprive Moscow of its energy revenues. The reality turned out differently. According to Energy and Clean Air, China purchased 47 percent of Russian crude oil exports, India 38 percent, the European Union 6 percent, and Turkey 6 percent. In 2024, Russia’s oil and gas revenues rose by 26 percent, reaching a near-record 11,100 billion rubles.

India, which imported hardly any Russian oil before 2022, saw its share reach 35.8 percent of its crude purchases during the 2024–2025 fiscal year, according to the Carnegie Endowment. Bilateral trade between China and Russia skyrocketed to $245 billion in 2024, double the pre-war level, according to the U.S.-China Economic and Security Review Commission (USCC).

The Limits of the Asian Pivot

And yet, this shift has structural vulnerabilities. China and India have forced Russia to offer significant discounts on crude oil prices, estimated at between $15 and $30 below the Brent price. In October 2025, the U.S. Congress imposed sanctions on the oil giants Rosneft and Lukoil, as well as their subsidiaries. India reduced its purchases of Russian crude by 38 percent in value by the end of 2025, according to Euromaidan Press. The Atlantic Council’s energy dashboard confirms that flows to Asia are beginning to slow under secondary U.S. pressure.

Russia has replaced Europe with Asia, but at the cost of reduced margins and increased dependence on two customers who now hold the reins. The seller is no longer in a position of strength when it no longer has a choice of buyers.

China, the Main Supplier of Sensitive Technologies

Western export controls were intended to deprive Russia of the electronic components, semiconductors, and dual-use technologies needed for its arms industry. The European Commission issued a regulation prohibiting the sale, transfer, or export of dual-use goods and technologies to Russia. In practice, China has become the primary supplier of these very same goods.

The U.S.-China Economic and Security Review Commission (USCC) released a detailed report confirming that China is the largest supplier of dual-use technology items that have enabled Russia to build and sustain its military operations in Ukraine. Between 2021 and 2024, the price of sensitive components exported from China to Russia rose by 87 percent, according to a study by the Bank of Finland. This price inflation reveals both the volume of circumvention trade and the additional cost borne by Moscow.

Front Companies and Intermediaries

ridl.io (Russia Investigative Desk) has documented the existence of complex networks of front companies in Armenia, Kazakhstan, Georgia, the United Arab Emirates, and Turkey. These companies purchase Western goods, sometimes refurbish them slightly, and then re-export them to Russia. The CSIS estimates that these circumvention networks reduce the effectiveness of sanctions by 30 to 50 percent for certain categories of goods.

Sanctions are like a wall: they are only as strong as the oversight applied to them. The West built the wall but did not assign enough guards to the back doors.

The IFRI (French Institute of International Relations) has published a detailed analysis confirming that sanctions have had a significant impact, but that circumvention via third countries has considerably diminished their effectiveness. The report notes that Russia has adapted its economy by mobilizing alternative supply and financing channels.

Persistent inflation is taking a toll on households

The Central Bank of Russia had to raise its key interest rate to 21 percent by the end of 2024 in an attempt to curb inflation. The annual inflation rate exceeded 9 percent in 2024 and remained above 7 percent in 2025, well above the central bank’s 4 percent target. Food prices rose even faster, hitting the poorest households particularly hard.

And yet, household incomes continued to rise in nominal terms, driven by wages paid in the military-industrial complex and payments to soldiers. The Atlantic Council sums up this dynamic: households are growing richer in nominal terms at the cost of men killed and wounded, and are enduring inflation that eats away at a portion of those gains. It is a toxic social contract that Putin’s regime deliberately perpetuates.

The Ruble: A Misleading Indicator

After plummeting to over 140 rubles to the dollar at the start of the conflict, the ruble has stabilized at around 90 to 100 rubles to the dollar thanks to interventions by the Central Bank and strict capital controls. But this apparent stability masks a less rosy reality: the ruble has effectively become a non-convertible currency, accessible foreign exchange reserves have dwindled, and the government is imposing foreign exchange sale obligations on exporters.

A ruble that is stable only through administrative coercion is not a strong currency. It is a currency on life support, kept alive by decrees rather than by market confidence.

An Extremely Tight Labor Market

Russia is facing an unprecedented labor shortage. The Munich-based IFO Institute notes that the Russian labor market remains extremely tight, which is fueling wage growth as well as inflation. Several factors are at play: the mass emigration of hundreds of thousands of skilled Russians since 2022, the military mobilization that has removed hundreds of thousands of men from the civilian labor market, and the country’s structural demographic aging.

The NEST Center estimates that Russia has lost between 500,000 and 1,000,000 workers since the start of the invasion, due to voluntary exile, military casualties, and conscription into the army. This exodus disproportionately affects the technology, engineering, and higher education sectors—precisely those the economy needs most to modernize.

The Human Cost Translated into Economic Terms

Human losses are not measured solely in terms of shattered lives. They translate into losses in productivity, social burdens for bereaved families, reconstruction costs, and labor shortages for decades to come. Julien Vercueil, an economist and researcher, has estimated that the war and sanctions have cost Russia between 5 and 6 percent of its GDP over the period, a figure cited by the IHEDN (Institute for Higher National Defense Studies).

Every percentage point of GDP lost represents thousands of human lives. Reducing war to an accounting equation is obscene, but it is the only language the Kremlin understands: that of numbers.

Chatham House notes in its September 2025 report that “Fortress Russia” has successfully adapted its economy to the pressure, but that the onset of stagflation presents an opportunity for the West to strengthen its measures. The report notes that Russia’s resilience so far is “far from the predictions made by Western governments in the early days of the war, which suggested that sanctions would cause the Russian economy to collapse.”

A Perverse Growth Model

The Atlantic Council describes the Russian economy of 2025 as being “between stagnation and militarization.” The growth observed in 2023 and 2024 was not driven by productive investment, innovation, or household consumption, but almost exclusively by government orders to the military-industrial complex. Factories are producing shells, drones, and armored vehicles instead of consumer goods, machine tools, or civilian technologies.

This economic model is fundamentally non-replicable and unsustainable. It destroys productive capital rather than creating it. A 152-millimeter shell fired at Kharkiv or Pokrovsk generates no future economic value. It is used once and disappears. The factories that manufacture it could have produced capital goods, civilian components, or infrastructure. This choice carries a massive opportunity cost that current GDP figures do not capture.

The Crowding-Out Effect on the Civilian Economy

The Carnegie Endowment warns of a crowding-out effect: military investment absorbs available resources (capital, labor, raw materials) at the expense of civilian sectors. Civilian companies struggle to recruit because the salaries offered by the defense industry are significantly higher. GIS Reports notes that defense and security spending now accounts for more than 40 percent of the Russian federal budget, leaving little room for investment in infrastructure, health care, or education.

An economy that produces nothing but weapons is an economy preparing for its own demise. Military growth is not growth: it is the consumption of capital disguised as production.

300 billion euros frozen

The freeze on the Russian Central Bank’s foreign exchange reserves is one of the most symbolic and effective measures in the West’s arsenal. Approximately 300 billion euros in sovereign assets have been frozen in G7 jurisdictions. This measure has deprived the Kremlin of a considerable safety net and sent a powerful signal to any state that might be tempted to pursue the path of armed aggression.

The CSIS emphasizes that this freeze has indeed “seriously impacted” the Russian economy, even though its resilience has been “consistently underestimated.” Russia has been forced to fundamentally restructure its financial flows, relying more heavily on the Chinese yuan for international trade and developing a domestic financial messaging system, the SPFS, to replace SWIFT.

Dependence on the yuan as a strategic vulnerability

The shift to the yuan for trade settlements with China and other Asian partners creates a new form of vulnerability. Russia now depends on Beijing’s goodwill for the bulk of its international transactions. If China were to decide, for whatever reason, to restrict these flows, the Russian economy would find itself even more isolated than it already is.

In seeking to escape the dollar’s hegemony, Russia has fallen into the yuan’s orbit. It has replaced one dependency with another, sacrificing its monetary sovereignty in the process.

Central Asia, the Caucasus, and Turkey as Hubs

The countries of Central Asia (Kazakhstan, Uzbekistan, Kyrgyzstan), the Caucasus (Georgia, Armenia), and Turkey have become hubs for trade diversion. Exports from the European Union to these countries have skyrocketed in categories of goods that precisely match the needs of Russian industry. IFRI and CEPII have documented this phenomenon in detail.

The French Treasury responded by sanctioning third-country banks involved in these circumvention schemes. The eighteenth round of European sanctions lowered the price cap on Russian oil and expanded the list of prohibitions. However, CSIS experts believe that secondary measures (sanctioning third-party facilitators) remain insufficiently enforced.

The United Arab Emirates and Opaque Financial Channels

The United Arab Emirates, and Dubai in particular, have played an increasingly significant role as a platform for financial and commercial circumvention. Russian companies have been established or relocated there. Financial transactions pass through Emirati banks before reaching Russia. SWP-Berlin identifies this circumvention as one of the major challenges to the effectiveness of the sanctions regime.

Western sanctions resemble a net with meshes that are too wide. The biggest fish are caught, but the most agile slip through the meshes by passing through Dubai, Istanbul, or Almaty.

An ambitious but circumventable mechanism

The price cap on Russian crude oil, set by the G7 in December 2022 at $60 per barrel, was intended to maintain global supplies while limiting Moscow’s revenues. The mechanism prohibited Western companies from providing insurance, financial, and transportation services for Russian oil sold above that cap.

In practice, this mechanism has been widely circumvented. China and India did not join the mechanism and purchased crude at prices they negotiated, even though these prices remained below the Brent benchmark. A so-called “shadow” fleet of aging oil tankers—often insured by companies based in Russia or in non-cooperative jurisdictions—was assembled to transport crude outside of Western control.

The 2025 Sanctions Against Rosneft and Lukoil

In October 2025, the United States announced sanctions against the oil giants Rosneft and Lukoil and their subsidiaries, with an effective date set for November 21, 2025. The Carnegie Endowment analyzed the impact of these sanctions on India’s imports of Russian oil, noting that New Delhi had begun reducing its purchases even before the measures took effect.

Ridl.io points out that Russia earned $122 billion from oil exports in 2025—a substantial amount, but down from the peak reached in 2023–2024. Gas revenues, on the other hand, remain under pressure as the European market is largely closed off and export infrastructure to Asia is limited.

The price cap has not wiped out Russian oil revenues, but it has slashed them and forced Moscow to accept less favorable commercial terms. It is a partial failure, not a total failure.

An Unprecedented Brain Drain

Since February 2022, several hundred thousand highly skilled Russian citizens have left the country. Programmers, engineers, scientists, journalists, and entrepreneurs have fled en masse to countries such as Georgia, Turkey, Armenia, Germany, Israel, and the United States. This brain drain is depriving the Russian economy of human capital that took decades to develop.

The Higher School of Economics (HSE) in Moscow has estimated that the exodus involved between 300,000 and 500,000 people during the first year of the conflict, a significant proportion of whom were professionals in the technology sector. The NEST Center notes that this exodus continues, fueled by military mobilization and the deterioration of medium-term economic prospects.

The Impossible Technological Catch-Up

Without access to Western technologies, Russia cannot maintain the pace of innovation necessary to compete with advanced economies. The American Enterprise Institute (AEI) analyzed the impact of sanctions on semiconductors, noting that Russia depends almost entirely on imports for advanced electronic chips. Workarounds via China allow for the procurement of older and more expensive components, but not the cutting-edge technologies needed for the civilian sector.

Sanctions on components can be circumvented. The accumulated technological gap, however, cannot be circumvented. Every year lost widens a gap that discounts on previous-generation chips will never be able to bridge.

The report by the IFO Institute in Munich confirms that, despite efforts to adapt, the Russian economy is heading toward a path of weak growth, deprived of the productivity gains that access to Western and Japanese technologies would provide. The CASE Center estimates that the impact of sanctions on long-term growth could reach several tenths of a percentage point of GDP per year over the 2025–2035 period.

The Turning Point of 2025: Slowing Growth

The year 2025 marks a turning point. Growth slows significantly, dropping from 4 percent in 2024 to about 1.5 percent according to forecasts, or even 1 percent according to Putin’s own figures from February 2026. High interest rates are dampening private investment. Labor shortages are limiting production capacity. Military spending continues to grow but at a slower pace: only a 0.1 percentage point increase between 2024 and 2025, according to The Guardian.

And yet, some observers see this slowdown as proof that sanctions are finally taking their toll. Chatham House speaks of “stagflation” that “presents an opportunity for the West.” GIS Reports predicts “years of low growth” for the Russian economy. The NEST Center describes a scenario of “managed stagnation” for the period 2026–2028.

The “guns versus butter” dilemma intensifies

The Atlantic Council identifies the fundamental dilemma facing Russia: the tension between military spending and the needs of the population, which it calls “guns versus butter.” So far, the regime has chosen guns. But signs of social tension are mounting. High inflation is eroding real incomes. Shortages of imported goods are affecting daily life. The human toll of the war is becoming increasingly difficult to hide.

Stagnation is not collapse. But collapse is not necessary for the sanctions to achieve their goal. If Russia can no longer finance its war in the long run, the sanctions will have succeeded, even without a dramatic crisis.

Reduced Debt but Closed Access

Paradoxically, Russia’s external debt has fallen significantly since 2022, from $480 billion to about $320 billion. But this reduction is not a sign of financial health: it reflects the inability of Russian companies to borrow on international markets. The CSIS notes that access to international financing is virtually closed off even for Russian entities not subject to sanctions, as Western banks are refusing, as a precaution, to expose themselves to Russian risk.

The World Bank and the IMF have revised their long-term growth forecasts for Russia downward. ScienceDirect published a study assessing the impacts of oil sanctions, confirming that the European embargo and the price cap have reduced Russia’s net revenues, even when accounting for the rerouting of oil to Asia.

Western Companies Leaving for Good

The exodus of Western companies is another often-underestimated aspect of the sanctions’ impact. Hundreds of American, European, Japanese, and South Korean companies have left Russia or suspended their operations. McDonald’s, Apple, Shell, BP, Renault, Nike, and hundreds of others have closed their doors. Russian branches have often been bought out at bargain prices by local entities, resulting in an irreversible loss of expertise, technology, and international connections.

When Shell and BP leave Russia, they take with them decades of technical expertise that their local replacements will take years to rebuild—if they ever manage to do so.

A Delayed, but Not Absent, Stranglehold

Western sanctions did not bring about the immediate and dramatic collapse that many had hoped for in 2022. But they have not failed either. They have deprived Russia of 300 billion euros in reserves, cut off access to Western technology, triggered the exodus of hundreds of thousands of talented individuals, eroded the population’s purchasing power, and forced the Kremlin into an unprecedented dependence on Beijing. The growth of 2023–2024 was artificial, driven by military spending that destroys productive capital rather than creating it.

The turning point in 2025 confirms that the model has run its course. Stagnation is setting in. Inflation persists. There is a labor shortage. Technology is lacking. The slashed oil revenues will not be able to finance an increasingly voracious war machine indefinitely. Sanctions have transformed Russia into a besieged fortress economy: it is holding out, but it is not thriving.

Sanctions have changed the nature of the regime, not just its economy

Perhaps the most profound impact of the sanctions is not economic but political. They have accelerated Russia’s transformation into a predatory state entirely focused on war, where the military-industrial complex dominates the budget, civil society is stifled, and the future is sacrificed to the war-driven present. It is a Pyrrhic victory. Vladimir Putin has chosen to trade his country’s future prosperity for fleeting territorial gains in Ukraine.

The sanctions have not killed the Russian economy. They have transformed it into something worse: a war economy that can now produce nothing but weapons and suffering. The final verdict belongs to history, not to economists.

By Maxime Marquette, columnist

Commitment to Transparency

This article upholds a commitment to transparency toward its readers. All cited sources are verifiable and publicly accessible. The figures come from official institutions, reports by recognized think tanks, peer-reviewed scientific publications, or collaborative journalistic investigations. No information has been fabricated, extrapolated, or drawn from unidentified sources. The author declares that he receives no funding from any government, political organization, or lobby group.

Methodology and Limitations

The research is based on web searches conducted in July 2025. Sources were selected based on their institutional reliability and editorial independence. Russian economic data is inherently imprecise because Rosstat (the Federal State Statistics Service) and the Central Bank of Russia operate under the control of the Kremlin. When estimates differ, they are clearly attributed to their original source. This article does not claim to be exhaustive.