Russia's war economy is slowing as sanctions enter their fifth year
New data from the IMF and independent economists show that the initial shock absorption from high oil revenues and import substitution is wearing thin.
Economy — March 2, 2026
Russia's economy, which surprised many analysts by weathering early Western sanctions relatively well, is showing deepening signs of strain as the conflict in Ukraine enters its fifth year and restrictions on technology imports, financial transactions, and energy exports bite harder.
GDP growth slowed to 1.2% in the final quarter of 2025, down from 3.6% in mid-2024, according to estimates from the International Monetary Fund. Inflation remains above 8%, eroding living standards for ordinary Russians.
The defense sector continues to absorb an outsized share of public resources, with military spending now estimated at nearly 9% of GDP—a level not seen since the Soviet era. This is crowding out investment in civilian industries and infrastructure.
Western export controls on advanced semiconductors and manufacturing equipment have particularly hampered Russia's defense industry. Equipment seized from damaged Russian vehicles in Ukraine increasingly shows workarounds using civilian chips, suggesting supply chains under stress.
Russia's oil exports, the main source of foreign currency, have held up through rerouting to China, India, and Turkey, but at discounts of $15–$25 per barrel below benchmark prices. The finance ministry has repeatedly revised its budget calculations downward.
Independent Russian economists estimate that without the war, the Russian economy would be roughly 8–10% larger than it is today. The social costs, including hundreds of thousands of war casualties and significant emigration of skilled workers, are harder to quantify but deeply damaging.
