Russia's military-industrial complex has become an economic driver. Metallurgical industries, particularly in the Urals, now operate 24 hours a day to supply the war effort. Government spending—estimated at around 4% of GDP in additional expenditure—has kept the economy ticking. But this war economy comes with costs. Inflation hovers around 9 per cent, with interest rates near 19 per cent. Labour shortages plague many sectors, as hundreds of thousands of able bodied men have been mobilised or fled the country. This brain drain may constrain Russia's long-term growth prospects.
Despite its resilience, Russia's economy shows cracks. By late 2025, oil and gas revenues had dwindled to their lowest levels since the COVID-19 pandemic (euro news, 2025). New sanctions targeting Russia's largest oil companies, Rosneft and Lukoil, have made buyers wary of being cut off from the US banking system. Russian crude now trades at a steep discount, about $25 per barrel below international benchmarks, cutting into state revenues. Economic growth has stalled, with GDP increasing only 0.1 per cent in the third quarter of 2025. The Kremlin has responded by raising taxes, increasing VAT from 20 per cent to 22 per cent and borrowing from compliant domestic banks.
A national wealth fund still provides a cushion, but these measures risk slowing growth further and worsening inflation (euro news, 2026). Iran’s closure of the Strait of Hormuz could open up a new opportunity for Russian oil.
Western officials now acknowledge that sanctions require stamina rather than shock and awe (Sharyn Alfonsi et al, 2024). "I don't think anybody should mistake Russia's rebound with resilience," cautioned Daleep Singh, the architect of the sanctions, "On the surface, Russia's economy may appear to be a fortress, but underneath the foundations are fragile”. Experts agree that sanctions have meaningfully weakened Russia's economy and warfighting capacity. The question is whether the western community can continue the pressure long enough for those weaknesses to become critical. "The length of the war shows that the pressure applied so far has not been sufficient," concluded Benjamin Hilgenstock of the Kyiv School of Economics (Financial Intelligence Unit of Latvia, 2025).
For now, Russia has survived the economic blitzkrieg. But the siege continues.
* Mohammad Abdur Razzak ([email protected]), a retired Commodore of Bangladesh Navy, is a security analyst.
