As Russia’s war against Ukraine enters its fifth year, assessments of the Russian economy remain sharply divided. Some analysts continue to anticipate a severe economic crisis, driven by sanctions, military spending, labour shortages, and declining energy revenues.
Others point to Russia’s ability to sustain military operations, maintain macroeconomic stability, and avoid the collapse many predicted in 2022.
Both perspectives contain elements of truth.
Russia’s economy has proved considerably more resilient than many Western policymakers initially expected. At the same time, the sources of that resilience are creating structural distortions that may become increasingly difficult to manage.
The more relevant question today is not whether the Russian economy will collapse, but whether its current wartime model can remain sustainable without imposing significant long-term costs on growth, productivity, and economic modernisation.
Over the past four years, Russia has effectively reorganised large parts of its economy to meet the demands of prolonged conflict. Defence and defence-related industries have become major drivers of economic activity, benefiting from privileged access to state funding, labour, industrial capacity, and imported components. These sectors continue to expand even as many civilian industries face labour shortages, rising financing costs, and declining investment. This reallocation of resources has helped Russia sustain military production and support overall economic activity.
However, it has also increased dependence on government spending as the principal engine of growth. Unlike the commodity-driven expansion of the early 2000s, which was supported by strong external demand for Russian energy exports, much of today’s economic activity is driven by domestic fiscal transfers directed towards defence production.
Such a model can be effective in supporting wartime mobilisation. Its longer-term implications are less clear. Sustained military expenditure can maintain employment and industrial output, but it does not necessarily improve productivity or lay the foundations for future economic growth. Over time, the concentration of resources in defence sectors may limit investment in innovation, infrastructure, and private enterprise.
Recent economic indicators suggest that these pressures are becoming more evident. Growth slowed markedly in 2025, while fiscal pressures intensified. Budget deficits have widened, debt-servicing costs have risen, and hydrocarbon revenues remain uncertain. Lower energy prices, together with sanctions-related discounts on Russian exports, have reduced one of the Kremlin’s most important sources of fiscal flexibility. Yet economic constraints alone should not be expected to produce major changes in Russian policy. Economic analysis often assumes that rising costs incentivise compromise.
In practice, however, strategic decisions are shaped by a broader set of considerations. Russian policymakers weigh economic pressures against security concerns, military developments, domestic political stability, and assessments of the international environment.From Moscow’s perspective, the strategic picture may not be uniformly unfavourable. Russian leaders observe growing political divisions within Western societies, periodic debates over support for Ukraine, and broader uncertainty in the global economy.
Whether these assessments are accurate is ultimately less important than the fact that they shape Russian decision-making.
As a result, economic deterioration does not necessarily translate into a greater willingness to negotiate. If policymakers believe that time may weaken their adversaries’ cohesion, economic hardship may be seen as manageable rather than decisive. This dynamic highlights a broader challenge in assessing Russia’s wartime economy.
The principal risk facing Russia is not necessarily an abrupt financial crisis. Rather, it is the gradual accumulation of structural weaknesses that could erode the country’s long-term economic potential. The longer the war continues, the more difficult any future economic transition may become.
A postwar adjustment would likely require reallocating labour and capital from military production to civilian sectors, renewed investment in technology and productivity, and reforms to encourage private-sector growth.
Such transitions are rarely straightforward, particularly following extended periods of state-directed mobilisation.
For Western policymakers, these realities point to the need for a more nuanced approach.Repeatedly inaccurate predictions of an imminent Russian economic collapse risk creating unrealistic expectations. At the same time, Russia’s ability to sustain current levels of military expenditure should not be mistaken for evidence of long-term economic strength.
The Russian economy appears capable of sustaining the war for the foreseeable future.
However, resilience should not be confused with sustainability. The economic model that has enabled Russia to adapt to wartime conditions may also be creating constraints that grow in significance over time. The strategic challenge for the West is therefore not merely to monitor whether Russia’s economy weakens, but to understand how prolonged militarisation is reshaping the country’s future trajectory.
The outcome of that process will influence not only Russia’s ability to continue the war, but also the character of the Russian state, economy, and foreign policy after the conflict eventually ends.