The cost of Moscow’s war

The St. Petersburg International Economic Forum (SPIEF), held in the former Russian capital last month, was supposed to highlight why foreign investors should choose Russia as the destination for their next investments—and for a reliable profit. Instead, it became a symbol of how the war in Ukraine is draining resources from Russia’s once-mighty economy.

SPIEF’s 2025 edition stood out for the lack of Western countries and companies represented. Amid continued sanctions measures from European and North American governments, as well as Western companies’ exodus from Russia, the gathering underscored much of what the host nation might have preferred to gloss over.

Russia analysts, and even some top Russian officials, have begun to suggest the country may be poised for recession, as Russia’s wartime spending—and a wholesale transformation of the national economy to support the Ukraine campaign—have produced quickening signals of economic disorder.

And the pressure could be about to rise. Congressional lawmakers in Washington are mulling new, more aggressive sanctions against Russia and its partners. On July 14, amid Moscow’s summertime blitz on Ukrainian cities, U.S. President Donald Trump said he would hit Russia with new tariffs if Putin didn’t end the war in 50 days.

Putin, speaking per custom at SPIEF, acknowledged the specter of recession, even while downplaying its likelihood.

“Some experts point to risks of stagnation or even recession,” he said. “That, of course, must absolutely be avoided.”

Other SPIEF participants—including some of Russia’s most senior economic policymakers—shared more pessimistic views.

“According to the numbers, yes, we’ve got a cooling down now,” said Maxim Reshetnikov, Russia’s economic minister, according to a report from Radio Free Europe/Radio Liberty. “It seems to me we are on the brink of transitioning into recession.”

German Gref, the head of Russian state bank Sberbank, expressed similar concern: “We are colliding with a large number of problems, which today we can call a perfect storm.”

As if that gloom needed emphasis, the United Nations released data mid-conference that quantified Russia’s economic crunch in stark numerical terms. Foreign direct investment (FDI), a key benchmark for a country’s economic health, fell by nearly 63 percent between 2023 and 2024. Last year’s FDI, of $3.3 billion, marked the lowest annual total since 2001, according to The Moscow Times, an independent newspaper.

A Russian army soldier patrols from onboard a military helicopter in an undisclosed location in Ukraine. Russian Defense Ministry Press Service

Russia once belonged to the G8, a group of the world’s eight largest national economies. But in 2014, the group ejected Russia over its invasion of eastern Ukraine and the southern peninsula of Crimea. Since then, U.S. and European sanctions have challenged Russia’s economy. While the West has significantly ratcheted up sanctions since 2022, Russia has proven adept at working around the measures to keep its economy afloat.

The country’s anti-sanctions tactics include avoiding international trade based on U.S. dollars, which falls under the jurisdiction of the U.S. Treasury. It has also pursued “import substitution,” making more goods in Russia that the country once sourced from foreign suppliers. Russia has shifted sales of its enormous production of oil and petroleum products to major buyers like China and India, who often pay for the barrels in yuan or rupees. To encourage these deals, Russia offers its oil supplies at a significant discount to global market prices.

Some experts are now recommending the West retool current sanctions measures based on lessons learned during the past 3½ years. Alexander Kolyandr, a senior fellow at the Center for European Policy Analysis (CEPA), suggests tweaking sanctions on capital, labor, and technology, in order to “hit the Russian economy where it’s most vulnerable.” Kolyandr presented his views in a CEPA report from February, titled “Addicted to War: Undermining Russia’s Economy.”

Concerning capital, the West should make it easier for Russian money to flow out, and stay out, of Russia, Kolyandr wrote. Labor migration—like the recent exodus of white-collar workers fleeing Russia’s military draft—should also be encouraged.

And technology restrictions should deepen, Kolyandr said, with specific attention on the hardware and software that enable Russia’s production of oil and natural gas. New measures should likewise target Russia’s “shadow fleet” of hard-to-track oil and gas tanker ships, which make illegal deliveries worldwide.

Kolyandr recommended watching Russia’s military spending as another key indicator of the country’s economic direction.

“Russia has become addicted to military spending,” Kolyandr wrote. And whenever the war in Ukraine ceases, Russia risks a post-conflict slowdown, much like Britain and the United States endured in the late 1940s, following World War II.

But even an end to the war will not stop higher Russian military expenditures—or the economic imbalances they create, he added.

“Even if the war stopped tomorrow, Russia would need to rebuild everything in its military,” Kolyandr told me, speaking by phone in July.

In other words, the constant pace of fighting, with the inherent use and destruction of weapons, vehicles, and other materiel, means that Russia, and its military-focused economy, must keep running just to stand still.

A 2024 analysis from the RAND Corp. estimated that Russia’s “military reconstitution” would last between seven and eight years after the war’s end.

Kolyandr noted that Russia’s defense-first posture does not require fighting wars to keep operating. “You can produce wine, without becoming an alcoholic,” he said.

But Kolyandr believes Russia’s wartime economy is unsustainable. The country’s defense-industrial focus, which draws resources to defense and away from civilian industries, encourages “the wrong kind of growth.” Higher government spending drives higher wages at military factories, which pulls workers away from nonmilitary jobs. The need for defense-industrial workers, in factories or as soldiers, pushes wages higher, which drives consumption as well as inflation. Russian household expenses, from groceries to essential utilities, have been rising.

The Russian military also has offered huge bonuses to incentivize enlistment. Some recruiters, who operate by region, have paid out sums exceeding $33,000, on top of soldiers’ salaries, according to the BBC’s Russian-language service. That is serious money for the average Russian, who makes less than $11,000 per year, according to CEIC, a data consultancy.

For many Russians, joining the fight in Ukraine offers a once-in-a-lifetime chance to earn money and provide for family—whether or not a volunteer survives the war. Enlistment bonuses have helped drive up wages beyond military-related sectors, since civilian employers must compete for the same pool of able-bodied, mostly male workers.

Russia’s economic policymakers will somehow have to maneuver a return to sustainable growth, and avoid a “hard landing” of more abrupt policy corrections, which could lead to a wider economic recession across Russia. Economists define a recession as two consecutive quarters of negative national growth.

Sen. Richard Blumenthal, D-Conn., left, and Sen. Lindsey Graham, R-S.C., right, speak during a press conference in Kyiv, Ukraine. Associated Press/Vasilisa Stepanenko

A bipartisan bill gathering steam in Washington could impose unprecedented sanctions on Russia. Sponsored by Sens. Lindsey Graham, R-S.C., and Richard Blumenthal, D-Conn., the bill proposes no less than a 500 percent tariff on countries trading with Russia.

The tariffs would hit China and India—major trading partners with both Russia and the United States—especially hard. Blumenthal hopes to bring the bill to a Senate vote before Congress leaves for August recess, according to an Associated Press report.

“July is going to be the magic month for bone-crushing sanctions on Vladimir Putin,” Blumenthal said on July 9. “He better get ready, because his economy, already on its heels, is going to be hit hard.”

Western nations could also penalize Moscow by seizing Russian sovereign assets (RSA). These funds, held in banks and elsewhere across Western-allied jurisdictions, could be used to help rebuild Ukraine. Total RSA amounts to as much as $330 billion, according to recent estimates. The role of RSA, in combination with stiffer sanctions and Trump’s new 50-day deadline, may soon take a central place in talks between Russia, the West, and Ukraine.

But getting a new sanctions bill approved is far from a done deal. The White House has demanded a measure called “waiver authority,” by which the president can retain, and exercise, a right to lift sanctions when and where he chooses. Some lawmakers worry that waiver authority would expand Trump’s power. Congress can eventually overturn a waiver decision, but that requires a 60-vote majority—a high bar that would need a bipartisan vote to pass.

“I’ll believe it when I see it,” Kolyandr told me, adding that the overall effect of expanded sanctions is “very much open to interpretation.”