This is the script for my video posted on July 2, 2026. Watch it on TikTok.
Russia’s economy hasn’t collapsed yet, but more than four years after the full-scale invasion of Ukraine began, things are not looking good. Russia, it appears, is not immune to the effects of international sanctions, and even with the country fully migrated to a wartime economy, economic growth has stalled to roughly zero amid collapsing oil and gas revenue and declining cash reserves, despite a brief windfall from this year's war in Iran. Still, how has Russia managed to stay afloat for so long, and how does their economic reorientation away from the West influence geopolitics?
Before the full-scale invasion of Ukraine, Russia was actually in great economic shape. It held about 600b USD in foreign currency reserves and had very low government debt at around 20% of GDP, and though about a third of its government budget came from oil and gas revenues, that overreliance wasn’t a problem at the time, and the financial buffers ensured it could sustain itself for quite a while.
Vladimir Putin assumed that the rest of the world would fail to take decisive action in response to its violations of Ukrainian sovereignty, and he was wrong. The wave of sanctions was unprecedented in speed. In a matter of days or weeks, about 300b dollars in central bank assets, or about half of the country’s reserves, were frozen because Putin had assumed they weren’t at risk. Russia’s major banks were cut off from the SWIFT financial communications system, and export controls were enacted to prevent Russia from getting its hands on specific kinds of technology. In response, the ruble plummeted in value, prompting Russia to sharply increase interest rates and limit currency conversion and outflow from the country to stabilize things.
The ruble recovered by summer 2022, and many institutions assessed that sanctions had failed to achieve the desired impact. Still, Russia began redirecting its energy exports from Europe to India and China, beginning a years-long exchange of retaliation between Russia and the West. The G7 and the EU set a price cap of $60/barrel on Russian oil exports, enforced via Western insurance companies and shipping regulations. Russia then built a shadow fleet of hundreds of aging oil tankers that used non-Western insurance and had their true ownership obscured to skirt sanctions. Even with this, the trend continued downward. Oil and gas revenues fell hard in 2023, clawed back some ground in 2024, then started sliding again. In 2025, the EU and UK cut their price cap by roughly 20 percent, to under 48 dollars a barrel, and kept piling on new measures.
Enforcement actions against the Russian shadow fleet escalated, with European special forces and coast guards seizing vessels to the point that in April 2026, a Russian naval frigate escorted two shadow fleet tankers through the English Channel, with the Kremlin calling boardings acts of piracy. Meanwhile, Russia legalized parallel imports, which is the import of goods without the manufacturer’s consent, and routed a lot of sanctioned goods, including consumer electronics with military applications, through countries like Kazakhstan, Armenia, and Turkey before importing them from there.
This worked for some sectors, like agriculture, IT services, and some manufacturing areas. But Russia struggled to get ahold of aviation supplies and high technology in general. Russian auto manufacturers began to sell vehicles without things like airbags and ABS systems, and Chinese automakers began to fill the gap. But in general, the war itself became the economy’s growth engine. The Russian government invested heavily into the domestic military-industrial complex, and sectors tied to war output exploded. Even as Russia increasingly mobilized the labor market into the military, factories kept running.
But there was trouble underlying all of this. Inflation kept eating away at the ruble, forcing the central bank to raise its key rate all the way to 21 percent by late 2024. It's been cutting since mid-2025 as inflation has cooled, but rates are still sitting in the mid-teens, which strangles normal civilian borrowing. Slowly, the Russian National Wealth Fund burned through a huge percentage of its currency reserves and gold holdings, and this is one of the government’s main sources of liquidity. The government is now trying to preserve its remaining assets for genuine emergencies rather than propping up the economy, and this means that the economy’s decline is no longer being throttled.
Ukraine began striking Russian oil refineries with long-range drones back in early 2024, but in August 2025 it escalated the campaign dramatically, causing unprecedented public fuel shortages and an outsized impact on the economy as a whole. When the US sanctioned Rosneft and Lukoil in late 2025, Indian and Chinese refiners pulled back hard, and by February 2026 Russian oil export revenue hit its lowest point since the invasion began. Bilateral trade overall has held up, but the relationship is structurally imbalanced against Russia. It sells fuel and raw materials at heavily discounted rates because it has no other option, and it buys Chinese machinery and electronics because it can no longer produce them itself. Western sanctions, in a sense, cleared the way for Chinese companies to capitalize on the Russian market.
Russia has an incredibly weak hand right now. They’ve failed to get China to move forward on the Power of Siberia 2 pipeline despite Putin desperately pushing for it. India has to appease the US, so it has generally avoided growing too close. Russia has built its own alternatives to SWIFT and credit card networks, but the EU now sanctions third-country banks in places like Central Asia for using them. Even the BRICS alliance, which is meant to be Russia’s closest economic alliance, has avoided moving away from the US dollar completely, and though there is a bilateral system for yuan-ruble trade between China and Russia, it hasn’t put a dent in the dollar’s global dominance.
However, when the US and Israel went to war with Iran in February 2026 and the Strait of Hormuz closed, oil prices exploded. Russian crude that was budgeted at 59 dollars per barrel briefly sold for over 110, and that windfall bought Putin a good amount of breathing room. Still, it was smaller than Russia had hoped, because Ukrainian strikes on Russian ports meant Russia physically couldn’t ship enough oil to cash in, and revenues were still down almost 30% year over year in April.
Windfall or not, the bigger picture is that Russia is isolated, and we can see this in how they’ve turned closer to North Korea and Iran, two countries that are economically very isolated. The reality is, countries like China and India are only thinking about their own prosperity. They don’t care about Russia beyond what they can gain from Russia, and without any powerful friends behind it, Russia is now structurally decaying. Some estimates indicate Russia’s liquidity could be largely drained by late 2026 into 2027, but the country’s continued low public debt means that in theory it has a lot of borrowing runway before it enters a true crisis. It’s unclear exactly what timescale that could be on, but what we do know is that pressure is ramping up, and wildcards like the Iran war or a potential peace deal with sanctions relief could change the math entirely.
Keep reading
- How does war risk insurance shape geopolitics?
- Why is Russia occupying Georgian territory?
- Why does Russia want Crimea so badly?
I’m writing a book called Groundwork about the buried history beneath geopolitics. Join the waitlist to hear when it has a publisher, a cover, and a release date.