Russia’s War Economy: Resilient on the Surface, Strained at the Core

Since launching its full-scale invasion of Ukraine in 2022, Russia has been subjected to more sanctions than a teenager grounded by four different parents. Financial systems, energy exports, tech transfers, you name it, the West tried to pull the plug. And yet, the Russian economy is still humming along. Or so it appears.

What we’re seeing is not so much a healthy, thriving economy as a war-time illusion, puffed up by military spending, shored up by evasive tactics, and increasingly dependent on countries who aren’t particularly known for giving out favours for free.

Growth… But at What Cost?

Despite apocalyptic forecasts of a full-blown economic collapse, Russia’s economy has shown what can only be described as artificially induced resilience. GDP dipped slightly in 2022, rebounded in 2023, and even posted another bump in 2024. But look under the bonnet, and the engine is burning oil.

Over 10% of Russia’s GDP has been funnelled directly into the military-industrial complex, like a national stimulus package written by the Department of War. This has created demand, sure, but the kind that props up one sector at the expense of all others. As a result, what we’re witnessing isn’t growth; it’s distortion.

Inflation has run hot (9.4% in 2024), the central bank keeps hiking rates to rein it in, and real consumer dynamism? Nowhere to be seen. In fact, IMF projections for 2025 and 2026 point to a steep slowdown. The wheels are still turning, but the fuel tank is getting worryingly low.

Shadow Tactics: How Russia Dodges the Rules

Sanctions enforcement was never going to be perfect, but Russia’s ability to slip through the cracks has been nothing short of impressive, and brazen.

The “Shadow Fleet” Oil Scheme

With EU embargoes and a $60 price cap in place, you’d think Russian oil exports would be bleeding. Instead, Moscow built its own black-market Navy: over 400 decrepit tankers, many sailing under flags of convenience, slipping through sanctions with the grace of a well-practised smuggler. These ships play cat-and-mouse on the high seas, spoofing GPS signals, performing mid-ocean oil transfers, and washing barrels clean of their Russian fingerprints.

Result? Around $9.4 billion in extra oil revenue in 2024 alone.

Then there’s the refining loophole: countries like India and Turkey buy Russian crude, refine it, and sell the petrol and diesel back to Europe like it’s just innocent dinosaur juice. The EU finally woke up and plans to close the loophole in 2026, but by then, the damage is well and truly done.

Airborne Patch Jobs

With Airbus and Boeing refusing to play ball, Russia’s aviation industry has taken the DIY route, stripping parked aircraft for parts, dodging safety protocols, and setting up a spiderweb of international suppliers to keep the old birds in the air.

How? Through a network of over 360 front companies, using intermediaries in the UAE, Gabon, Turkey, and China to slip spare parts into Russia under the radar. It’s not exactly elegant, but it works. For now.

Friends in Low, or At Least Pragmatic Places

Russia’s continued economic function hinges on a cast of “strategic partners” who’ve found benefit in playing both sides of the chessboard.

China is the clear ringleader here. Not only is it buying huge volumes of Russian oil, but it’s also providing around 80% of the dual-use goods helping Russia’s war machine stay oiled. India plays a similar (though more economically motivated) role. Others, Turkey, UAE, Kazakhstan, Iran, help with transshipment, parts, and diplomatic cover.

But let’s not pretend this is charity. Russia is trading long-term sovereignty for short-term survival. It’s becoming financially and technologically dependent on China in ways that could haunt it well beyond this war.

The Hidden Costs: What’s Cracking Beneath the Surface

You don’t run an economy like this forever without something breaking. And the cracks are getting harder to ignore.

• The National Wealth Fund, once the rainy-day piggy bank, has been nearly drained, from $210 billion to just $52.6 billion by mid-2025. At this rate, it could run dry before the next Russian winter. When it does, the Kremlin loses its ability to plug budget holes or keep the war machine humming.

• Labour shortages are becoming acute. So many workers have been pulled into military or defence-related jobs that civilian industries are starting to choke. The Russian economy is slowly eating its own muscle tissue just to keep punching.

• Private sector dynamism is stagnant. Investment is drying up outside of defence. Entrepreneurship is stifled. And innovation? That’s been sacrificed at the altar of short-term war production.

The Bottom Line

Russia’s economy hasn’t collapsed, but it hasn’t survived, either. It’s mutated into something unrecognisable: a war-fuelled machine, kept alive through creative accounting, geopolitical opportunism, and a whole lot of duct tape.

The danger isn’t that it will explode, it’s that it will continue like this. Hollowed out, over-leveraged, propped up by foreign partners with their own agendas. It’s an economy on borrowed time, limping forward while pretending to march.

And as any student of history knows, when you build a nation’s stability on illusions, the fall always comes later than expected, but hits harder when it does.