Russia's economy has faced significant challenges since its invasion of Ukraine in February 2022, with the ruble's recent sharp decline marking yet another economic jolt.
The nation grapples with the dual burdens of sustaining a prolonged war and addressing domestic economic pressures. These include Western sanctions, volatile oil prices, high interest rates, inflation, labor shortages, and systemic corruption.
President Vladimir Putin faces a host of economic vulnerabilities, but which one is the most critical? Newsweek consulted experts to uncover their perspectives.
Sergey Aleksashenko
*Co-Founder, Boris Nemtsov Foundation; Former Deputy Chairman, Central Bank of Russia*
The key issue is **inflation**. Rising consumer prices are gradually eroding pensions and the incomes of low-income families. If inflation surpasses government forecasts, public sector investment will have to be scaled back.
Although the Central Bank has raised interest rates to counter inflation, the root cause lies in the "guns, not butter" policy of prioritizing war spending over consumer needs—an approach largely immune to monetary policy adjustments.
Elina Ribakova
*Nonresident Senior Fellow, Peterson Institute for International Economics*
Russia's economy is suffering from **overheating**, akin to a "war bubble." Government spending and subsidized credit are heavily funneled into the military-industrial complex, yet the sector lacks sufficient investment, components, and a labor force, as working-age men are drawn into the war.
This resource misallocation stifles medium-term growth. Like any economic bubble, it is destined to burst—potentially triggered if oil prices drop to $40-$50 per barrel.
Dr. Alexander Libman
*Professor of Russian and East European Politics, Free University of Berlin*
The economy's major weakness is a **labor shortage**. With near-full employment, output growth requires more workers, yet emigration and military recruitment have drained the labor pool.
While not likely to cause a full collapse, the labor deficit is expected to halt economic growth and push Russia into stagnation.
Maximilian Hess
*Fellow, Foreign Policy Research Institute*
The Kremlin’s most significant vulnerability is its **dependence on oil exports**. While Western nations are hesitant to sanction Russian oil outright due to potential global price spikes, a drop in oil revenue would severely strain the economy.
Sanctions alone won't immediately defeat Putin or end the war, but maintaining and refining them is critical to curbing his aggression and limiting Russia's war capabilities.
Dr. Janis Kluge
*Deputy Head of Research, Eastern Europe and Eurasia, German Institute for International and Security Affairs*
Russia's greatest risk is a **decline in export revenues**. If the U.S. were to sanction Russian LNG or oil exports, or if global oil prices fell significantly, the impact would be severe.
With reserves frozen by sanctions, the central bank has limited tools to stabilize the economy, potentially leading to a deeper recession, further ruble depreciation, and soaring inflation.
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#### **Dr. Vladislav Inozemtsev**
*Director, Center for Post-Industrial Studies*
The core vulnerability lies in the **actions of the ruling bureaucracy**. In 2024, a growing disconnect between financial authorities and political leaders has emerged.
The government might adapt to wartime economic challenges through drastic measures like currency interventions, tariff freezes, and pressuring banks to lower rates. However, relying solely on liberal market policies could create dangerous imbalances.
Sergei Guriev
*Dean and Professor of Economics, London Business School*
The **fiscal situation** is a pressing issue. While sanctions have forced tough measures such as tax and rate hikes, Russia continues to bypass some oil restrictions.
To weaken Putin’s war machine, tighter enforcement of sanctions is essential.
Vladimir Milov
*Former Deputy Minister of Energy; Opposition Politician*
The question isn’t about vulnerabilities—it’s about whether the Russian economy has any **strengths left**.
The inflation-interest rate spiral is devastating business confidence, with high rates making survival difficult for most enterprises. Rising budget deficits, depleting reserves, and tax hikes will only exacerbate the situation.
Sanctions and isolation are finally starting to bite, and structural issues like labor shortages, lack of technology, and low investment make recovery increasingly unlikely.
Despite Putin’s wartime adjustments, the long-term sustainability of Russia’s economy is fraught with challenges. Each vulnerability—from inflation to labor shortages—magnifies the strain on a system already pushed to its limits.
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