Russia's Teetering Conflict-Impacted Economy

"The upstream oil industry is sliding into a crisis, and the most recent sanctions are going to accelerate that."

"[The newly imposed U.S. sanctions represent] an aggressive move that spell more trouble."

"You can keep raising more taxes on average Russians or borrow still more to cover growing deficits. But you ask yourself: Is this making my negotiating position stronger or weaker?"

"It definitely makes Russia look weaker." 

Craig Kennedy, Davis Center for Russian and Eurasian Studies, Harvard 

 

"A banking crisis is possible."

"A nonpayments crisis is possible."

"I don't want to think about a continuation of the war or an escalation."

Anonymous Russian official 

Vladimir Putin is under pressure from business elites (Image: Getty)

"Russia entered the war already facing a severe demographic and labor crisis. More than a decade ago, Russia’s statistical service created three population scenarios, dependent on various levels of migration into the country. Its most optimistic scenario required Russia to bring in 550,000 migrants every year just to keep the national population from shrinking. Even then, the size of the labor force was expected to shrink."

"The war has only worsened what was once called the “biggest political, social, and economic challenge for Russia” through 2050. This spring, unemployment hit a record low of 2.2 percent, signifying a tight economy and labor shortage. In 2024, Russian job site SuperJob reported that 73 percent of the country’s businesses were understaffed."

"Even Russia’s most stable and vital industries are feeling the strain; postings for oil and gas positions rose 24 percent in the first quarter of 2024 compared to the same period a year earlier. When the country’s most economically critical and traditionally resilient sectors struggle to staff operations, something is seriously wrong."

Lindsey Cliff, researcher, American Foreign Policy, Washington   

The National Interest

 

The Kremlin, according to economists, has used most of its cash reserves and the borrowed funding used to fuel the surge in spending on its war in Ukraine -- Vladimir Putin's arch 'special military operation' --leaving it with a crushing headache of a steadily weakening economy. Russia was experiencing a labour shortage even before its invasion of Ukraine. The workforce depended on migrant workers, but even that element of its workforce that is Russian has been steadily shrinking as Putin has called upon Russians to answer the call of its battlefront need of more soldiers to bulk up its forces, in view of the high cost of life that special military operation has resulted in on both sides of the conflict.

 

The newly imposed tough sanctions on Russia's oil sector add to the cash squeeze that may portend a banking crisis in 2026, despite Vladimir Putin's hard line in negotiations ongoing to end the war, a farce he engages in to keep U.S. President Donald Trump on board. Meeting with his German and British counterparts in London this month, French President Emmanuel Macron spoke of the latest EU-imposed sanctions outlawing shipping oil weakening the Russian economy: "We must keep up this effort and maintain pressure".  

"Sanctions can undoubtedly disrupt an economy. Consider the array of sanctions levied against the Russian oil trade in response to its illegal invasion of Ukraine."

"These actions substantially lowered the profitability of Russia’s export of crude oil and refined petroleum products, reducing the associated government revenues in the process. "

"Whether these and other sanctions changed the course of the conflict is unknowable, but it is without question that sanctions can impose higher costs on countries that violate international law."

Brookings Institute 

Shutterstock / Photo Magistr

 

The October sanctions imposed by the U.S. Treasury on Russia's larges oil majors, Rosneft and Lukoil has been increasing pressure on the budget and energy sector, forcing Moscow to accept increasingly steeper discounts of over $20 per barrel of oil; much less than the $69 price the 2025 budget was drafted with, now discounted to $35 for its Urals blend. These oil and gas revenues are crucial for the budget, yet set to fall by 49 percent compared with the previous year, given the new sanctions, leading to deeper deficits while military spending climbed to $149 billion for the first 3/4 of 2025.

The Russian economy was heading toward recession even prior to the new sanctions, with its central bank compelled to raise interests rates to record highs of over 20 percent to rein in inflation following the first three years of war with high military spending, causing government to blaze through its reserves. A corporate lending boom resulted, even as a result of sanctions import prices soared. Company profits and cash reserves have been impaired, leading to stalled investment and plummeting output.

Once benefiting from positive factors such as high global commodity prices and a spending-driven boom, the Russian economy is now reeling. Independent Russian media outlet the Bell heard from economist Alexandra Prokopenko in a video conference, stating despite denials by the Russian leadership the economy is being enfeebled, sanctions biting. The economy, she said "is frozen and fundamentally it is looks to me unsustainable. The closest analogy would be like a car idling in neutral with the engine overheating. The car isn't moving forward or backward, but the longer it sits there, the more damage accumulates under the hood."

Problems have dug deep into the banking system resulting  from Russia's massive expansion of corporate lending in the  past three years, combined with its prolonged period of high interest rates. Defence sector loans represent close to a  quarter of overall corporate ruble loans, totalling just over $202 billion. "It is a big black pool of poorly regulated, opaque debt, and it's sitting in the middle of the banking system", explained Craig Kennedy.

The bleak situation has begun to trickle down to Russian consumers. Belt-tightening is making its presence known, according to a report by Russian state bank Sberbank. People have cut their spending on clothing by 8.7 percent compared with the previous year; on household goods by 8.8 percent, and on health and beauty by 5.9 percent. Governments that bring their countries to war always keep an ear and eye out for citizens' unrest when conflict begins to etch deeply into their comfort zones of everyday living. Moscow has much to be nervous about in the coming year.  

War and sanctions are driving the Russian economy to collapse (Getty Images)

 

Directed High Energy Microwave Mystery

"At this time, we do not know the cause of these incidents, which are both limited in nature and the vast majority of which have been reported overseas."

"We also do not know whether they constitute an attack of some kind by a foreign actor, but these are areas of active inquiry."

US Administration official

 

"We are bringing to bear the full resources of the U.S. government to make available first-class medical care to those affected and to get to the bottom of these incidents, including to determine the cause and who is responsible."

US President Joe Biden 

"At this time we do not know the cause of specific incidents."

"These are areas of active inquiry. There is nothing that the Department takes more seriously than the safety, health and welfare of our personnel serving around the globe in defense of our values and freedoms."

Army Lt. Col. Thomas Campbell, Defense Department spokesman

 

"We simply couldn’t get the intelligence community and others to focus and really admit there was a problem."

"It was extremely frustrating, I must say. I hope now it’s not too late."

Former US Administration national security adviser, John Bolton

William Burns, director of the Central Intelligence Agency.  Getty Images

 It is a vexing mystery; could there be some strange new weapon in the hands of America's enemies? If so they appear to regard Canada in the same vein. Neither country enjoys good relations with either Russia or China and for similar reasons. American diplomats and intelligence officers abroad have been targeted by what is called Havana Syndrome because the strange affliction surfaced there first, in 2016, when both American and Canadian diplomats began complaining of some mysterious high-powered sound affecting their senses and their brains, leaving some with lasting brain injuries.

The syndrome is ongoing, it continues to mystify and to target victims. The source is as yet unknowable, and the weapon itself remains unknown. A report produced by the US National Academies of Sciences, Engineering and Medicine had the impression through some observed brain injuries that they were consistent with effects generated by directed microwave energy. And, noted the report, Russia has been studying the science for some time.

 

Then there is the impression of a team of medical and scientific experts studying the symptoms of up to forty State Department and other government employees, concluding in admitting the absolutely puzzling unfamiliarity of the syndrome since in their experience nothing comparable had been documented previously in medical literature. And there are those who believe the source could be psychosomatic; induced by stress. 

 

For those who have been physically affected there is nothing imaginary about the symptoms and the feeling first experienced when something began to go dreadfully awry with their senses and perceptions leaving them with headaches, inability to concentrate, loss of memory, impacted sense of balance, among other symptoms of a vicious intrusion into their suddenly-unhealthy brains.

 

Recently CIA Director William Burns, in a visit to Moscow early in the month raised the issue with the leaders of Russia's Federal Security Service, the FSB, and the country's Foreign Intelligence Service, the SVB. Informing them frankly that whoever was causing American personnel and their family members to suffer severe brain damage and allied physical ailments debilitating to their normal state of health would have transgressed the bounds of international interactions.

 

This targeting of individuals for whatever purpose and leaving them seriously injured, unable to get on with their day-to-day lives, incapable of resuming their professions, would be demonstrating unacceptable behaviour at variance with any "professional intelligence service".  He carefully avoided leaving the impression that Russia was being faulted as the source of the troubling phenomenon that the U.S. officially names "anomalous health incidents" (AHIs).

 

 

Moscow, of course, denies that it could be involved in any such skulduggery. But Mr. Burns' discussion of the troubling events revealed that the U.S. government remains unable to determine cause, much less source. The unusual and varied symptoms range from headaches and vision problems to dizziness and brain injuries. Canada responded by cutting its staff in Havana, but a year ago ramped staff numbers back up, reflecting their stated belief there had been no new cases since 2018.

Which led to nine diplomats who served in Havana publicly disputing the government's allegations. On their experience since March of 2020, 25 Canadian diplomats were evaluated for potential brain injury. And Canadian diplomats are anything but satisfied with the way their government and their Global Affairs department have handled the situation; some having gone to the U.S. for tests and evaluations and medical help on their own, when none was proffered in Canada.

The driving primary purpose of the American senior intelligence executive's trip to Moscow was for the purpose of placing the Kremlin on notice that Washington was aware and concerned over Russia's troop buildup on Ukraine's border. The message was that the U.S. was not prepared to tolerate a military attack on Ukraine. His personal appearance as head of the CIA was to impress on Moscow the seriousness with which the U.S. views the matter.

The CIA Director minced no words in describing the incidents, naming them as "attacks", though he went light on the suspicion of many in the U.S. administration that the attacks are suspected to be the work of Russian operatives. Still other officials attribute them to a psychogenic illness hitting individuals operating in high-stress environments. 

Two months earlier an intelligence officer accompanying Director Burns to India reported symptoms of Havana Syndrome, requiring medical attention. The incident was interpreted by some as a message to the CIA leader that those of his stature are themselves not exempt from being targeted, wherever they happen to be. With over 200 health incidents having been reported around the globe in the pasu five years on every continent save Antarctica, no clear pattern explicating the attacks has surfaced.

 

"There is no doubt that the victims who have suffered brain injuries must be provided with adequate care and compensation."

"Further, it is critical that our government determine who is behind these attacks and that we respond."

Sen. Marco Rubio, R-Fla., co-chair, Senate intelligence panel