Russia’s economy is reaching its limits more than four years after the start of its full-scale invasion of Ukraine, according to a report by leading economists issued on Thursday.
The “Kiel Report,” published by Germany’s Kiel Institute for the World Economy and the Stockholm Institute of Transition Economics, said Moscow had almost completely exhausted its financial reserves and that the economy was in its “endgame.”
“In the first years of the war against Ukraine, Russia’s economy has proven more robust than many expected, but now the buffers are depleted,” said Moritz Schularick, president of the Kiel Institute for the World Economy.
“The underlying foundations of the economy have weakened considerably.
“Fiscal reserves have been largely exhausted, growth has come to a standstill, and the country’s dependence on China is becoming ever more pronounced.
“At the same time higher oil prices as a result of the war in the gulf will likely only bring temporary fiscal effects,” Schularick said.
The report found that the liquid assets of Russia’s sovereign wealth fund had shrunk from 6.5% of gross domestic product at the start of the war to just 1.8% in April 2026.
At the same time, the federal budget deficit had already exceeded the government’s target for 2026 in the first three months of the year. Oil and gas revenues also collapsed by 45% in the first quarter of this year compared with the same period last year.
Russia’s dependence on China
According to the report, Russia’s challenges are no longer purely financial.
“The fundamental constraint facing Russia today is not access to money but access to people, technology, and productive capacity,” the report cited Matthew Klein, author of the economics blog “The Overshoot,” as saying.
“The government can mobilize additional financial resources, but with labour shortages at record levels and sanctions restricting access to critical imports, higher spending increasingly risks generating inflation rather than greater military output,” Klein said.
The report also found that Russia’s dependence on China was growing. China now accounts for around 35% of all Russian foreign trade and supplies the vast majority of critical goods with civilian and military uses, as well as militarily relevant components.
China also accounts for around three quarters of the increase in Russian imports of sanctioned, critical military components since 2022.
The report argues that Russia is turning to China out of necessity rather than choice. That decision has created a dependency that supports Russia’s war economy in the short term but weakens its economic independence and bargaining power in the long term.