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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.<\/p>\n
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.”<\/p>\n
“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.<\/p>\n
“The underlying foundations of the economy have weakened considerably.<\/p>\n
“Fiscal reserves have been largely exhausted, growth has come to a standstill, and the country’s dependence on China is becoming ever more pronounced.<\/p>\n
“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.<\/p>\n
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.<\/p>\n
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.<\/p>\n
According to the report, Russia’s challenges are no longer purely financial.<\/p>\n
“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.<\/p>\n
“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.<\/p>\n
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.<\/p>\n
China also accounts for around three quarters of the increase in Russian imports of sanctioned, critical military components since 2022.<\/p>\n
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.<\/p>\n<\/p><\/div>\n
The authors of the “Kiel Report” see Russia’s growing economic vulnerability as an opportunity for the West to act more effectively on policy.<\/p>\n
Export revenues from oil and gas are a decisive factor in sustaining Russia’s war in Ukraine, the report said.<\/p>\n
“Price cap enforcement must take centre stage in sanctions policy. This includes renewed efforts to limit Russia\u2019s shadow fleet,” the report cited Torbj\u00f6rn Becker, director of the Stockholm Institute of Transition Economics, as saying.<\/p>\n
The authors also propose stricter export controls, particularly with regard to Chinese suppliers, and recommend new measures to reduce Russian export revenues.<\/p>\n
Russia launched a full-scale invasion of its neighbour Ukraine in 2022. There is no end in sight.<\/p>\n
Russia seeks to bring Ukraine back into its sphere of influence by military and political means. Including the Crimean Peninsula, which it annexed in 2014, Russia occupies just under one fifth of Ukraine.<\/p>\n<\/p><\/div>\n