Key Takeaways
- Sanctions are damaging the Russian economy. Over $300 billion in reserves frozen, oil revenues cut, and industries cut off from global markets.
- Russians are struggling. Food prices increased by 74%, and the rouble lost 24% of its value, making basic goods harder to afford.
- Military spending is a priority. The Kremlin is spending 16.7 trillion roubles on defence, while schools, hospitals, and public services are underfunded.
- Russia depends too much on oil and gas. Overreliance on energy exports has left the economy vulnerable to global shifts.
- Recovery needs change at the top. Without better leadership and bold reforms, Russia’s economic problems will continue to decline.
The Russian economy is in trouble. For decades, the country relied on oil and gas exports for income while ignoring other parts of the economy. Now, with global changes and sanctions, this overdependence is causing major problems.
Inflation is rising, and savings are disappearing. The rouble has lost much of its value, making goods more expensive for ordinary Russians. While many people struggle to afford food and basic needs, the Kremlin continues to focus on military spending rather than helping its citizens.
This isn’t just about sanctions. It’s about leadership and choices. Vladimir Putin’s government has prioritised war and power over progress and public welfare. Can the Russian economy recover? Without serious changes, it’s unlikely.
Let’s unpack the main Russian economy problems, their causes, and what it would take to fix them.
The Impact of Sanctions on the Russian Economy
Sanctions have hit the Russian economy hard. Western countries froze over $300 billion in foreign reserves, cutting off a vital source of funds. The energy sector, which has long been the backbone of the Russia economy, has suffered the most.
According to the European Council, pipeline gas exports to Europe dropped from 40% in 2021 to just 8% in 2023. To compensate, Russia turned to China and India. However, these countries demanded big discounts, reducing profits.
Sanctions have also stopped Russia from importing important technologies like semiconductors and machinery. Without these, factories are shutting down, and industries are struggling to keep up. The impact of sanctions on the Russian economy is clear: less revenue, fewer jobs, and a weaker future.
Russian Economy Problems Go Beyond Sanctions
While sanctions have made things worse, they are not the root of the problem. Russian economy problems have existed for decades. The government has been dependent on oil and gas exports while neglecting other sectors. When energy prices dropped or sanctions hit, there was no backup plan.
In 2021, oil and gas made up 45% of federal revenues. Instead of using this wealth to invest in education, technology, or infrastructure, the Kremlin focused on military spending and allowed corruption to grow. State-owned companies became inefficient, and any efforts to reform the system were blocked.
Now, inflation is making life even harder for Russians. Food prices have risen sharply, with staples like potatoes increasing by 74%. At the same time, the rouble has lost 24% of its value, reducing people’s purchasing power. These problems are not just numbers—they affect millions of lives every day.
The Russian economy problems extend to deeper issues like an unhealthy labour market. While official figures show a record-low unemployment rate of 2.4% in September 2024, the reality is far less optimistic. The Ukraine conflict and the Kremlin’s military mobilisation have caused a severe labour shortage, with many working-age men either drafted or fleeing the country.
This artificially low unemployment rate hides the struggles faced by businesses and workers. Factories reliant on imported parts have reduced operations or shut down entirely, leaving workers underemployed and earning less. Skilled professionals, particularly in the tech sector, are leaving Russia in droves for better opportunities abroad, further draining the economy of innovation and expertise.
The numbers may look positive, but they fail to account for reduced work hours, lower wages, and long-term damage to industries. These challenges reveal the broader cracks in an economy struggling under the weight of poor leadership and misplaced priorities. Without addressing these core issues, the Russian economy will continue to suffer.
Military Spending Over Public Welfare
A big issue is how the government spends its money. The Kremlin is putting a huge amount of resources into defence. In 2025, it plans to spend 16.7 trillion roubles, making up 6.2% of GDP. Meanwhile, public services like healthcare, education, and infrastructure are underfunded.
Schools lack resources, and many rural hospitals are so poorly funded that people have to travel over 100 kilometres to access basic medical care. These choices show where the government’s priorities lie. Military spending is more important to the Kremlin than helping its people.
This focus on defence is similar to what happened during the Soviet Union. Back then, the government spent heavily on global ambitions while ignoring the needs of its citizens. But today, Russia does not have the resources to keep this up. The cracks in the Russian economy are becoming harder to hide.
What Russia Can Learn from History
History proves that recovery is possible if bold changes are made. After World War II, Germany rebuilt its economy by focusing on new industries, innovation, and reforms. These efforts transformed Germany into a global economic power.
For the Russian economy to follow a similar path, it needs to move away from depending on oil and gas. It must invest in other areas, such as technology, manufacturing, and infrastructure. Rebuilding relationships with the global community would also help.
But under Vladimir Putin’s leadership, these changes seem unlikely. The government has consistently prioritised military ambitions and control over progress. Without a change in leadership, these necessary reforms will remain out of reach.
Even if sanctions were lifted tomorrow, the deeper Russian economy problems—corruption, inefficiency, and lack of investment in the future—would still hold the economy back. Recovery demands more than external relief; it requires internal transformation.
What Russia’s Economy Means for Australia
Russia’s economic struggles create both opportunities and challenges for Australia. With Russia exporting less energy, Australia has a chance to strengthen its position as a reliable supplier of resources like LNG and coal. However, the Russian economy problems and ongoing global instability may disrupt markets, affecting trade and energy prices worldwide.
Australia’s sanctions against Russia, including bans on exporting machinery and luxury goods, align with international efforts to pressure Russia but could impact Australian businesses operating in these sectors. To navigate these changes, Australia must focus on securing trade partnerships and ensuring energy security while managing potential risks from global market shifts.
Conclusion
Can Russia recover? It’s possible, but not without change. Bold reforms, international cooperation, and new leadership are needed to turn things around. Without these, Russia’s economy problems will continue, and its people will keep paying the price.
Russia’s story is a reminder that no country can thrive without innovation, accountability, and a government that serves its citizens. For the Russian economy to recover, it needs new leadership and a vision that focuses on progress and the well-being of its people. Until that happens, the future remains uncertain.
References:
https://cepa.org/article/russia-budgets-for-its-forever-war/
https://www.themoscowtimes.com/2023/02/20/russian-economy-contracts-by-21-in-2022-rosstat-a80283
https://www.consilium.europa.eu/en/infographics/eu-gas-supply/
https://www.iea.org/articles/energy-fact-sheet-why-does-russian-oil-and-gas-matter
https://tradingeconomics.com/russia/unemployment-rate
https://www.investopedia.com/articles/economics/09/german-economic-miracle.asp
