Two years have passed since Russia invaded neighboring Ukraine. Many had predicted that the Russian economy would collapse under the weight of the unprecedented sanctions that gradually began to be imposed on Moscow from February 2022. And yet, today economists agree that this has not happened.

What is widely discussed, however, is how solid are the foundations of the Russian economy and how resistant to time will prove to be the figures officially given to the public. Recently the International Monetary Fund (IMF) predicted that the Russian GDP will grow by 2.6% this year, while already in 2023 the growth rate had reached 3%. Government revenues from oil exports are rising again, while unemployment in Russia is at historic lows.

On the other hand, spending on security and defense soars to 40% of GDP. Experts are talking about a “war economy” on the brink of overheating, as inflation soars and labor shortages increase – given that more than a million highly skilled people have left the country.

How Russia survives

Elina Rybakova, an economist at the Peterson Institute for International Economics, points out to Deutsche Welle that there are three reasons why the Russian economy has shown remarkable resilience: First, the financial system has remained in a “state of alert” since the 2014 invasion of Crimea and may face the consequences of international sanctions. Second, Russia managed to collect huge sums from oil and gas exports in 2022, as prices rose immediately after the invasion, while Western powers were slow to fully implement containment measures. Third, any sanctions did not prevent Russia from acquiring materials and products needed by the country’s military-industrial complex from third countries.

It should be noted that since 2021 Russia’s defense budget has tripled. This development strengthens the nominal GDP of the country, but “with investments that are not considered productive in the medium term”, points out Elena Rybakova. In any case, Benjamin Hilgenstock, an economics professor in Kyiv, tells DW, “the macroeconomic environment has clearly been destabilized by the sanctions, even if the Russian economy is performing better than expected.” There are many relevant indications in individual indicators, such as a decrease in oil and gas export revenues in 2023, as well as a rise in Russian interest rates to 16%.

That Moscow has sidestepped some of the sanctions by exporting oil at prices close to the international market for more than a year is largely due to the so-called “shadow fleet” that carries Russian oil to the ends of the earth. The US has imposed sanctions on individual ships or companies it deems to be in violation of the sanctions regime.

Raw materials remain in demand

But there is another factor that was probably underestimated by the Western powers: Russian raw materials remain inexhaustible and in demand. An example is Russian uranium, which the US continues to procure.

Simply put, says Elena Rybakova, “with one hand we provide financial aid to Ukraine, while with the other hand we provide aid to Russia. We are still buying its energy resources, we are not fully respecting the cap and embargo on its oil, we are not enforcing its export restrictions at all…”