BY: Shatha kalel
More than four years after the outbreak of the war in Ukraine, the most important economic question is no longer whether Russia has managed to withstand Western sanctions, but rather how long that resilience can last if the conflict develops into a prolonged war of attrition.
Although the Russian economy did not experience the rapid collapse that some observers predicted at the beginning of the war, economic indicators in 2026 reveal a more complex picture. The economy continues to function, and the state remains capable of financing its military operations. However, the cost of sustaining this economic model is rising, while pressures on investment, the civilian economy, and public finances are increasing.
Prominent Russian economist Andrei Klepach, former chief economist at the state development bank VEB and former Deputy Economy Minister, recently brought this debate back into focus by warning that Russia faces serious risks if the “war of attrition” continues. Recent reports indicated that he was dismissed from his position after his comments became public, although the bank did not officially state that his remarks were the reason for his dismissal.
The War Economy: When Military Spending Becomes a Driver of Growth
One of the keys to understanding Russia’s current economy is distinguishing between quantitative economic growth and sustainable economic growth.
Since the beginning of the war, the Russian government has injected enormous amounts of money into defence industries, military production, and war-related logistics. This spending increases demand, production, and employment, and therefore contributes to measured gross domestic product (GDP).
However, the production of a tank or missile contributes to GDP just as the production of industrial machinery or the construction of a factory does. The economic difference is that a factory or productive infrastructure may increase a country’s productive capacity for many years, whereas much of military production is consumed in war and does not necessarily generate future economic returns.
According to estimates by the Stockholm International Peace Research Institute (SIPRI), Russia’s war-related and military expenditure reached approximately 16 trillion rubles in 2025, equivalent to 7.5% of GDP. The 2026 budget planned approximately 14.9 trillion rubles, or 6.3% of GDP.
This highlights one of the central paradoxes of a war economy: military spending can support economic growth today while weakening the capacity to generate growth tomorrow.
The Crowding-Out of the Civilian Economy
When a government directs an increasing share of labour, capital, financing, and energy toward the military sector, those resources become less available to civilian industries.
Economists describe this phenomenon as “crowding out.”
Military industries compete with civilian businesses for skilled workers, while the government competes with the private sector for resources and financing. At the same time, inflationary pressures and high interest rates increase the cost of borrowing and investment.
This helps explain how an economy can record GDP growth while parts of its private sector simultaneously experience increasingly difficult conditions.
The International Institute for Strategic Studies has indicated that the Russian economy is operating close to the limits of its productive capacity and that labour shortages are becoming an increasing constraint. This suggests that directing additional resources toward military production may produce diminishing economic returns.
From Rapid Growth to Economic Slowdown
Recent figures reinforce these concerns.
In its July 2026 update, the International Monetary Fund (IMF) projected that Russia’s real economic growth would be approximately 1.1% in 2026. IMF data for Russia also projected inflation of approximately 5.6%.
This does not necessarily mean that the Russian economy is heading toward collapse. Rather, it suggests that the period of strong expansion driven by government and military expenditure is increasingly encountering economic limits.
This distinction is critical: a state’s ability to finance a war is not the same as an economy’s ability to generate sustainable long-term development.
Russia possesses enormous natural resources, particularly oil, gas, and minerals. Higher commodity prices can also provide important fiscal relief to the Russian government. For this reason, predictions of an imminent Russian economic collapse may be exaggerated. Even the IMF does not project an economic contraction in 2026, but rather relatively weak growth.
The deeper problem, however, concerns opportunity cost.
Every additional ruble directed toward the war represents a resource that could otherwise have been invested in infrastructure, education, healthcare, technology, or civilian industrial development.
In its broader analysis of the economics of defence spending, the IMF has noted that large increases in military expenditure can stimulate economic activity in the short term, but may also increase inflation, deficits, and debt while placing pressure on social spending, particularly when such spending continues for prolonged periods.
Sanctions Are Not a Single Shock, but a Cumulative Process
It is also misleading to judge the success or failure of economic sanctions by asking only one question: “Has the Russian economy collapsed?”
Economic sanctions rarely operate in such a simple manner.
Their more significant effects may emerge gradually through higher costs of accessing technology, greater complexity in international trade and finance, changes in energy trade routes, and increased dependence on a limited number of trading partners.
This is where Klepach’s concerns about Russia’s long-term technological and economic competitiveness become particularly significant, alongside the country’s growing dependence on China.
This leads to the more important question that may determine Russia’s economic future:
The issue is not simply whether Russia can finance another year of war, but what kind of economy will emerge after a decade of redirecting resources toward war if the conflict continues.
The Greater Risk: Attrition Rather Than Collapse
The most economically significant scenario, therefore, may not be a sudden collapse resembling a traditional financial crisis.
The greater danger is gradual economic attrition: slower growth, weaker civilian investment, worsening labour shortages, increasing dependence on government expenditure, and declining technological and productive competitiveness relative to other major economies.
The economic dimension of the war therefore becomes a competition over which side can absorb costs for the longest period of time.
Russia has so far demonstrated a greater ability to adapt to sanctions than many observers expected at the beginning of the war. However, it is entering a different phase, in which the central question is becoming less about its ability to survive and more about the price it will ultimately pay for that survival.
Major economies are not measured solely by their ability to finance wars. They are also measured by their capacity to invest, produce, innovate, and improve their citizens’ standard of living after those wars have ended.
For this reason, Russia’s most important economic battle may not take place in 2026, but in the years that follow.
The decisive question, therefore, is not: Will the Russian economy collapse?
It is: How much growth, investment, technological progress, and social well-being can Russia afford to lose before the economic cost of the war becomes greater than its ability to recover from it?
Economic Unit – North America Office
Al-Rawabit Center for Research and Strategic Studies