Russian economy may collapse in 2026 as reserves run dry – WP

The Russian economy has found itself in its worst state since the beginning of the full-scale invasion of Ukraine due to a steep decline in oil revenues and the depletion of reserves. Despite claims by US President Donald Trump about Russia's supposed "advantage" in the war, economists are predicting a banking crisis and a recession in Moscow as early as next year.

Source: The Washington Post.

Quote: "Even before the new sanctions began cutting deeper into corporate and budget revenue, the Russian economy has been heading towards recession. The central bank was forced to raise interest rates to record highs of more than 20 per cent to rein in rampant inflation after the government blazed through the first three years of its war with high military spending, encouraging a corporate lending boom, while import prices soared because of sanctions.

The high interest rates – now down to 16 per cent – have started to stem inflation but have still eaten into company profits and cash reserves. As a result, investment has stalled, output in some sectors has plummeted, and nonpayments have soared across the economy."

Details: The analysts say the Kremlin has already spent most of the foreign currency reserves and borrowings that underpinned the sharp increase in military expenditure over the past three years. The situation is being exacerbated by new tough US sanctions against the oil sector, introduced in October 2025.

Janis Kluge, an economist at the German Institute for International and Security Affairs, says that the factors which had been supporting Russia's economy have disappeared. According to him, "Russia is right now in the worst situation since the war started".

Sanctions against the state-owned companies Rosneft and Lukoil are forcing Moscow to sell oil at a huge discount. The price of Urals crude has fallen to US$35 per barrel, well below the US$69 assumed in the initial draft budget for 2025.

According to Reuters, in December 2025 Russia's oil and gas revenues will be down 49% compared with the previous year. This will deepen the budget deficit against the backdrop of record military spending, which reached US$149 billion in just the first three quarters of this year.

Experts are warning of a "systemic banking crisis". It could be triggered by a corporate lending "bubble" that has been inflated to finance the war. Official statistics from Russia's central bank put the share of non-performing loans at 5%, but these figures do not include the defence sector, where regulation has been relaxed.

An analysis of data from Russia's central bank indicates that lending to the defence sector accounts for almost a quarter of the total volume of corporate loans in roubles and exceeds US$202 billion. Alexander Shokhin, head of the Russian Union of Industrialists and Entrepreneurs, has acknowledged that many companies are in a "pre-default" state.

Quote: "Even based on the official data, one Kremlin-linked think tank, the Center for Macroeconomic Analysis and Short-Term Forecasting, said this month that Russia could face a systemic banking crisis by October if problem loans continue to rise and depositors start withdrawing funds en masse."

More details: Financial problems have hit the Kremlin's main "wallets". Gazprom, having lost the European market, recorded a net loss of US$12.9 billion last year. Its cash reserves have shrunk from US$27 billion at the beginning of 2022 to US$6-8 billion. Rosneft's net profit for the first three quarters of 2025 has fallen by 70%, to US$3.6 billion.

Russia's economic problems are beginning to spread to wider segments of the population. According to the latest report by the state-owned Sberbank, consumers have started tightening their belts, reducing spending in early December on clothing by 8.7% compared with the previous year, on household goods by 8.8% and on health and beauty by 5.9%.

According to Rosstat, in October the total amount of unpaid wages almost tripled compared with the same period in 2024, reaching more than US$27 million. Russia's metallurgical sector is in decline, despite high demand from defence plants.

At the same time, members of Russia's elites doubt that economic hardship will lead to social unrest or force Vladimir Putin to change his plans, although they do acknowledge that 2026 will be "the first difficult year of the military operation".

Background:

• US President Donald Trump has repeatedly claimed that Russia supposedly has an advantage in the war against Ukraine.
• At the same time, French President Emmanuel Macron has stressed that sanctions pressure is effectively weakening the Russian economy and must be intensified.

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