Every few months, a familiar ritual plays out in Western commentary. Oil prices wobble. Sanctions tighten. A tanker gets seized. A spreadsheet somewhere flashes red. And suddenly, a confident chorus announces that this is it—the final economic blow that will bring Vladimir Putin’s Russia to its knees.
It is always “just one more shock” away. One more sanctions package. One more price dip. One more disruption in the oil trade. One more clever workaround finally closing. One more domino teetering on the edge.
And yet, here we are. Four years into a grinding war, after sanctions that were supposed to be “unprecedented,” after asset freezes, export bans, financial isolation, and moral condemnations delivered in impeccably worded statements—Russia’s economy is battered, degraded, and increasingly grotesque, but it is still standing. More importantly, it is still funding a war.
This does not mean sanctions are useless. It does not mean Russia is healthy. And it certainly does not mean the Kremlin has built some kind of economic miracle. What it does mean is that many Western assumptions about collapse—what causes it, how fast it happens, and what it looks like—are rooted in wishful thinking rather than political economy.
The belief that falling oil prices will finally pull the plug on Putin’s war effort misunderstands what Russia has already done to itself. The economy has not been left exposed to market forces, waiting nervously for the next global shock. It has been deliberately rewired, insulated, sedated, and repurposed. Not for growth. Not for prosperity. But for endurance.
Think less “house of cards” and more “medically induced coma.”
The Oil Price Fantasy
Oil has long been treated as Russia’s Achilles’ heel. It’s an understandable obsession. For decades, crude exports have lubricated the Russian state—more than gas, more than metals, more than wheat. Oil money paid for pensions, public sector wages, prestige projects, and geopolitical adventures. When prices fell in the past, Moscow felt it.
So when analysts look at Venezuela’s vast reserves and imagine millions of barrels flooding global markets, they instinctively see trouble for the Kremlin. Add US pressure on shipping, insurance, and shadow fleets, and it starts to look like a perfect storm.
But this story assumes Russia still functions like a normal petrostate—dependent on global prices, foreign buyers, and external financing in the way it once did. That Russia still lives or dies by Brent benchmarks and Western market access.
It doesn’t.
Oil revenue has already fallen sharply as a share of state income, from roughly half to about a quarter. That sounds dramatic until you ask the more important question: what filled the gap?
The answer is not magic. It is not resilience born of innovation. It is not clever industrial policy. It is extraction, redirected inward.
The Tax State Replaces the Petrostate
When oil money shrinks, something else expands. In Russia’s case, that “something” is domestic taxation and coercive redistribution.
Taxes on households and businesses have risen. Pension spending has been trimmed. Regional budgets have been squeezed. Education faces cuts. Investment incentives have withered. Private sector complaints are brushed aside. The Kremlin is no longer pretending that economic dynamism matters. It is openly prioritizing control and cash flow.
This is not an economy designed to thrive. It is one designed to harvest.
Russia’s debt levels remain modest by international standards. Its deficit, while growing, would barely raise eyebrows in many Western capitals. Inflation, once a serious problem, has been beaten back into a range that central bankers can tolerate. High interest rates hurt, but they also choke off speculative pressures.
None of this makes the system efficient. It makes it survivable.
The West often projects its own political economy onto Russia. In liberal democracies, prolonged stagnation produces electoral backlash. High taxes spark revolt. Pension cuts trigger mass protests. Investment freezes lead to recessionary spirals and political crisis.
In an authoritarian system with tight media control, a securitized state, and a narrative of existential conflict, these pressures behave very differently.
Selling the War as Destiny
One of the Kremlin’s most underappreciated successes has been narrative management. The war has been reframed not as aggression against a neighbor, but as a civilizational struggle against the West. This matters enormously for economic endurance.
When people believe they are fighting for survival, they accept sacrifices they would otherwise reject. Higher taxes become patriotic contributions. Inflation becomes a badge of resistance. Shortages become proof of external hostility rather than domestic failure.
This narrative does not need to convince everyone. It only needs to neutralize mass opposition.
Unemployment hovering near 2%—a figure that would normally signal overheating—is instead a symptom of demographic collapse, mobilization, and emigration. Young men are drafted. Birthrates fall. Middle-income families leave. The labor market tightens not because the economy is booming, but because society is shrinking.
In a normal country, this would trigger alarm bells. In wartime Russia, it is simply another constraint to be managed.
The state steps in with welfare payments, military salaries, and compensation for families of the dead. These payments are not generous by Western standards, but they are targeted, visible, and politically effective.
People are not prospering. They are being paid to endure.
The Shadow Fleet Was Never the Point
Much ink has been spilled over Russia’s “shadow fleet”—the aging tankers assembled to bypass sanctions and ship oil to willing buyers. The shrinking of that fleet since 2024 is often presented as a turning point.
But the obsession with shipping logistics misses the bigger picture. The fleet was never meant to preserve pre-war revenue levels. It was meant to keep money flowing at all, even at a discount.
Selling oil cheaply to China, India, Turkey, and others is not a sign of desperation. It is a calculated trade-off. Lower margins are acceptable when volume and continuity matter more than profit maximization.
And while European insurers still play a role, the Kremlin has already demonstrated its willingness to absorb inefficiencies, higher costs, and logistical absurdities if it keeps cash moving.
This is a regime that will happily turn its industrial base into a scrapyard if it buys another year of war.
Comparisons With Iran Miss the Mark
Iran is often cited as a cautionary tale—a heavily sanctioned state brought low by isolation, strikes, and economic mismanagement. But Russia is not Iran.
Russia is larger, richer, more diversified, and more deeply integrated into global commodity markets. It has nuclear weapons, veto power, and strategic partnerships that Iran never enjoyed. Most importantly, it has China.
Beijing does not need to love Moscow. It only needs to find Russian oil cheap and geopolitically useful. As long as China remains a buyer, Russia has a floor under its export revenues.
North Korea provides manpower and matériel. Iran provides drones and know-how. India may drift away under pressure, but the system does not collapse if one buyer steps back.
The point is not that Russia is comfortable. It is that it is not isolated enough for collapse dynamics to take hold.
Growth Is Not the Goal
Much of the confusion comes from applying growth metrics to an economy that no longer cares about growth.
Yes, GDP expansion has slowed to a crawl. Yes, military spending once inflated figures artificially. Yes, consumer incomes are stagnating. Yes, investment is drying up.
All true. All irrelevant—if your objective is simply to sustain a war and suppress dissent.
The Kremlin has effectively frozen parts of the economy, redirecting resources into defense production, logistics, and internal security. Civilian sectors rot. Factories age. Technology lags. Productivity erodes.
But collapse does not happen because things are inefficient. Collapse happens when the state cannot pay, cannot control, or cannot convince.
Russia can still pay. It can still control. And it has convinced enough.
A Junkyard Economy Can Still Kill
There is a temptation to assume that economic degradation inevitably leads to political moderation. That as factories decay and standards of living fall, the pressure to compromise grows irresistible.
History does not support this optimism.
States can endure astonishing levels of dysfunction while remaining militarily dangerous. A hollowed-out economy can still produce missiles. An aging industrial base can still manufacture shells. A population growing poorer can still be mobilized through fear and coercion.
Russia is not building a future. It is burning one.
And that is precisely why oil price declines, while painful, are unlikely to be decisive in the short term. The system has been reoriented away from long-term sustainability toward short-term survival.
What This Means for the West
The uncomfortable implication is that economic pressure alone is not enough—and pretending otherwise wastes time.
Sanctions should be tightened. Trade loopholes should be closed. Financial centers should stop pretending neutrality is harmless. Russian revenues should be squeezed wherever possible.
But expectations must be realistic.
There will be no sudden implosion triggered by a dip in crude prices. No cinematic moment when the Kremlin realizes the war is unaffordable and quietly backs down. No neat correlation between economic pain and political restraint.
Four years of half-measures gave Russia time to adapt. The economy now functions less like a market and more like a bunker.
If Europe and its allies want to change the outcome, the lesson is not that sanctions have failed—but that sanctions without military pressure only buy time.
Ukraine’s ability to resist remains the decisive factor. Economic strangulation may shorten the war at the margins, but only battlefield outcomes can end it.
The fantasy of collapse is comforting because it absolves policymakers of harder choices. It suggests patience will be rewarded. That time is on “our side.”
Time, unfortunately, is also on Putin’s.
Russia’s economy may be limping, scarred, and increasingly grotesque. It may resemble a junkyard rather than a modern industrial state. But junkyards still contain sharp metal.
And for now, that is enough.