Russian Economic Statecraft During the 4th Year of War

Three years after the start of the full-scale war in Ukraine, it can be concluded that the Russian economy has largely withstood the pressure of sanctions. Among the various sectors of the Russian economy, there are winners and losers in this war. The winners include not just the defense industry, but also a number of purely civilian sectors which are benefitting from the removal of foreign competition.

A “revolution of salaries” is happening in Russia, with the real growth of average salaries significantly outpacing the growth of gross domestic product (GDP)—8 percent against 3.5 percent GDP growth in 2023, 9.1 percent against 4.3 percent in 2024. The winners are the military, manufacturing, agriculture, construction, and digital industries. The losers are civilian government jobs and most service sector and retail trade jobs.

The Kremlin’s financial position has become healthier. Although Russia is cut off from most external sources of capital, it is more than capable of financing domestic investment and government spending from its own resources. Military spending, of course, supports GDP growth, but private and public investments in the tourism industry also increased by 40 percent in the first nine months of 2024, since internal tourism is benefitting from Russia being cut off from Europe and the international financial system.

Moscow is working hard to create a wide network of partners that will reduce its unilateral dependence on China. For example, in 2022-24, the share of the BRICS+ countries (Brazil, Russia, India, China, and South Africa; plus Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates) in Russia’s trade balance doubled to 40 percent. Trade has also grown with other “friendly countries” outside the BRICS—for example, Turkey, Mexico, Indonesia, and Vietnam, among others.

By early 2025, the war appeared to be nearing the concluding phase. While there are no signs of possible stabilization of Russia’s relations with Europe, Russia’s most important economic partner before the war, a partial normalization of relations with the United States, accompanied by the removal of some sanctions, is being discussed. If that happens, improved Russian relations with the Asian allies of the United States will also be greatly facilitated. The political goal of the winners of the war is now to consolidate their gains and to maintain them for the period after the war.

The Russian government has emphasized on a number of occasions that there will be no going back to the pre-war conditions of 2021. Import substitution policies in strategic sectors will continue and Russia will move further to expand economic ties with non-Western countries. These initiatives are viewed as critical to ensure self-sufficiency in strategic technologies, even if they reduce economic efficiency. The redistribution of strategic assets within Russia from multinational corporations to Russian state-owned companies is also underway.

As soon as the first steps towards de-escalation of the conflict were taken and consultations between Russia and the United States began, signs of an evolving economic landscape emerged. Notably, several global companies—including Hyundai, LG, Samsung, Porsche, Coca‑Cola, Pepsi, and Dior—signaled intentions to reenter the Russian market, as evidenced by trademark registration and renewal filings.

However, Russian officials caution that such returns are not guaranteed. They stress that foreign reentry must not undermine the ongoing export substitution projects initiated since 2022, and emphasize that political considerations will be taken into account in determining which companies are permitted to resume operations. Many vacancies left by departing Western firms have already been filled by Russian and Chinese manufacturers, with additional challenges expected for sensitive sectors such as aviation, technology, or finance.

In the long term, it is assumed that the Russian market will be closed to many types of Western products, which will be replaced by either Russian production or imports from friendly countries. Russia will continue to develop mechanisms to protect trade from any possible sanctions. The Russian economy has already proven to be very mobile. Take settlements in national currencies for instance—the share in settlements between Russia and the BRICS countries tripled to reach 85 percent in the past two years, thus reducing reliance on the U.S. dollar system.

Overall, Moscow has no illusions that after the end of the conflict in Ukraine, relations with the West will return to the pre-war status quo. The changes that have taken place over the past three years have proved irrevocable. Economic relations with the United States will only be tolerated either in areas that are necessary and irreplaceable, or in areas that obviously bring strategic benefits to both sides, such as in high-tech industries, energy, and projects in the Arctic.

The situation with Europe will be different. Russia expects a long-term confrontation teetering on the brink of open conflict with a number of flashpoints, for example, in the Baltic Sea region. If Russian objectives for the special military operation, emphasized many times by President Putin, are not fully satisfied, then Ukraine will also remain a hotspot that will threaten Russia’s security and could explode again at any moment thanks to Europe’s help.

The Russian economy and Russian society are preparing for a prolonged period of global instability and a new Cold War against the West, especially Europe. Even after the end of the Ukrainian crisis and regardless of the conditions of its completion, Moscow will pursue an economic development strategy based on internal drivers and fully reorient external economic cooperation with non-Western countries. Russia will also continue to expand its arsenal of economic instruments to pressure and deter rivals. Considering the existing threat, defense spending will not be sharply reduced, probably staying somewhere halfway between pre-war (2.8 percent GDP) and current (7 percent of GDP) levels. The emerging model of economic development is heavily reliant on manufacturing and import substitution. This and the basic aim of creating a “fortress economy” can be expected to stay in place for the long term.

Vasily Kashin is director of the Centre for Comprehensive European and International Studies (CCEIS) at HSE University in Moscow. Alexandra Yankova is a research fellow at CCEIS, HSE University. Kristina Kondakova is a research fellow at CCEIS, HSE University.

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