Sanctions against Russia are having a deeper impact than official figures suggest, according to researchers and economists at a recent seminar hosted by the Norwegian Institute of International Affairs. While the Russian economy appears stable on paper, underlying financial pressures point to a system under strain.

Torbjörn Becker, Director of the Stockholm Institute of Transition Economics (SITE) at the Stockholm School of Economics, argues that the real effect of sanctions lies in limiting the Kremlin’s ability to finance the war. Before the invasion, Russia’s economy was about ten times larger than Ukraine’s. But the combined economies of Ukraine’s allies are roughly 25 times larger than Russia’s, giving them significant leverage.

“The key question is not whether sanctions stop the war overnight,” says Becker. “It is whether they make it harder for Russia to fund it over time.”

One clear example is energy. Oil and gas revenues, once making up half of Russia’s state income, have dropped to around a quarter. This reflects a deliberate strategy: not to block exports entirely, but to reduce how much Russia earns from them.

Looking beyond official GDP figures also changes the picture. Russia reported only a small economic contraction in 2022. But Becker notes that with global oil prices rising sharply that year, the economy should have grown significantly. The gap between expected growth and actual performance suggests a much larger hidden economic hit.

Growth that does not last

Another issue is how economic activity is measured. Military production boosts GDP in the short term, but does not build long-term wealth. Producing weapons that are quickly destroyed adds to output statistics without improving future productivity or living standards.

This helps explain why headline numbers can look stable even as the broader economy weakens. At the same time, access to reliable data has become more limited. Russian authorities have stopped publishing several key statistics since 2022, making it harder to assess inflation, consumption, and real economic conditions.

“Statistics have become part of the narrative,” Becker says. “They are used to signal that sanctions are not working.”

A fragile financial system

Pressure is also building in Russia’s financial sector. Banks are being pushed to lend to the defense industry at low interest rates, while offering high rates to attract deposits. This creates a gap that is difficult to sustain.

Becker describes the system as resembling a “pyramid scheme,” where loans are rolled over rather than repaid. Over time, this increases the risk of instability in the banking sector.

Financial markets reflect these concerns. High interest rates and weak stock market performance suggest that investors see significant risks, including the possibility of default.

At the same time, the business environment has become more uncertain. Reports of increasing state control and redistribution of assets have created a climate where companies depend more heavily on political connections.

A long-term pressure strategy

Despite these challenges, the Russian economy has not collapsed. Instead, sanctions appear to be working gradually, tightening financial constraints rather than delivering a sudden shock.

Future developments will depend in part on international coordination. Changes in sanctions policy - such as allowing more Russian oil onto global markets - could quickly increase the country’s revenues and ease pressure on the state budget.

For now, the findings suggest that sanctions are shaping the economic conditions of the war in less visible but important ways. By limiting income and increasing financial strain, they reduce the resources available to sustain long-term military efforts.

Contact:
Torbjörn Becker, Director, Stockholm Institute of Transition Economics (SITE), Stockholm School of Economics
Email: torbjorn.becker@hhs.se
Phone: +46 8 736 96 76