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Four years after Russia's full-scale invasion of Ukraine, the Russian economy is showing clear signs of structural exhaustion. The contours of a genuine economic endgame are coming into view for Russia. This is the finding of a new Kiel Report published by the Kiel Institute for the World Economy and the Stockholm Institute of Transition Economics.
The Kiel Report Endgame: The State of the Russian Economy (https://www.kielinstitut.de/publications/endgame-the-state-of-the-russian-econom...) brings together leading international experts on the Russian economy and concludes that Moscow's fiscal buffers are largely depleted. The opportunity for consequential Western action is therefore open.
"In the first years of the war against Ukraine, Russia's economy has proven more robust than many expected, but now the buffers are depleted," says Moritz Schularick, President of the Kiel Institute for the World Economy and co-author of the report's overview chapter. "The underlying foundations of the economy have weakened considerably. Fiscal reserves have been largely exhausted, growth has come to a standstill, and the country's dependence on China is becoming ever more pronounced. At the same time higher oil prices as a result of the war in the gulf will likely only bring temporary fiscal effects," warns Schularick.
Spending rises, but economic capacity tightens as financial and real constraints bind
The report finds that Russia's liquid sovereign wealth fund assets have fallen from 6.5 percent of GDP at the beginning of the war to just 1.8 percent in April 2026. At the same time, the federal budget deficit exceeded the government's full-year target within the first three months of 2026, while oil and gas revenues collapsed by 45 percent year-on-year in the first quarter of 2026.
Yet the report argues that Russia's challenge is no longer simply financial. Contributors document how the Kremlin has increasingly relied on off-budget financing, rapid credit expansion, and indirect support through the banking system to sustain military spending. Since the start of the war, Russian corporate debt has risen dramatically as banks channel resources into war-related sectors.
"The fundamental constraint facing Russia today is not access to money but access to people, technology, and productive capacity," warns Matthew C. Klein, author of The Overshoot, an economics blog, and the chapter on Russia's war financing. "The government can mobilize additional financial resources, but with labor shortages at record levels and sanctions restricting access to critical imports, higher spending increasingly risks generating inflation rather than greater military output."
Moscow depends on Beijing for trade, technology, and finance
A central finding of the report is Russia's increasing economic dependence on China. China now accounts for approximately 35 percent of Russia's total foreign trade and supplies the overwhelming majority of critical dual-use goods and military-relevant components entering the country.
According to the report, China is responsible for roughly three-quarters of the increase in Russia's imports of sanctioned critical military components since 2022. While the partnership has helped Russia mitigate the impact of Western sanctions, researchers argue that the relationship is becoming increasingly asymmetric, with China steadily gaining leverage over Russian trade, finance, and industrial supply chains.
"The notion of a 'no-limits partnership' masks a growing asymmetry," says Alicia García-Herrero, Senior Fellow at Bruegel and co-author of the report. "Russia has gained an economic lifeline, but China has gained leverage. Moscow increasingly depends on Beijing for trade, technology, and finance, while China remains free to dictate the terms of the relationship. This is becoming a partnership of dependence rather than one of equals."
The report argues that Russia's pivot to China has become a necessity rather than a choice. As access to Western markets, technologies, and financial infrastructure has diminished, Moscow has become increasingly reliant on Chinese demand for its exports and Chinese firms for critical imports. While this dependence has helped sustain Russia's war economy in the short term, it is also reducing Russia's economic autonomy and bargaining power over the longer term.
The policy agenda: Tightening sanctions, export controls and introducing tariffs
The authors argue that Russia's growing economic vulnerabilities create a window of opportunity for more effective Western policy measures. The report identifies export revenues from oil and gas as the key factor sustaining Russia's war effort and recommends stronger enforcement of existing sanctions. "Price cap enforcement must take center stage in sanctions policy. This includes renewed efforts to limit Russia‘s shadow fleet," argues Torbjörn Becker, Director of the Stockholm Institute of Transition Economics and co-author of the report. In addition, the authors propose tighter export controls—particularly regarding Chinese suppliers—and new measures to reduce Russia's export earnings.
A further key proposal is a "Ukraine Support Tariff" on remaining trade with Russia, in particular LNG, chemicals, fertilizers, and other goods that still reach European markets. Such a tariff could simultaneously reduce Russian export revenues and generate a dedicated source of funding for Ukraine's defense and reconstruction."The past months have demonstrated that sanctions enforcement matters," says Schularick. "The challenge for Europe is to convert Russia's growing economic vulnerabilities into lasting strategic leverage."
About the Report
Endgame: The State of the Russian Economy (https://www.kielinstitut.de/publications/endgame-the-state-of-the-russian-econom...) is Kiel Report No. 9 (June 2026) and includes the following contributions:
Russia's economic endgame – Torbjörn Becker and Moritz Schularick
Why economists get the Russian economy “wrong” and how we can think about sanctions – Torbjörn Becker
The limits on Russia's war financing and the energy windfall – Matthew C. Klein
The China-Russia asymmetric partnership: Implications for Europe – Alicia García-Herrero, Elina Ribakova, and Lucas Risinger
China's role in supplying Russia with sanctioned products – Konstantin Egorov
Regional convergence in Russian regions during the war – Iikka Korhonen
Read Kiel Report now: Endgame: The State of the Russian Economy/https://www.kielinstitut.de/publications/endgame-the-state-of-the-russian-econom...
Media Contact:
Julia Wacket
Chief Communications Officer
+49 431 8814-411
julia.wacket@kielinstitut.de
Kiel Institute for the World Economy
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T +49 431 8814-259
moritz.schularick@kielinstitut.de
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