Russia’s economy may collapse in 2026 due to depletion of reserves – WP

The Russian economy is in its worst state since the start of the full-scale invasion of Ukraine due to a sharp drop in oil revenues and depletion of reserves. Despite US President Donald Trump’s statement about Russia’s “superiority” in the war, economists predict a banking crisis and recession for Moscow as early as next year.

Source: The Washington Post

Literally: “Even before the new sanctions began to take a bigger toll on corporate incomes and the state budget, the Russian economy was already heading for recession. The central bank was forced to raise interest rates to a record high of more than 20% to curb runaway inflation after the government spent the first three years of the war with high military spending, fueling a boom in corporate lending, and import prices skyrocketing because of the sanctions.

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High interest rates – now down to 16% – have started to curb inflation, but are still eating into corporate profits and cash reserves. As a result, investment has ground to a halt, production in some sectors has fallen sharply, and debt defaults have risen significantly across the economy.”

Details: According to analysts, the Kremlin has already spent most of the foreign exchange reserves and borrowings that ensured the sharp increase in military spending over the past three years. The situation is worsened by new tough US sanctions against the oil sector, introduced in October 2025.

Economist of the German Institute of International Relations and Security Yanis Kluge states that the factors that supported the economy of the Russian Federation have disappeared. According to him, “Russia is now in the worst situation since the beginning of the war.”

Sanctions against the state-owned companies Rosneft and Lukoil force Moscow to sell oil at a huge discount. The price of Urals oil fell to $35 per barrel, significantly less than the $69 that was set in the original draft budget for 2025.

According to Reuters, in December 2025 oil and gas revenues of the Russian Federation will fall by 49% compared to last year. This will deepen the budget deficit amid record military spending, which reached $149 billion in the first three quarters of this year alone.

Experts warn of a “systemic banking crisis”. The reason may be the “bubble” of corporate lending, inflated to finance the war. Official statistics of the Central Bank of the Russian Federation show the share of problem loans at the level of 5%, but these data do not take into account the defense sector, where regulation has been relaxed.

According to the analysis of the data of the central bank of the Russian Federation, lending to the defense sector makes up almost a quarter of the total volume of corporate loans in rubles and exceeds 202 billion dollars. The head of the Russian Union of Industrialists and Entrepreneurs, Oleksandr Shokhin, admitted that many companies are in a “pre-default” state.

Literally: “Even based on official data, one of the Kremlin-linked think tanks, the Center for Macroeconomic Analysis and Short-Term Forecasting, said this month that Russia could face a systemic banking crisis by October if bad loans continue to rise and depositors begin to withdraw funds en masse.”

Details: Financial problems hit the main “purses” of the Kremlin. Gazprom, having lost the European market, recorded a net loss of 12.9 billion dollars for the past year. Its cash reserves have shrunk from $27 billion (at the beginning of 2022) to $6-8 billion. Rosneft’s net profit for the three quarters of 2025 fell by 70% to $3.6 billion.

Russia’s economic problems are beginning to spread to wider segments of the population. According to the latest report from the Russian state bank Sberbank, consumers started to tighten their belts, cutting spending on clothing by 8.7% in early December compared to the previous year, on home 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 to the same period in 2024, reaching more than $27 million. Russia’s metallurgical sector is in decline, despite high demand from military plants.

At the same time, representatives of Russian elites doubt that the economic troubles will lead to social riots or a change in Vladimir Putin’s plans, although they admit that 2026 will be “the first difficult year of the military operation.”

What preceded:

• US President Donald Trump has repeatedly stated that Russia allegedly has an advantage in the war against Ukraine.
• At the same time, French President Emmanuel Macron emphasized that the sanctions pressure effectively weakens the Russian economy and it must be strengthened.