How the EU assesses the state of Russia’s economy and whether it can be crushed by sanctions

Russia’s economy is weakening, despite the Kremlin’s propaganda efforts to suggest otherwise.

And if the West continues its sanctions pressure on Russia alongside military support for Ukraine, the Kremlin’s battlefield resources could run dry within a year to a year and a half.

These are the key findings of a report on the state of the Russian economy, prepared by the Stockholm Institute of Transition Economics (SITE) and presented on 13 May during a meeting of the EU Economic and Financial Affairs Council (Ecofin) in Brussels.

Read more in the article by Tetiana Vysotska, European Pravda’s correspondent in Brussels: Targeted sanctions and Russia’s economic weaknesses: what recommendations the EU received.

"First of all, the Russian economy is a small economy. They have problems," Swedish Minister for Finance Elisabeth Svantesson told reporters during a briefing on the sidelines of Ecofin.

She stressed that it is important to talk about Russia’s economic fragility, especially since Russian propaganda insists on the opposite.

Polish Finance Minister Andrzej Domański, representing the EU’s current presidency, noted that inflation in Russia is much higher than official statistics show.

The SITE report highlights that, according to independent estimates, inflation in Russia is nearing 20%, instead of the officially stated 9–10%.

Domański also pointed out that an increasing share of Russia’s budget is funded through taxes, rather than from oil or gas revenues.

"If you know that the Russian economy is weakening, you know that sanctions are working – and that can encourage further action," Domański added.

The European Commission is convinced that the EU should focus its sanctions pressure specifically on energy.

SITE Director Torbjörn Becker reminded that ever since the collapse of the Soviet Union, Russia’s economy has been heavily dependent on oil and gas prices: when they rise, Russia’s economy grows.

"Together with our G7 partners, we can set a price cap on Russian oil and work against Russia circumventing it through its shadow fleet. As the European Commission, we have also presented a strategy for Europe to phase out Russian natural gas imports, thereby depriving Russia of this revenue," said EU Commissioner for the Economy Valdis Dombrovskis.

However, while the EU is gradually reducing its dependence on Russian fossil fuels, Russia is finding new buyers.

"It’s important to note that these buyers are paying much less than what Europe used to pay. That’s why it’s crucial we keep up the pressure," Dombrovskis explained.

So, while Russia’s economy might survive for several more years, the risk of a more devastating crisis that could collapse this scenario increases with each passing month that the war continues and sanctions remain in place.

Contrary to Kremlin narratives, time is not on Russia’s side.

"Russia continues to use all means to promote the idea that it is strong and that time works in its favour. And this is despite the fact that its economy makes up only a small fraction of the economies of Ukraine’s Western allies – and its reserves are expected to run out within the next year or so," conclude the Swedish institute’s report authors.

Both the European Commission and the EU Council understand this – and are prepared to maintain sanctions pressure.