When a nation is suddenly slammed with blanket sanctions like Russia was after invading Ukraine, you’d think its economy would crumble overnight. But the truth is far more complicated—and, in many respects, more interesting. In the last three years, Russia has had to reinvent itself entirely, not only economically but socially and politically as well. The outcome? A nation that looks very different from the Russia we were familiar with just a few years ago.
The initial effect was savage. Russia’s economy contracted 2.1 percent in 2022, and prices skyrocketed as the central bank raced to shore up the ruble by increasing rates to 21 percent. The financial system suffered a massive blow, with the majority of its key assets being sanctioned and more than 16,000 limits imposed on entities and organizations. Government ministers, generals, and oligarchs were suddenly cut off—assets seized, travel restricted, and their economic liberty cut down to size. “The Russian economy of three years ago no longer exists,” an analyst summarized.
Russia didn’t stand still, however. Rather, it shifted—quickly and radically. The Kremlin redirected much of its industrial base into the military, transforming the nation into a full-fledged war economy. Civilian concerns were secondary as the attention fell on tanks, drones, and ammunition. That changed, creating new economic beneficiaries: war profiteers. Defense expenditures rose to around 5 percent of GDP, or approximately $90 billion. Transparency virtually disappeared, as the government discontinued releasing detailed information on military costs.
Naturally, none of this occurred in a vacuum. Sanctions shut off access to Western materials and technology, but Russia found a way around them. Trade statistics reveal that microchips and electronics essential to advanced weapons began to arrive through countries such as Kazakhstan and China. Kazakhstan’s microelectronics exports to Russia increased over 500 percent, and China became Russia’s primary source of semiconductors, representing more than 90 percent of these imports. Much of this equipment was originally Western-produced, simply diverted through willing partners who were willing to stretch the rules.
Russia also heavily relied on the gray market. It utilized shell firms and so-called “shadow fleets” to continue oil exports. More than 500 ships now carry Russian oil beyond Western monitoring, with China becoming the leading purchaser. Indeed, China has also become the largest re-exporter of Western products into Russia, willingly or not, or simply for profit.
All these workarounds were, however, costly. Russia now pays well above world levels for a lot of foreign goods—sometimes ten times the cost. That makes it much more difficult to upgrade or replace military equipment. The air force, for example, is forced to operate older planes like the Su-35 because production of newer ones like the Su-57 has been halted for lack of necessary parts. Even Mosfilm, Russia’s renowned film studio, was forced to forego its historic 1950s-era T-55 tanks to ship them to the front.
The workforce has changed as well. A lot of skilled workers emigrated from the country, enrolled in the military, or transitioned into defense sectors. About 10,000 to 30,000 laborers enlist in the army each month. That’s a huge loss for the civilian economy, and increased inflation and interest rates have made things more difficult for regular Russians.
This war economy has become the new norm. It’s now constructed on the manufacturing and deployment of weapons—and those benefiting from it have an interest in continuing. Even if this war ended tomorrow, undoing this deep restructuring would be tricky. Those profiting under today’s system aren’t going to leave willingly.
All the same, Russia’s economy is not invincible. The danger of overheated, militarized excess is real. If the defense budget declines too rapidly, unemployment might surge, production would decline, and the nation could lurch into a severe recession. The disparity between what the military requires and what it can obtain is spreading. On the front lines, soldiers are increasingly depending on inadequate equipment and obsolete hardware.
Worldwide, Russia’s pivot to China has had huge ripple effects. Both countries’ trade reached an all-time high of $237 billion in 2023—nearly 70 percent higher than it was in 2021. New alliances and backchannels have made the rest of the world think about how sanctions are effective and how to maintain their effectiveness.
The Russia we know today has been remolded under pressure, on the fly, and by the necessities of war. Its economy, its people, and its position in the world all appear different now. This chapter is not yet finished, but one thing is guaranteed: no matter what you can say about it, Russia has changed—and it’s changing in ways that will be difficult to reverse.