The government in Moscow has almost completely exhausted its cash reserves - the Russian economy is "in the final stage", says a study by the German Institute for World Economics (IfW) and the Stockholm Institute for Transition Economics. "In the first years of the war against Ukraine, the Russian economy proved to be more resilient than many expected. But now the reserves are exhausted," explains IfW head Moritz Schularik.
Stagnation and collapse of oil and gas revenues
Economic growth is stagnant, dependence on China is growing, and higher oil prices due to the Gulf War are likely to have only a temporary effect, Schularik added.
The study indicates that the liquid assets of the Russian sovereign wealth fund have shrunk from 6.5% of GDP at the start of the war to just 1.8% in April 2026. At the same time, the budget deficit in the first three months of the year has already exceeded its forecast for the whole year. In addition, oil and gas revenues in the first quarter collapsed by 45 percent compared to the same period last year.
A glaring labor shortage
According to the study, Russia is facing more than just financial challenges. "The main constraint Russia faces today is not access to money, but access to labor, technology and production capacity," said Matthew Klein, co-author of the study.
The government in Moscow could mobilize additional financial resources. But given the record labor shortage and international sanctions, the policy of higher spending carries a serious risk of generating inflation instead of increasing Russia's military power.
Russia is becoming increasingly dependent on China
In addition, according to the report, Russia's dependence on China is growing. China currently accounts for about 35 percent of Russia's total foreign trade. China supplies the majority of military goods that reach the country. The same applies to critical dual-use goods, i.e. goods that can be used for both civilian and military purposes. China accounts for approximately three-quarters of the growth in Russian imports of sanctioned critical military components since 2022.
"Russia received an economic lifeline, but China gained influence," explains Alicia Garcia-Herrero, co-author of the study. Moscow is becoming increasingly dependent on Beijing for trade, technology and finance, while China continues to have the freedom to dictate the terms of bilateral relations, the expert added.
The authors of the study see Russia's growing economic vulnerability as an opportunity for Western countries to act more effectively politically - for example, by taking even more aggressive measures against Russia's shadow navy, says Torbjörn Becker, another co-author of the study. In addition, experts call for active measures to reduce Russian export revenues.
"Tariffs in support of Ukraine"
The German institute IfW also proposes imposing punitive tariffs on trade that still exists between the European Union and Russia. The idea is to use the revenues to support Ukraine and increase pressure on the government in Moscow.
Such "tariffs in support of Ukraine" could generate a significant resource - between 11 and 16 billion euros per year. "The idea is very simple: as long as there is some trade with Russia, Europe should use it to support Ukraine", explains Julian Hintz of the IfW.
The proposal is for customs rates of 30 to 50 percent. Duties on imports into the EU from Russia could be supplemented by taxes on EU exports to Russia. Last year, bilateral trade amounted to 57.2 billion euros.
Moscow began its offensive war against Ukraine in February 2022, and there is no end in sight. Russia occupies almost a fifth of Ukraine's territory, including the Crimean peninsula, which it annexed in violation of international law back in 2014.
Author: Susanne Eikenfonder