How the War with Ukraine Is Hurting Russia’s Economy

Vertigo

The war between Russia and Ukraine, which started in 2022 with a surprise Russian invasion, has been one of the most devastating conflicts in Europe since World War II. The war has claimed tens of thousands of lives, displaced millions of people, and caused widespread environmental damage. But it has also taken a heavy toll on Russia’s economy, which was already struggling with the effects of the COVID-19 pandemic, low oil prices, and international sanctions. 

According to the World Bank, Russia’s GDP growth slowed down from 2.2 percent in 2023 to 1.1 percent in 2024, as the war reduced domestic and foreign demand, disrupted trade and supply chains, and increased inflation and uncertainty. The war also increased Russia’s military spending, which reached 5.6 percent of GDP in 2024, the highest level since the collapse of the Soviet Union. This diverted resources from other productive sectors and social services, and widened the fiscal deficit to 3.8 percent of GDP in 2022. 

The war also affected Russia’s external position, as it faced increased isolation and pressure from the international community. The United States and the European Union imposed new sanctions on Russia, targeting its energy, financial, and defense sectors, as well as individuals and entities involved in the war. These sanctions reduced Russia’s access to foreign markets and capital, and increased the cost of borrowing. The Russian ruble depreciated by more than 20 percent against the US dollar since the start of the war, eroding the purchasing power of households and businesses. 

The war also had a negative impact on Russia’s long-term economic prospects, as it undermined its human and physical capital, and its institutional and social fabric. The war reduced the quality and quantity of Russia’s labor force, as many young and skilled workers were killed, injured, or displaced by the conflict. The war also damaged Russia’s infrastructure, especially in the regions bordering Ukraine, where roads, bridges, railways, power plants, and communication networks were destroyed or disrupted. The war also weakened Russia’s governance and rule of law, as it increased corruption, violence, and human rights violations. 

The war with Ukraine is not only a humanitarian tragedy, but also a strategic mistake for Russia. It has isolated Russia from its neighbors and partners, and reduced its economic potential and competitiveness. It has also increased the risk of further escalation and confrontation, as the conflict remains unresolved and volatile. Russia needs to end the war and pursue a peaceful and diplomatic solution, based on respect for Ukraine’s sovereignty and territorial integrity, and in accordance with international law and norms. This would not only save lives and reduce suffering, but also improve Russia’s economic outlook and prospects. 

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