European economist says Russia's economy is strained due to the Ukraine
war and sanctions
[May 14, 2025] By
LORNE COOK and DAVID McHUGH
BRUSSELS (AP) — Russia’s economy is under growing strain as its invasion
of Ukraine drags on and Western sanctions are undermining President
Vladimir Putin’s ability to sustain his war, a leading European
economist said after briefing finance ministers on Tuesday.
The economist, Torbjörn Becker, Director of the Stockholm Institute of
Transition Economics, warned that should Russia prevail, European Union
governments would have to spend 2-3 times more than they currently do on
defense for several years.
Russia’s “financial system, their macroeconomic performance, is under
pressure. It’s not in balance. Risks are mounting. But it doesn’t mean
that we can sit back and relax,” Becker told reporters at EU
headquarters in Brussels.
He spoke after briefing the bloc’s finance ministers to help provide a
picture of “the actual condition of Russia’s economy, which
significantly contrasts with the narrative promoted by Russian
propaganda,” the EU’s Polish presidency said.
It said that discussion would help “us to better shape punitive,
financial and economic sanctions against Russia.”
Becker said Russia’s economy only accounts for about 12% of the
economies of the world’s biggest trading bloc. He underlined that it is
highly dependent on oil and natural gas revenue, and on imports of
high-tech equipment to sustain the war effort.
Still, Russia’s economy has outperformed predictions. High defense
spending has propelled growth and kept unemployment low despite fueling
inflation. At the same time, wages have gone up to keep pace with
inflation, leaving many workers better off.

Large recruiting bonuses for military enlistees and death benefits for
those killed in Ukraine have also put more income into the country’s
poorer regions.
Over the long term, inflation and a lack of foreign investments remain
threats to the economy. The question is how long Russia’s militarized
economy can keep going before those issues bite and whether it can hold
out for longer than Ukraine and its Western backers.
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From left, Italy's Finance Minister Giancarlo Giorgetti, President
of the Eurogroup Paschal Donohoe, Germany's Finance Minister Lars
Klingbeil, French Finance Minister Eric Lombard, Greek Economy
Minister Kyriakos Pierrakakis and Cypriot Finance Minister Makis
Keravnos during a meeting of eurogroup finance ministers at the
European Council building in Brussels, Monday, May 12, 2025. (AP
Photo/Virginia Mayo)
 To hit its economy harder, EU envoys
have drafted a new set of sanctions that would target more ships in
the shadow fleet of tankers that Russia has deployed to evade a
price cap of $60 per barrel imposed on Russian oil by the Group of 7
democracies.
They could also freeze the assets of the Nord Stream II gas pipeline
consortium. The pipeline is not in use, but the EU believes the move
could help to discourage investment. The sanctions could enter force
as soon as Thursday.
“If we can lower oil prices and gas revenues and put tighter
sanctions on what they can import, that’s great,” Becker said. He
said U.S. President Donald Trump should press “China and India about
what they are paying for and what they’re exporting to Russia.”
Russia found new markets for its oil in India and China after the EU
imposed a near-total ban and continues to earn a substantial part of
government revenues from exports of oil and gas.
Becker also urged Trump to hit Russia’s financial system by
restricting international transactions. “If something ruins an
economy pretty quickly, it’s a banking crisis,” he said.
In a recent report, his institute said that Russia’s oil revenues
decreased dramatically in early 2025, notably due to EU and G7
sanctions on the ghost fleet. This has forced Russia to withdraw
from its sovereign wealth fund.
The institute estimates that the liquid part of the fund is now
equivalent to less than 3% of GDP. “If oil prices stay as they are,
they will certainly run out of these funds in a year,” Becker said.
___
David McHugh reported from Frankfurt, Germany.
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