When Russian President Vladimir Putin launched his war of aggression against neighboring Ukraine in February 2022, it set off an unprecedented wave of Western economic pressure. That "shock and awe" campaign, orchestrated by the Biden administration and U.S. allies in Europe, was designed to ratchet up the costs of the war for the Kremlin via a raft of sanctions and other restrictions designed to isolate Russia from global markets.
So far, though, Western pressure has proved to be less than meets the eye. For all of its public rhetoric to the contrary, Europe has failed to meaningfully wean itself off Russian energy, a key strategic vulnerability. In fact, the continent's dependence on Moscow has grown, as European imports of Russian natural gas actually rose from 2023 to 2024. And, despite early optimism about a mass exodus of commercial activity as a result of the war, hundreds of Western businesses (including prominent American firms like Guess, TGI Friday's, and Tupperware) still retain sizable stakes in the Russian market.
As a result, although it definitely hasn't thrived, Russia's economy has managed to survive, even growing modestly over the past calendar year. For instance, wages for workers, especially those in the defense sector, have increased, while overall unemployment has decreased. This and other trends have fed official Russian triumphalism that the country will ultimately outlast the West, at least in economic terms.
Yet, as the Ukraine conflict nears its third anniversary, evidence is mounting that the bill for the Kremlin's war of choice is finally coming due.
Although Russia's Central Bank is keeping official inflation at 9.5 percent, it has steadily raised interest rates, increasing them to 18 percent last July and then again to 21 percent in October. This has made it increasingly difficult for companies still in Russia to attract investment or even to maintain their operations. Mass corporate bankruptcies are now no longer out of the question in coming months.
Other indicators are similarly sobering. Costs for foodstuffs and consumer goods are soaring, and in spite of wage increases public opinion polls now indicate that Russians are worried about rising costs, which will soon put needed products out of financial reach. Income inequality, too, is growing as Russian public sector salaries and pensions struggle to keep pace with inflation.
Even Putin's usually-loyal propagandists have begun to take notice. Pro-Kremlin news outlets, which previously argued for total victory over Kyiv, have begun to push for negotiations with Ukraine. For its part, the Kremlin is acutely aware of this vibe shift; back in October, state media outlets were instructed to avoid discussion of Russia's 2025-2027 budget, which set aside a staggering 41 percent of federal spending for national security and defense. Meanwhile, Russia's military has resorted to raising wages and offering large signing bonuses to attract new recruits, a clear sign that the government is worried about the potential disruptive effects of another mandatory mobilization.
Perhaps most damning of all, Russia's hard currency reserves have fallen from $117 billion in 2021 to just $31 billion as of November 2024, and the country is now increasingly dependent on its National Wealth Fund in order to remain solvent. Experts believe Russia will likely run out of liquid reserves by this fall, forcing budget cuts and possibly even price controls and rationing.
All of this provides a crucial opening for the new U.S. administration. While still on the campaign trail, President Donald Trump pledged that he would secure a rapid end to the Ukraine war. Now that he is back in the White House, Mr. Trump is under pressure to produce a game plan for how to do so.
Here, the president would do well to take a page from his own first term foreign policy playbook. When it came into office back in 2016, the Trump administration abrogated the nuclear deal its predecessor had struck with Iran in favor of a policy of "maximum" economic and strategic pressure on the Islamic Republic. The goal, as administration insiders laid out, was to build leverage over Tehran in order to force it back to the diplomatic negotiating table.
Half a decade later, Russia's internal economic turmoil suggests that that sort of formula could pay considerable dividends in the context of the Kremlin as well. Accordingly, near-term U.S. policy needs to be geared toward ratcheting up the economic pain now being felt by the Kremlin, as a way of forcing Putin and his cohort to meaningfully de-escalate and make substantive concessions to Kyiv. All this should be underpinned by a simple realization—that the secret to successfully ending the most consequential European conflict in eight decades lies in making the costs of continuing it simply too heavy to bear.
