Four years after launching a full-scale invasion of Ukraine, Russia’s economy is showing signs of systemic strain, described by some analysts as entering a “death zone” – a term borrowed from high-altitude mountaineering to illustrate a situation where an organism consumes itself faster than it can repair. While an immediate economic collapse is not predicted, the long-term outlook is bleak, with stagnation, dwindling oil revenues, and a widening budget deficit threatening future capacity.
The assessment comes from Alexandra Prokopenko, a fellow at the Carnegie Russia Eurasia Center, who detailed her analysis in a recent op-ed for The Economist. Prokopenko argues that Russia is experiencing “negative equilibrium,” maintaining a fragile stability while simultaneously eroding its economic foundations.
The core of the problem, according to Prokopenko, lies in the increasingly bifurcated nature of the Russian economy. A significant portion of resources is now channeled towards the military and related industries, prioritized by the Kremlin. The remainder of the economy, encompassing all other sectors, has been effectively “left in the cold.” This prioritization is not simply a matter of resource allocation; it’s a fundamental shift in the economic structure.
“The most dangerous feature of this new structure is the fuel it burns,” Prokopenko stated. “Russia’s economy now runs on what might be called ‘military rent’: budget transfers to defense enterprises that generate wages and economic activity.” However, this economic activity is ultimately destructive. Funds are directed towards producing weaponry that is either destroyed in combat or becomes obsolete, offering no long-term economic benefit. Similarly, the recruitment of soldiers, while stimulating short-term economic activity through wages, results in casualties or permanently disabled veterans, removing productive members of the workforce.
The human cost of the conflict is staggering. The Center for Strategic and International Studies estimates Russian military casualties at 1.2 million, including 325,000 killed. This loss of life and the debilitating injuries sustained by many more represent a significant drain on Russia’s human capital.
Prokopenko draws a stark analogy to altitude sickness, stating that “the longer you stay, the worse it gets, regardless of rest.” Unlike a typical recession, which can be addressed through monetary or fiscal policy, Russia’s current predicament is structural and deeply entrenched. Interest payments on government debt are already exceeding combined spending on education and healthcare, further constricting resources available for essential services.
Despite these challenges, a complete economic collapse is not inevitable. Putin appears determined to continue the war, betting that either Ukraine or its Western backers will falter first. “Russia can probably continue waging war for the foreseeable future,” Prokopenko predicted, “But no climber can survive the death zone indefinitely—and not all climbers who attempt the descent survive it.”
Alarm bells have been sounding within Russia itself. Sources told the Washington Post earlier this month that Russian officials warned Putin of a potential financial crisis as early as this summer, citing a 50% crash in oil revenue and a rapidly expanding budget deficit despite recent tax increases. A Moscow-based business executive reportedly warned of potential restaurant closures and widespread layoffs.
The economic strains are rooted in the sanctions imposed following the invasion of Ukraine four years ago. Mobilizing the economy for a prolonged war led to a tight labor market and high inflation, forcing the central bank to maintain high interest rates. Recent attempts to ease monetary policy have failed to stimulate consumer spending.
The resulting economic pressure is manifesting in unpaid wages, furloughs, and reduced working hours, leading to difficulties for consumers in servicing their loans. A Russian official warned the Washington Post in December that a banking crisis and a non-payments crisis were both possible scenarios, adding that a continuation of the war or an escalation would exacerbate the situation.
Western officials, meanwhile, are seeking to counter the narrative that Russia is gaining an economic advantage. Ukraine has recently launched a counteroffensive, capitalizing on disruptions to Russian troop access to SpaceX’s Starlink internet service. The Institute for the Study of War estimates that Ukraine has liberated at least 168.9 square kilometers of territory in the southern part of the country since January 1st.
Russia’s military is facing increasing difficulties in recruitment, according to Christina Harward, deputy Russia team lead at the Institute for the Study of War. Writing in the New York Post, Harward suggests that Putin may be compelled to implement a limited, rolling military draft to sustain the war effort, arguing that his claims of strength are largely a bluff. “With recruitment rates declining, inflation rates rising and his troops’ ability to actually seize the territory he so desires in question, it won’t be long before Putin has to force his population to suffer economic hardship—and death,” Harward wrote.
