Why the Russian Economy is on the Brink of Recession

The Troubling Economic Forecast for Russia

Analyses of the current state of the Russian economy are plentiful.
According to economist Yuriy Gorodnichenko from the University of California, Berkeley, the country’s economy is in serious trouble and risks plunging into a dramatic recession within a year.

Putin’s claims that the Russian economy is weathering the war and sanctions well could soon prove difficult to sustain.
While Western restrictions on Moscow’s finances and energy revenues have not deeply and completely impacted the state’s coffers, Russia’s so-called war economy is not a definitive solution to its economic problems.

The Impact of Energy Trade and the U.S.
Dollar

Gorodnichenko emphasized that Moscow’s economy is heavily reliant on petrodollars, or dollars obtained through the trade of oil and gas.
However, with Russia’s energy flows disrupted by sanctions, it is unclear if sales to friendly nations will be enough to sustain the Kremlin’s substantial war budget, or if Russia will have sufficient access to dollars to promptly import all the goods and resources its economy needs to function.

“This could precipitate the Russian economy into a recession in the next 12 months,” Gorodnichenko predicted.

The Risk of a Severe Recession

The decline in oil sales implies that Russia is losing access to the U.S.
dollar, as crude transactions are primarily conducted in this currency.
A scarcity of dollars for transactions could further isolate Russia from the global economy, as the U.S.
dollar is the backbone of global trade.

Gorodnichenko also noted that when the Soviet Union lost access to petrodollars, its economy collapsed within five years.
The looming economic decline of Russia could occur even more rapidly, considering that the Soviet Union was much more self-sufficient in terms of resources than Russia is today.

Economists have been warning of an economic disaster for Russia since 2022, when its invasion of Ukraine prompted a wave of sanctions that disrupted trade and finance.
With the war dragging on, the Russian economy is becoming increasingly fragile.
Its collapse could be imminent.