After the invasion of Ukraine in February 2022, Western countries imposed unprecedented economic sanctions against Moscow. They largely cut off its banks from the international finance system, froze Russian assets in foreign banks, and banned high-tech exports to Russia—while seizing the foreign property of the Russian Federation’s oligarchs and Vladimir Putin’s cronies. Still, despite all these initiatives to choke off income for the Kremlin’s war efforts, the Russian state collected record revenues of about US$320 billion in 2023. Where did all this money come from?

Sergei Guriev is the provost of the Paris Institute of Political Studies, the former chief economist at the European Bank for Reconstruction and Development, and the former rector of the New Economic School in Moscow. As Guriev explains, most of the bounty has two sources: oil sales—including record amounts to U.S. allies like India—and steep inflation, which lifted Moscow’s tax receipts along with domestic prices and business revenues.

Neither of which, Guriev says, can reliably protect the Kremlin from major financial peril, meaning a significant threat to its ability to pay for the war in Ukraine. Even with its soaring revenues last year, the Kremlin’s budget ran a deficit of some $40 billion, and its budget calls for even higher defense spending this year. Meanwhile, Moscow is running out of ways to cover the shortfall. Guriev thinks it has enough hard assets—in reserve currencies, like the euro or the U.S. dollar, or gold—to pay off its debts in 2024. But those hard assets could run out in early 2025. And borrowing or printing more rubles will only drive inflation even higher—further antagonizing a Russian public already discontent about rising prices.

Michael Bluhm: Where did all this revenue come from?

Sasha Matveeva

This article is for members only

Join to read on and have access to The Signal‘s full library.

Join now Already have an account? Sign in