Analysis suggests that warning lights have come on for Russia’s economy, which is at war with Ukraine. As structural headwinds such as falling oil prices and population decline overlap, some expect the slump could become a catalyst to end the war.

The UK daily the Guardian reported on the 6th (local time) that, despite Western sanctions stemming from the Ukraine war, Russia’s economy, which had remained solid for a while, has sent clear signals of slowdown this year.

According to the report, the International Monetary Fund (IMF) last month downgraded Russia’s growth forecasts for last year and this year to 0.6% and 0.8%, respectively. Excluding the COVID-19 pandemic period, these are the lowest levels since 2014.

Falling oil prices are cited as a key reason for the lower growth. The price of Russia’s Urals crude, which reached $90 per barrel in early 2022, fell to around $50 by the end of last year. Accordingly, fossil-fuel tax revenues, which accounted for 40% of the Russian federal budget at the start of the Ukraine war, plunged to 25% as of the third quarter of last year.

On top of this, amid threats of U.S. tariffs, even major alternative markets such as India are cutting purchases of Russian crude, putting Russia under mounting pressure.

The Guardian pointed out that an even more serious problem than falling oil prices is the long-term headwind of the ‘demographic cliff’. Russia’s population fell by about 2 million, from 145.5 million in 2019 to 143.5 million in 2024. This is the result of war deaths, emigration abroad, and low birth rates.

To fill fiscal shortfalls caused by population decline, Russia has rolled out tax increases, raising the corporate tax rate from 20% to 25% and the value-added tax from 20% to 22%. However, this is hitting ordinary households suffering from high inflation and is worsening public sentiment.

Moreover, to curb persistent inflation, the central bank has lifted the key interest rate to as high as 21%, further deepening the slowdown.

According to a Gallup poll, the share of Russians saying ‘the economy is getting worse’ was 39% as of last August, up 10 percentage points from 2022 (29%) at the start of the war. Experts say that while Russia is not collapsing to the point of halting the war immediately, its capacity to pour massive defense spending as before has diminished.

The Guardian analyzed that Russia’s participation in the recent U.S.-led trilateral talks among the United States, Russia, and Ukraine in Abu Dhabi, United Arab Emirates (UAE), may also have been influenced by this economic pressure. Russia’s wartime economy cannot hold out forever, and its weakened economy has emerged as a new bargaining lever for Ukraine.