Russia’s liquid sovereign wealth fund assets stood at 6.5 percent of GDP when the war began. By April 2026 they were down to 1.8 percent. That is one of the central findings of a new Kiel Report, published in June by the Kiel Institute for the World Economy and the Stockholm Institute of Transition Economics, which concludes that four years after the full-scale invasion of Ukraine the Russian economy is showing clear signs of structural exhaustion.
The report, titled Endgame: The State of the Russian Economy, is Kiel Report No. 9. It brings together international experts on the Russian economy and says Moscow’s fiscal buffers are largely depleted.
Money running short
The federal budget deficit passed the government’s full-year target within the first three months of 2026. Oil and gas revenues fell 45 percent year on year in the first quarter.
“In the first years of the war against Ukraine, Russia’s economy has proven more robust than many expected, but now the buffers are depleted,” said Moritz Schularick, President of the Kiel Institute and co-author of the overview chapter. “Fiscal reserves have been largely exhausted, growth has come to a standstill, and the country’s dependence on China is becoming ever more pronounced.” He added that higher oil prices resulting from the war in the Gulf will likely bring only temporary fiscal effects.
Contributors say the Kremlin has leaned on off-budget financing, rapid credit expansion and indirect support through the banking system to keep military spending going. Russian corporate debt has risen sharply as banks direct funds to war-related sectors.
The report argues the problem is no longer simply financial. Matthew C. Klein, author of the economics blog The Overshoot and of the chapter on war financing, put it this way: “The fundamental constraint facing Russia today is not access to money but access to people, technology, and productive capacity.” He said labor shortages are at record levels and sanctions limit critical imports, so higher spending “increasingly risks generating inflation rather than greater military output.”
Leaning on Beijing
China now accounts for roughly 35 percent of Russia’s total foreign trade and supplies the overwhelming majority of the critical dual-use goods and military-relevant components entering the country. It is responsible for about three-quarters of the rise in Russia’s imports of sanctioned critical military components since 2022.
The partnership has softened the effect of Western sanctions, the researchers say, but it is increasingly lopsided. “Russia has gained an economic lifeline, but China has gained leverage,” said Alicia García-Herrero, Senior Fellow at Bruegel and a co-author. She called it “a partnership of dependence rather than one of equals.”
The report describes the pivot as a necessity. With access to Western markets, technology and financial infrastructure reduced, Moscow relies on Chinese demand for its exports and on Chinese firms for critical imports. That has helped sustain the war economy in the short term while eroding Russia’s autonomy and bargaining power over the longer term.
What the authors recommend
The authors see a window for Western action. They name oil and gas export revenue as the key factor sustaining the war effort and call for stronger enforcement of existing sanctions. “Price cap enforcement must take center stage in sanctions policy,” said Torbjörn Becker, Director of the Stockholm Institute of Transition Economics. “This includes renewed efforts to limit Russia’s shadow fleet.”
They also propose tighter export controls, particularly on Chinese suppliers, and a “Ukraine Support Tariff” on remaining trade with Russia, notably LNG, chemicals, fertilizers and other goods that still reach European markets. The tariff would cut Russian export revenue and raise dedicated funds for Ukraine’s defense and reconstruction.
“The challenge for Europe is to convert Russia’s growing economic vulnerabilities into lasting strategic leverage,” Schularick said.
