The longstanding narrative of Russia’s economic resilience in the face of Western sanctions may be showing signs of strain, challenging Moscow’s perceived advantage in the Ukraine war. As highlighted in a Bloomberg Opinion piece by Marc Champion, while the Kremlin has projected an image of holding “all the cards in Ukraine,” the reality appears more complex.

“The reality is that Putin’s hand is weaker than he would have us believe,” Champion argues.

He points out that many of Russia’s perceived advantages are either dependent on Western choices, contested by Ukraine’s growing military capabilities, or simply illusory. Perhaps most notably, “Putin’s threats of a nuclear strike… serve as a perfect example of just how effective a bluff can be when it’s believed.”

According to a January report by the Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF), Russia’s non-defense economy has stagnated since mid-2023. A concerning credit crisis is emerging within Russia’s defense sector.

“The nation’s corporate debt load surged by 36.6 trillion rubles ($446 billion at historical rates) since 2022, or more than 70%,” Craig Kennedy, a former US banker now at Harvard University, estimates.

The strain is particularly evident in the banking sector, where institutions quietly restructure bad debt to avoid reporting requirements. Champion notes that defense contractors remain “confident the state will bail them out if necessary—a reasonable assumption until it can’t.”

Champion warns against actions that could strengthen Putin’s position during negotiations, cautioning that “the worst thing the US and Europe could do right now would be to strengthen Putin’s hand” through trade wars or premature concessions. While Presidents Putin and Zelenskyy have shown more openness to talks, Champion emphasizes that any ceasefire agreements should be approached carefully considering historical precedent.

Read more:

• ISW: Russian economy shows distress signs despite Kremlin’s strong-year-for-economy claims
• Zelenskyy compares Russian economy to sinking Titanic
• Putin must end Ukraine war by 2025 or face economic collapse, warns ex-energy chief
• Why Russia’s collapse is inevitable — and what comes next