Recent news reports suggest U.S. President Donald Trump may finally have overcome his seeming unwillingness to level additional economic sanctions on Russia. Faced with the reality that at the current level of pressure Russian President Vladimir Putin feels no imperative to seriously engage in negotiations with Kyiv, Trump said Monday he would give Russia 10 or 12 days to make progress toward ending the war before imposing “sanctions and maybe tariffs, secondary tariffs.” If Trump wants to end the war anytime soon, additional sanctions will likely be necessary. Our latest research concludes that at the current level of sanctions and battlefield intensity, Russia is likely able to maintain its war effort for at least the next three years.
Over the three and a half years since its invasion of Ukraine, analysts have consistently underestimated Russia’s economic resilience. Moscow has not only maintained economic growth but also successfully restructured its economy on an impressive war footing. It is inaccurate to claim that sanctions don’t work, as Trump mused later this week, but there are ways to make them more effective. First, we need to examine the reasons for Russia’s economic sustainability, of which there are several.
Thanks to a dramatic ratcheting up of government spending within the framework of “military Keynesianism,” fueled in large part by continued energy exports, Russia for the last three years has posted impressive growth numbers, maintained shockingly low levels of unemployment, and even reduced social inequality by sustaining real wage growth that has disproportionately benefited Russians at the lower end of the economic ladder. Russia’s over-inflated military industrial complex draws resources away from innovation in the non-defense economy but has proved quite compatible with the Putinist emphasis on a more Soviet-style prioritization of defense needs and heavy industry. The Russian defense industrial base continues to crank out missiles, drones, and other key weapons systems, while still producing more ammunition than the U.S. and its NATO allies combined, despite its significantly smaller total outlays of defense spending.
A quick look under the hood shows the Russian economy has plenty of weaknesses, however. Russia has struggled to get inflation under control, as an overheated economy has pushed domestic demand beyond supply. A major source of inflation is the country’s chronic labor shortage, already an issue before 2022 but exacerbated by war. Additionally, Russia’s economy has remained dangerously over-reliant on key inputs and dual-use goods from China that are critical for its war effort, along with overpriced supply chains that reflect the Kremlin’s need to constantly evade Western sanctions and export controls. Furthermore, Russia’s current account remains exposed to the risk of a balance-of-payments crisis, as Russia still relies on an influx of hard currencies from commodities sales to fund its dependence on imports and support the functionally non-convertible ruble.
Crucially, in recent months, as the international price of oil has sunk lower, Russia’s dependence on energy revenues has been magnified. With the Central Bank of Russia having maintained high interest rates to curtail inflation, Russian banks are now complaining of acute stress as loans made to corporate actors are starting to go bad. The government has had to rework its previously agreed-upon budget for 2025, and leading voices in the country’s economic leadership continue to warn of an economic slowdown that could grow into a full-on recession (which may have already arrived in non-defense sectors of the economy).
If sanctions were tightened, Russia could see its resources limited further, potentially strengthening Ukraine’s hand at the negotiating table. Sanctions cannot directly stop Russia’s war effort, but they still matter. They raise costs for the Russian economy and war machine, fuel inflation thanks to the added costs of sanctions circumvention, limit the availability of funds to be spent on the battlefield, and force Russia into domestic spending trade-offs that lower the country’s long-term productivity and ability to invest in its human capital. Additionally, just because a financial crisis has not yet emerged inside the Russian banking system does not mean it never will. Here are a few immediate steps the administration could take to turn up the temperature on the Russian economy.
First, U.S. policymakers should expand the sanctions net to ensnare Russian civilian firms with impressive market share, which continue to supply the Russian defense industrial base with key inputs and components, often from China, without facing serious repercussions. These middlemen, importers, and logistics firms play a crucial role in the Russian economy today. Sanctions will not eliminate them but will create more hoops they need to jump through, potentially raising import costs and putting pressure on Russia’s current account. On this front, coordination with allies is key. The U.S. needs to continue to collaborate with its G-7 counterparts, particularly in the European Union, to continue tightening the enforcement of the current sanctions regime and working to eliminate existing loopholes within its structure.
Next, the U.S. government should threaten credible secondary sanctions—and follow through on implementation—against often smaller financial entities in countries like China or Kyrgyzstan that continue to process transactions connected to sanctioned Russian firms.
Washington should join allies in expanding its list of sanctioned “shadow fleet” oil tankers that transport Russian crude. While Russia will continue to identify new vessels to move its oil internationally, the designations create extra costs, generate delays, and in turn cut into the flow of hard currency into the Russian economy. Additionally, sanctions should be leveled against individual refineries in third countries that purchase Russian crude—the EU’s recent 18th sanctions package recently designated a major Indian refinery as subject to sanctions, and some of its business partners are already cutting ties.
The U.S. should use its significant diplomatic leverage to pressure and incentivize Western partners like India and Turkey to limit their purchases of Russian crude. Recently, the Trump administration has threatened tariffs against India as part of ongoing trade negotiations, for now scheduled to take effect on August 7th, and has referenced the country’s continued purchase of Russian energy and weapons as one of the justifications for some kind of additional penalty. These efforts—while potentially encouraging—should be seen as augmenting, rather than substituting, continued U.S. targeting of the existing chokepoints within the Russian war machine by expanding sanctions on the individual entities described above. As Russian sanctions evaders continue to innovate, designers of sanctions policy should put forth their own new creative measures to counteract Russian workarounds. In addition, the U.S. government should aim to replace Russian oil on the global market by encouraging increased production from OPEC+ countries, excluding Russia. Trump’s reportedly improved ties with the Gulf states may facilitate such efforts.
Lastly, Washington should consider expanding the list of Russian exports it subjects to aggressive sanctions with limited carve-outs. These could include metals, precious stones, agricultural products, and fertilizers, among others. In 2024, Russian crude and oil product revenues came in at roughly $192 billion. But total Russian export revenues were even higher, at over $417 billion. Expanding the breadth of the sanctions regime to weaken other key commodity sales will likely create market disruption, but an approach that is entirely focused on oil will likely yield diminishing returns over time. The hope with expanded sanctions should be to cause acute pain to the Russian economy and thereby push Moscow to quickly negotiate with Kyiv out of a desire for an economic reprieve.
Containing Russian ambitions will require patience, deep expertise, pragmatism, deterrence, and economic statecraft. Besides continuing to supply critical weaponry, ammunition, and intelligence to Ukraine, one of the best ways to protect U.S. interests in Europe is to effectively tighten and enforce sanctions to directly curtail Russian export revenues. Leaders in Washington and Europe should take note.