Why hasn't the Russian economy collapsed?

Summary

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Podcast Summary

The Indicator from Planet Money

Episode: Why hasn't the Russian economy collapsed?
Date: March 24, 2026
Hosts: Waylon Wong & Paddy Hirsch
Guests: Alina Rybakova (Peterson Institute), Timothy Ash (Chatham House), Vladislav Innozemtsev (Center for Analysis and Strategies in Europe)
Duration: ~10 minutes

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Episode Overview

In this episode, the hosts explore the surprising resilience of Russia’s economy despite heavy international sanctions, ballooning war costs, and mounting debt following its 2022 invasion of Ukraine. Through expert interviews, they unpack the six main reasons Russia’s economy continues to function and introduce the chilling concept of "shmertonomica"—or death economics—underscoring the war's impact on Russian society and economic policy.

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Key Discussion Points and Insights

1. Russia’s Essential Commodities

• Russia’s Role as a Commodity Exporter
  • Despite sanctions, Russia remains a vital supplier of oil, gas, metals, and fertilizers the world still relies on.
  • Alina Rybakova [02:39]: “We still consume sufficient number of energy, oil, gas and also some metals and mining, and we use it for fertilizers as well, that the global economy still needs.”
  • Oil remains Russia’s top earner, making it difficult for global sanctions to fully cut off revenue.

2. Ineffective, Slow Sanctions

• Sanction Gaps and Evasion
  • Sanctions were slow, predictable, and have loopholes Russia has exploited.
  • Timothy Ash [03:17]: “We haven't done enough. We've been too slow, we've been too well telegraphed. We've given the Russians lots of time to figure out ways to get around sanctions.”
  • Western enforcement is weak: no prosecutions or significant penalties, even for nations and companies that circumvent restrictions.

3. Pivot to China and Alternative Trade Partners

• China’s Role as an Economic Lifeline
  • China is now Russia’s largest trading partner, buying key exports and supplying goods.
  • Alina Rybakova [03:36]: “After oil, that's the most important pillar propping up Russia's war economy. China provides direct military support to Russia and also by providing some of the consumer goods, it frees up Russian industry to focus again on the military output.”
  • Russia has developed dependency on China, but it’s mutually beneficial in the short term as other countries quietly follow China's lead.

4. Preemptive Economic Planning & Buffering

• Putin’s Economic War Chest
  • Russia had already built up robust financial buffers—managing tight fiscal and monetary policies, reducing vulnerabilities, and stockpiling reserves—since the annexation of Crimea in 2014.
  • Timothy Ash [05:01]: “There was a lot of durability and buffers built in. Right at the outset. You saw very cautious economic policy from Russia, tight fiscal policy, tight monetary policy, deleveraging, reducing vulnerabilities and building up buffers.”
  • Forced sales of foreign assets to Russian buyers consolidated state and elite control, and losses for foreign investors topped $170 billion.
  • Alina Rybakova [05:34]: “The Kyiv School of economics estimated in March 25 last year that foreign businesses suffered over $170 billion in direct losses.”

5. Creation of a Loyal Elite

• New Loyalists in Business
  • Kremlin policies have given rise to a new, fiercely loyal business elite—a “new, even more loyal class of wealthy people”—whose fortunes depend on their support for Putin.
  • Paddy Hirsch [06:04]: “Putin has built a network of near fanatical supporters in the business classes, a new breed of almost oligarchs who owe everything to the president and who will go along with the president no matter what he does to the economy.”
  • This loyalty is rational: so long as the war and sanctions persist, their profit is tied to Putin’s regime.

6. "Shmertonomica" (Death Economics) and Social Quieting

• Direct Military Payments & Social Engineering
  • Following unpopular mobilizations, the Russian government offered massive financial incentives:
    • Soldier pay 6x prewar (2022) rates
    • $20-40,000 signing bonuses
    • $130-180,000 death benefits
  • Vladislav Innozemtsev [07:55]: “If someone aged around 35 years old, getting medium wage, enlists into the army, fights in Ukraine for around one year, and is killed on the front line. His relatives will get more money in cash that he would be able to earn till the rest of his life.”
  • Banks forgive up to $120,000 in debts for recruits—spread without corruption, instantly boosting poor regions.
  • Vladislav Innozemtsev [08:48]: “It's kind of a helicopter money. And therefore actually is the best way... because no one steals it. There is no corruption, there is no mismanagement, because most of the people who sign up for these benefits are poor and desperate and come from deprived regions.”
  • This has created a macabre Keynesian stimulus that buoys poorer areas, moving recruitment from forced to eager—marginalizing war’s impact among elites and silencing dissent.
  • Vladislav Innozemtsev [09:31]: “So when I'm asking why the Russians do not protest because they don't care, why should they care if they are not affected by the danger of mobilization? And this is the most important thing, it keeps the society quiet and allows Putin to do what he wants.”

The Consequences: A Mortgage on the Future

• The war economy props up growth now but at immense future cost:
  • Massive government debts
  • Loss of workforce
  • Degradation of economic sectors
  • Up to half of the government budget now goes to "defence"
• Paddy Hirsch [09:49]: “Russia's been mortgaging its future to keep its economy rolling. But eventually the debt will have to be paid.”

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Notable Quotes & Memorable Moments

• Timothy Ash on sanctions' flaws:
  • [02:57]: “Sort of sanctions have been, you know, we’ve just not been very clever. That’s the reality.”
• Alina Rybakova on war dividends for loyalists:
  • [05:56]: “To give them something, and in order to give something, you need to take something.”
• Vladislav Innozemtsev on societal resignation:
  • [09:31]: “When I'm asking why the Russians do not protest because they don't care, why should they care if they are not affected by the danger of mobilization?”

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Timestamps for Key Segments

• [02:05] — The real state of the Russian economy: war costs, growth, and debt
• [02:25] — The export engine: Russia’s irreplaceable commodities
• [02:57] — How Western sanctions fell short
• [03:36] — China’s pivotal role and the new trade routes
• [04:42] — Early shocks and Russia’s pre-planned buffers
• [05:45] — Foreign asset seizures and the rise of a loyal economic elite
• [06:44] — Social consolidation: how incentives quieted unrest
• [07:30] — “Shmertonomica”: military payments and their economic impact
• [08:48] — Debt forgiveness and its role in poor regions
• [09:13] — How war economics polarizes Russian society
• [09:49] — The looming reckoning and long-term costs

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Summary

This episode gives a concise yet deep look at the surprising stamina of Russia’s war economy. By unpacking export reliance, the shortcomings of sanctions, Russia’s pivot to China, shrewd prewar planning, elite co-option, and large-scale militarized spending, the hosts paint a picture of an economy in survival mode—defying collapse for now, but with haunting implications for the future. The concept of “shmertonomica” stands out as a vivid and unsettling explanation for how the war is fueling short-term resilience but deepening fractures within Russian society.

Transcript

[Alina Rybakova]

Npr.

[Waylon Wong]

This is the indicator from Planet Money. I'm Waylon Wong.

[Paddy Hirsch]

And I'm Paddy Hirsch. When Russia commenced its second invasion of Ukraine in 2022 and the world responded with sanctions, most economists said it wouldn't be long before the Russian economy collapsed.

[Waylon Wong]

But it hasn't turned out that way. Russia may have become bogged down in a war of attrition, and it may be $320 billion in debt, but its economy soldiers on. Today, depending on how you measure it, Russia's economy is now either the 11th or the fourth largest in the world.

[Paddy Hirsch]

So on today's show, we'll give you six reasons why Russia has managed to keep its economy up and running despite a war, a sanctions regime and its ballooning debt. And we'll learn about one of the most significant and grisly factors in Russia's resilience. Schmertonomica, or death economics. That's coming up after the break.

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[Paddy Hirsch]

No one would say that Russia's economy is doing well, exactly. The country's burning between half a billion to a billion dollars a day on its war in Ukraine. Its debt load has increased in the last year to $320 billion, and its growth rate has slowed from roughly 4% in 2024 to less 1% in the third quarter of last year.

[Waylon Wong]

Still, Russia's economy is puttering blithely along. Alina Rybakova is an economist and a Russia specialist fellow at the Peterson Institute. She says the biggest reason for this is that Russia has something the rest of us want.

[Alina Rybakova]

We still consume sufficient number of energy, oil, gas and Also some metals and mining, and we use it for fertilizers as well, that the global economy still needs.

[Paddy Hirsch]

The most important of these commodities is, of course, oil. It's Russia's biggest earner, which is why we sanctioned it at first.

[Timothy Ash]

I mean, sort of sanctions have been, you know, we've just not been very clever. That's the reality.

[Waylon Wong]

Timothy Ash focuses on Russian and Eurasian economics at the London think tank Chatham House. Tim says the second reason Russia's economy isn't on its knees is that the sanctions, which were supposed to strangle Russia and have failed to do the job,

[Timothy Ash]

we haven't done enough. We've been too slow, we've been too well telegraphed. We've given the Russians lots of time to figure out ways to get around sanctions.

[Paddy Hirsch]

Perhaps the most notable way they've gotten around sanctions by developing relations with China. Alina says China is the third big reason that Russia's economy is still afloat.

[Alina Rybakova]

After oil, that's the most important pillar propping up Russia's war economy. China provides direct military support to Russia and also by providing some of the consumer goods, it frees up Russian industry to focus again on the military output.

[Waylon Wong]

China is now Russia's biggest trading partner, replacing Europe. China buys oil, gas, agricultural goods and chemical products. It's not that China's been helping Russia out of the goodness of its heart, though. Tim says the way the relationship has developed, it's turned Russia into something of a dependent. But it's been helpful to Russia's economy in the short term.

[Paddy Hirsch]

And where China has led the way in defying Western sanctions, many others have followed, including the US Government, by the way, which has purchased Russian oil that's been refined in other countries. But there have been no consequences.

[Timothy Ash]

Secondary sanctions, which is basically enforcements, again, has been very weak. No one's gone to jail, no one gets fined. There's no penalty, really, for helping Russia get around sanctions. And actually sanctions pay.

[Waylon Wong]

Tim says the sanctions did give Russia a jolt when they were first put in place in 2022. He says about $100 billion flowed out of the country as Russia's wealthy rushed to repatriate their fortunes. But, and this is the fourth reason the Russian economy is still ticking, Russian President Vladimir Putin was ready.

[Timothy Ash]

There was a lot of durability and buffers built in. Right at the outset. You saw very cautious economic policy from Russia, tight fiscal policy, tight monetary policy, deleveraging, reducing vulnerabilities and building up buffers.

[Paddy Hirsch]

Tim says Putin was likely planning for sanctions as far back as the invasion of Crimea in 2014. He put skilled technocrats in charge of the economy who've managed things well. They stopped money flowing out. They stockpiled dollars. Alina says they forced foreign companies to sell their operations, often at fire sale prices.

[Alina Rybakova]

The Kyiv School of economics estimated in March 25 last year that foreign businesses suffered over $170 billion in direct losses.

[Waylon Wong]

She says the sales of these foreign companies gave Putin a golden opportunity to shift key assets into Russian hands and to build a loyal base of supporters at the same time, to create the

[Alina Rybakova]

new, even more loyal class of wealthy people. I think that was important, to give them something, and in order to give something, you need to take something.

[Paddy Hirsch]

And this is the fifth reason the Russian economy has resisted implosion. Putin has built a network of near fanatical supporters in the business classes, a new breed of almost oligarchs who owe everything to the president and who will go along with the president no matter what he does to the economy.

[Alina Rybakova]

When there are shocks, for example, like you have in Iran, there will be people who will just basically close the ranks around the regime. And this is also not just because of this wonderful loyalty, but also because it's rational, right? As long as sanctions are in place, the war is in place, I continue to make money.

[Waylon Wong]

Putin just hasn't bought backing at the top of the Russian economic tree. He's found a way to consolidate support at the bottom of the tree, too.

[Paddy Hirsch]

Yes. Vladislav Innozemtsev is a Russian economist who co founded a think tank called the center for Analysis and Strategies in Europe. He says when Russia invaded Ukraine a second time in 2022, Putin initiated a partial military mob that called up reservists. It was not popular.

[Vladislav Innozemtsev]

Facing the real discontent in the Russian society that followed mobilization as a forced event, Putin decided somehow to sweeten this medicine for the Russian society.

[Waylon Wong]

Putin's sweetener was money. Billions of rubles paid to regular soldiers and new recruits in the form of pay increases, savings, signing bonuses, and death benefits.

[Paddy Hirsch]

Vladislav calls this shmirtonomica, or death economics. And it's the sixth reason Russia's economy is still trucking along despite or in this case, because of the war.

[Waylon Wong]

He says monthly pay for soldiers is now six times what it was in 2022. Signing bonuses have risen from zero to between 20 and $40,000. Death benefits are anywhere between 130 and $180,000.

[Vladislav Innozemtsev]

If someone aged around 35 years old, getting medium wage, enlists into the army, fights in Ukraine for around one year, and is killed on the front line. His relatives will get more money in cash that he would be able to earn till the rest of his life.

[Paddy Hirsch]

Vladislav says these cash benefits are the price that the Russian government is paying to sustain its losses in Ukraine. 30,000 soldiers every month. In a kind of grotesque dynamic pricing, these benefits vary according to the military's need for human lives and according to the will of local governments that compete to recruit troops so that they can look good to the Kremlin.

[Waylon Wong]

It's not just government money that's buying these lives. Putin has ordered banks to forgive the debts of recruits who have defaulted up to the equivalent of $120,000. And without compensation from the government, it's

[Vladislav Innozemtsev]

kind of a helicopter money. And therefore actually is the best way, I would say, to use government money, because no one steals it. There is no corruption, there is no

[Paddy Hirsch]

mismanagement, because most of the people who sign up for these benefits are poor and desperate and come from deprived regions. The payments are a kind of macabre Keynesianism, spurring growth and wealth in areas of the country that might otherwise stagnate.

[Waylon Wong]

The system of smartonomica has divided Russian society. Vladislav says there's now so much demand for that government money from the poor, poor and disenfranchised that Russia doesn't need forced deployments anymore. Wealthy people then no longer worry about being sent to war, which means they worry a lot less about the war.

[Vladislav Innozemtsev]

So when I'm asking why the Russians do not protest because they don't care, why should they care if they are not affected by the danger of mobilization? And this is the most important thing, it keeps the society quiet and allows Putin to do what he wants.

[Paddy Hirsch]

And what he wants is to keep the war going, because when it stops, the war economy will stop and the real economy will kick in. Only then will Russia find out the real effects of decimating its workforce, degrading entire sectors of its economy, and spending up to half of its government budget on so called defence. Russia's been mortgaging its future to keep its economy rolling. But eventually the debt will have to be paid.

[Waylon Wong]

This episode was produced by Corey Bridges and engineered by Jimmy Keeley. It was fact checked by Sierra Juarez Cake and Cannon is our editor and the indicator is a production of npr.