This session looks at whether Russia’s economy can continue operating under the pressures of war, exploring the factors that influence its resilience and future prospects.
In Davos, Alexander Gabuev argued that Russia’s wartime economy has defied early sanction-era forecasts of collapse, posting roughly 4% growth in 2023–25, but is now “starting to flash red.” He cited cooling growth (IMF ~0.8–1%), higher-than-reported inflation, and a punishing interest-rate environment that raises both business and sovereign borrowing costs. With oil revenues under pressure and taxes rising, Moscow can likely fund the war “for at least 12 months or more,” but continuation will require “painful choices” that crowd out infrastructure and social spending.
Romania’s foreign minister Oana-Silvia Toiu framed the core lesson as delayed deterrence: weak reaction after Crimea helped enable 2022. Europe’s “more than 20 packages” of sanctions demonstrate unity, yet she emphasized enforcement—targeting circumvention, the “shadow fleet,” and criminalizing evasion, including jail time. Sviatlana Tsikhanouskaya warned against premature Belarus sanctions relief, arguing “sanctions do work” and proposing a division of labor: “American sanctions for freeing people, European sanctions for freeing the country,” alongside harmonized Russia-Belarus measures and secondary sanctions.
Moldova’s prime minister downplayed a return to Russian energy dependence, stressing resilience against hybrid influence and a commitment to EU integration. The panel’s conclusion: Russia isn’t out of money, but Europe still has unused tools to shorten the timeline by tightening implementation and expanding alternatives to Russian trade and energy.
Welcome, everybody, to the third day of World Economic Forum in Davos. My name is Alexander Gabuev. I'm director of Carnegie Russia, Eurasia Center in Berlin and a moderator of today's panel. It's on the record. It's live streamed. So everybody who wants to tweet about it or asks about it should use hashtag 26. We're going to talk about an issue that may seem arcane, but actually has a lot of policy relevance. And that's the health of the Russian economy. Whether Russia can sustain its war economy and what policy options and policy dilemmas is Europe facing when dealing with Russia that's now entering its fifth war of, aggression of Ukraine against Ukraine? As you will see, this great panel doesn't comprise anybody who is an economist working on Russia as a full day job. So what I would suggest is that we will discuss the health of the Russian economy, for sure, but we will delve more into the policy dilemmas and options available for Europe. And we'll talk about 20 minutes or so among ourselves. And then we turn it to the audience for questions. So be prepared. And I think that my, panel today comprises of Yana Sylvia Toyo, who is a foreign minister of Romania, Svetlana Tikhanovskaya, who is leader of Belarusian Democratic forces, and Alexander Montejano, who is prime minister of Moldova. So for the last four years, the topic of the health of the Russian economy has been hotly debated. I guess with the start of Russia's invasion that shocked many people. We just discussed that and many people were absolutely unprepared. Alexander told me that he returned to Kyiv on February 23rd, not anticipating Russia's full scale invasion. The avalanche of sanctions unleashed against Russia shocked even some policymakers in European capitals. And then the predictions were that the Russian economy will tank very fast. The projections of dip in GDP were in 30% ballpark territory and so on. What we experienced was paradoxical, measured against this expectation, but not so paradoxical towards historians of the economy. Russia's economy has experienced a moderate wartime boom, growth in GDP in 23 and 24 and 25 was around 4%. We saw strong ruble at some point, and we saw all of the major economic indicators, with the exception of the central bank's key rate, stay in a territory that signals robustness and health. So Putin was able to finance his war. Throughout these four years of mounting sanctions pressure. However, as we are entering 26, the Russian economy starts to flash red. There are some signs that should keep people in Moscow, particularly people who manage Putin's economy and who are probably the most competent parts, much more competent than his generals. Really concern what I'm talking about. If you look at growth. Growth is projected in a territory of 1% or recent IMF forecasts is 0.8%. That's a far cry from what Europe for Russia has experienced before, not the end of the world, but it's very palpable that the economy is cooling down. Inflation. The central bank has put a target of 4 to 5% inflation for last year. They ended up with the official inflation of roughly 6%. And then all of the alternative measurements tell us that the real inflation is actually higher than this numbers, which means that this Russian central bank will need to maintain its very high borrowing costs. Very high key rate, 60% currently, which not only increases cost of borrowing money for businesses, but also increases it for the government. Before the war, the Russian government has spent 4.4% of its budget expenditures on paying for the debt. This year, the figure will be 8.8% GDP budget expenditures, not the end of the world, lower than UK and the US, but a twofold increase. And then with the current oil price, with, everything, what's happening in the global commodities market, we see that the Russian revenues will fall short of expectations. Russia is raising taxes, including value added tax that also has, adding to inflation. So whether that will have an impact of Putin's ability to conduct the war, I think consensus among economists is that he will have resources to continue for at least 12 months or more. And then when he arrives there, it's not the trade off between stopping the war or continue, it's whether if you want to continue, you need to make painful choices and cut some expenditures on infrastructure, healthcare and tightening the belt. So it's clear that this era of maintaining stability and funding a very costly war is over. But it's not over. To the extent that the regime runs out of money to continue it. And here comes the first question to you as a European policymaker. So throughout this four years of confrontation, European policy has been to not only punish Russia for its illegal invasion of its neighbor, but also to squeeze it and make resources available to fund the war smaller. Now we are about to enter year four, year five, of of the war. How would you describe European victory plan in this economic warfare against Russia? And what time frames do we operate like? When is the point where you think that this will finally kill the beast?
Well, we have seen one estimation of the time frame of the war that came from Putin that said, it's going to be finished in three days, and now we're four years into it. So I don't think estimates in terms of clear deadlines is something that we can, unfortunately, we cannot offer. But, there are some things that are clear. And I would go back a bit, more in time. The Crimea, first, incursion from Russians. And there I think a lesson is clear now, and it needs to be very clear for Europeans, the United States and the world is that the lack of proper reaction then also in terms of sanctions, in terms of economic pressure, in terms of, cutting off from importing, Russian energy sources or, business ties to the level they were at at the moment had a direct effect in making sure that we didn't have enough deterrence or discouragement capacity collectively. And that is one element why we have seen the war of aggression being started in 2022, I think. Have we had the proper reaction together internationally back in 2014 or even earlier than that, when Georgia was, started to be at stake? I think that would have been a stronger message that might have discouraged, future actions. Now, you cannot turn time back, but you can be focused and clear on the lessons that history teaches you. Therefore, I think it's very clear that we cannot give up now on the intensity of sanctions or on the future steps going forward. And here I think it's also needed that they are coordinated internationally. In the European Union, we had more than 20 packages of sanctions that in a way, can be seen from an angle of, victory in the sense where we have achieved the necessary unity to take those decisions. In the same time, when you say 20 packages of sanctions, it's also clear that a lot of the measures that could have been tougher earlier on weren't. So you can see it from both angles in a way. But I think international cooperation needs to be, the key in the future as well, because we can create the proper pressure where we see better numbers than the ones that you have put forward. Only also through the transatlantic cooperation, for example, we have seen a very clear effect when the United States has come forward with sanctions on the oil companies. We are still optimistic on the idea that the pressure is going to be kept in terms of the assets that need to be, sold in order for those companies to continue. And I think beyond the pressure that is needed. So Russia doesn't have enough financial resources to continue indefinitely investing in the war. There's also another element to it, specifically in our region, which is it is a moment in history, a moment in time where because of the international pressure and consensus, almost consensus, we can also minimize the ties, the economic ties we have with Russia. It's a moment, for example, for Romania to support. And we're doing that as a government and with president to support the idea that the Russian assets, in terms of business assets should be sold to more like minded countries, for example, it's also a moment where we need to pay closer attention at the European level as well of, what are the tricks that Russians are using to circumvent sanctions? Where do they have stronger business ties or connections within our business community, or even within our society, and be able to use this moment in history to make sure our countries have less of that influence, present. So so that's one thing on Romania's case. Something that we've done recently is that we've changed the law so that what was before, just a financial fine now can even be jail time for those that are organized to circumvent sanctions that we have in place. And we're working with our European partners, but not not just them on an international context as well, to increase the monitoring, the information exchange and the pressure on the shadow fleet, because we're quite clear that that is now, an instrument that Russia is using to continue to fund, the war efforts and also something that every time it is disturbed, it creates a direct, immediate impact.
Thank you so much. That's very clear. I will come back to you. You've mentioned something which is very important, which are loopholes that Russia uses to circumvent the sanctions. So, Svitlana, my question to you. Recently we've seen that the Trump administration has adopted a posture towards the Lukashenko regime in Belarus, in your home country, that the release of political prisoners, including your husband, including many people who are heroes for us, who stood up for human dignity, and Belarus democracy in exchange for sanctions relief. The concern in European capitals that are here is that Belarus, with less sanctions pressure, might be used as a conduit for Putin's sanctions circumvention. And that creates real policy dilemma. That is why you sense that some European capitals are very timid in following Trump's lead and easing sanctions on Belarus. So what would be your advice? How would you see that as a leader of Belarusian liberal democratic forces?
So first of all, the case of Belarus very clearly shows that sanctions do work because Lukashenka releases people, not because he became suddenly humane. You know, I wouldn't suspect Lukashenko inhumanity at all. He does this because sanctions do work and isolation works, and he is ready even to release his biggest enemies, just, you know, to get rid of this, of these sanctions. And, in our case, we developed formula, American sanctions for freeing people, European sanctions for freeing the country. You know, in our case, European sanctions are much stronger than American one. And, without let's take potash, for example. America lifted sanctions on potash, but without transit through Europe, especially Lithuania, it will not make too much profit to, to Lukashenko. And, so that's why European sanctions have to serve to irreversible, bigger changes in Belarus. And, of course, you know, in the case of our country, we are so grateful to, John Cole, special special envoy on Belarus for his, you know, really intensive work on releasing people. But we ask Europe not to copy Trump's President Trump's policy regarding sanctions, because, you know, we need some safeguards, you know, for Belarus. And definitely, you know, when we're talking about, weakening Russia, we don't have to forget about the countries who are that are supporting Russia in this war. And definitely Lukashenko's economy is working for Russia. You know, we are about 200 Belarusian enterprises are producing military staff for Russia's war. Most of Russian missiles complexes, you know, using Belarus and chassis and Belarusian banks are used to for military contract. So that's why it's very important to harmonize sanctions between Belarusian regime and Russia to avoid usage of these loopholes. So of course, it's not time, you know, to lift sanctions on, Belarusian regime because it will definitely strengthen, strengthen Russia. So that's why not all the instruments are still used, for example, closing of the European Union and Belarusian border might be very effective instrument, you know, to put pressure on the regime. And also it's very important to keep in mind the secondary sanctions like like Lindsey Graham bill on tariffs just to punish those countries who are supporting Russia in its war.
Thank you. That's very clear, Alexander. Now we are talking about some of the strategies that the Trump administration is using to end the war. One of the ideas is that when the war stops, there will be a big sanctions relief, not only from the US, but also from Europe and Europe will turn on the tap, resuming buying Russian hydrocarbons, including natural gas. Well, your country has been historically a big consumer and a big, rather big market for Gazprom. What's your view, whether that's feasible and whether that's advisable?
Well, the short answer is it might but I attach a very low probability to this outcome. That's why I would rather focus on, on something which is important. And because we have a very little time, I should say that I'm completely share the analysis. Done by my colleague Juana. She, she summarized in a nutshell very well. And, actually, I am quite flattered to, to be invited to this panel because despite my work in the region and, long stay in all the countries in the region, including in Russia and Ukraine, and made investment even in Belarus and obviously Romania and Republic of Moldova. I don't consider myself an expert on geopolitics, but this has been said. We are all scholars of history. And I would, go back in time, even deeper than one I did. Thanks to my age, I learned the history not just from the books, but also from my own experience. And I remember, well, one of the lessons I'd say is, that, it's the history is not, continuous function. It's not, linear, obviously. It's rather discrete. I would rather, use the terminology from, well, famous now, Nassim Taleb book, and swans are flying of all colors and all sorts of different directions, and countries are jumping forward, sideways and backwards all the time. But I'm coming back to 89, which I remember very well, when there were all sorts of sort of late perestroika. Everybody was in love with Gorbachev. Everybody saw that there would be gradual transition. And then all of a sudden, all of a sudden, well, now, obviously the historians say that that was logical, but all logical in history. It's all retroactively, the, the wall of Berlin fell. And then we watched with great attention the events in, in Romania, you know, the revolution in December. And, the main prediction was that the Ceausescu regime will somehow resist. But it didn't. And then, quick forward in 91, in August, that quick putsch of three days. And still I was, feeling that somehow the Soviet Union or whatever it's going to be called, with would persist. And it didn't, it collapsed. And, so all those and by the way, we I think we are now, in light of the events yesterday, are watching another transformation, referring to Prime Minister of Canada speech yesterday. Not a gradual transformation, but rather a rupture in the the world, order of things. So now, almost four years after the, the war in Ukraine, I can I can say that there have been several lessons learned, kind of addressing and quick comment, to to your statement about Russian economy showing some, some growth and, and some signs of, of red flags recently, I well, obviously there is a, macroeconomic consensus on the fact that the expansionist, model Russia is, applying right now is unsustainable in the long term. In the short term, of course. By the way, many wartime economists, including, sorry for this parallel, Nazi Germany, was growing, till the certain point, last century. So it's not something it's not a miracle. But there are some limitations to to that model of expansion. There is a natural attrition of the, of the economic base during this process. So it's not the question whether it's it's going to collapse, it's the question when it's going to going to happen, the question of timing. And I'd say that, well, in case of Russia, if we look deeper and you probably know better the Russian sort of mentality, but I think Putin has the, a very unique type of population, which is a very docile and, in the same time, very supportive at the same time. I think if, at the some sort of referendum, there would be a discussion whether a city ex, I don't know, any city Saratov, would prefer to use 40 million, to reconstruct the city or to use it for one single shot of rationing. Somehow I have impression that the majority of the population say, well, let's go with the rationing. Not, okay, we can debate that, but, it's undoubtable the fact that the, the war, gets quite a big support of the, of the population. And of course, there is a lot of propaganda going on. And by the way, for us, the country, which has been probably the most affected after Ukraine, it's one of the lessons learned. You cannot see it on, on the hands and weight, and propaganda, although it's hybrids, instruments. Russia is applying the, they are there and we experience that during elections. You mentioned that energy, dependence. And indeed we've been quite dependent. Now we are not anymore, thanks to all the things we've done over the last five years. And also, I agree with you with the fact that, the, the Russian regime, they, they've learned and they are using actually the, the Western democratic, system, including the legal and the freedom of speech. Right. We've been attacked, with the traditional western, kind of criticism, freedom of speech. But can we accept, freedom? Well, we accept freedom of speech. Of course. We take, the basic fundamental, democracy principle. But what if it's a fake news? What if it's a misogyny or it's aggressive? Well, anyway, I stop here. There are a lot of things to be done. We are moving into the right direction, but, more should be done because. And we should help Ukraine. We stand with Ukraine. That's my, solution.
In line with the democratic tradition, I would now want to give the audience the opportunity to ask questions. So please raise your hand, identify yourself, and be concise and ask one question, please.
Yeah. Thank you very much. I'm joining us from Chinese media. And recently we have seen that President Sandu of Moldova, again, just proposed the idea that to pursue a reunification between your two countries. So although we know that the process could be very, either complex or even controversial because it's very unprecedented for either EU or NATO for existing member to enlarge its territory. But would you think this code, or if the negotiation between your two governments can be formally kicked off, would it be a useful deterrence to to Putin or to Russia? And secondly, now people are talking about the idea of so-called trilateral world or parallel world that China, China, US and Russia should have on its respective so-called influence sphere of influence. But as the actors, existing and living actors who represent the population on the ground as middle countries, how would you respond to this very abstract idea of the current international relations descriptions? Thank you very much.
None of the question relates to the panel. So I give you and one question for for ask. So I give you the opportunity to answer that if you want to.
Yeah, sure. I just spoke.
With President Maia Sandu. I was, honored to be the guest of Moldova at the end of last year. Now, one thing that it's worth mentioning for the international community is that this is not, news for us in the sense in which it is an idea that has been discussed by our citizens throughout time, throughout the history of our countries, due to the history, geography, the same language, culture and so on. So so that is one factor that is very important. This being said, Romania's position is very clear that the path forward also for our countries, our people to be, closer together, is integration in the European Union. And we are strong supporters of the enlargement of the European Union, both from the east and from the west. In the same time, this is not a decision of governments. This is the decision of citizens. And when president has spoken, when my president has mentioned the topic, they have both referred to the will of the people. So any step forward in that direction is directly connected to what will citizens of Moldova or citizens of Romania, consider but the clear plan ahead, something that is already in a success path is the EU integration.
Thanks, Alexander.
Just just very quickly, I fully agree with what Juan said. Our relationship with Romania now is better than ever. This has been said. Well, and coming back to that interview President Sandu gave, I should say that obviously that statement was taken out of context because, the journalist referred to the worst case, basically scenario. And, and if you read the whole explanation, it was exactly what, one just, just said, and, I, I responded also to this question saying that we got a mandate from the majority of the population for the EU integration, actually, three times during the parliamentary election, presidential elections and referendum. And that's the program we're working on. So that's it. Full stop. Perfect.
Any more questions from the audience? I don't see any hands. So I have a question. Ana, you mentioned something that is, unity around European members of the EU, around the sanctions policy. And we see that some of the aspects of the sanctions policy or proposed measures are highly contested. For example, the debate about frozen Russian assets, whether they should be used as a collateral for a loan for Ukraine or not. We've known that the commission has taken a the council has taken a different decision and wrote Ukraine, a check. And there is obviously a fiscal space to do that again. Do you expect that in year five of the war, particularly given tension in the transatlantic community, that I guess will consume the rest of our day at Davos, that unity around the sanctions policy inside the EU family will remain the same or will weaken, and these cracks will be more palpable.
So for us in the European Union, we have no option to take decisions and directly put them on Twitter. Our decision making process is way more complicated, than that. And although it is sometimes frustrating, I think it's also a good thing in terms of governance and in terms.
Of some leaders do.
That, it forces, our conversations the way it forces us to stay through the process long enough that we understand the consequences, long enough that we understand each other's point of view, sometimes too long. That's also true. Now, that being said, one thing is already happening with the frozen assets. That hasn't been, so much in the public eye or in the public agenda as the conversation recently at the council. But we are also currently using the frozen assets to support Ukraine's resilience in the sense in which the interest rate, part of the return on investments of those assets, it's already used as an instrument for the resilience mechanism of Ukraine. So that is one thing, and that has had the support of the European leaders. Second of all, there's this important principle that Romania supports as well. We're very vocal in that direction, which is that the aggressor should pay. And this is something that is it's also connected with the opinions, the demands, the requests of our European citizens, which at the end are the ones that invest through their taxes. They're also in large numbers, I would say, in all of the European countries, clear on the fact that the aggressor should also have a direct consequence. Frozen assets are an instrument. What we do in the future, with Russia is another type of, conversation and something that I want to mention that I think is also very important. And here Moldova, Romania, we're working together in that direction. Other countries inside the European Union and in the Balkans, in the region as well, which is to also be able together to diversify the commercial layers, to diversify the infrastructure needed for energy flows, for example, to make sure that we use this moment in time so that even when the war is over, even when peace is achieved, we would have constructed together a way that goes around Russia logistically, but also in terms of the energy market also in terms of the commercial flows. And that means, for example, participating in the vertical corridors, something that we're working with with the United States as well. That means continuing to build up energy resources. Romania is now the number one natural gas producer inside the European Union. But with the Black Sea reserves, we are going to increase that number significantly. And one thing is also connected to, our collective action here. We need better instruments to help other countries from other regions as well, to buy less from Russia, essentially. Simply put. And cereals, for example, are, a product that we haven't talked enough about. Russia also has significant incomes from cereals to countries in other regions where we could collectively put on the table a different offering. Romania is a cereal, strong cereal, producer, and obviously Ukraine as well.
Thanks. I guess that we are out of time. What we've heard today is that, the Russian economy remains, unfortunately, not short of resources to continue this, this ugly war. Unlike in 1809, it's a market economy. And as my colleague Alexander Prokopenko all the time says that this war has excavates competition between the market part of the economy and the non-market part of the economy at the expense of market forces. So the war eats into Russia's own future and welfare of its people. But unfortunately, the time frame resources available and the competence of people who used to come to Davos and are running the Russian economy is still there. That provides them a leeway. But this panel leaves me more optimistic in a way, because you mentioned a lot of instruments and measures that can actually be done to collapse this timeline at least a little bit, but we are not short of options and help Ukraine. And with that, thank you so much for being with us today.
Thank you. Thank you.
And I wish you a safe day and calm day at Davos. I know, I know, I cannot promise that, but that's out of my control. Thank you.
Thank you.