Russia’s economy in February 2026

By Matthew Parish, Associate Editor

Tuesday 10 February 2026

In February 2026 the Russian economy looks less like a sanctions-proof war machine and more like a state burning through buffers whilst trying to pretend that the flames are just the glow of patriotic industry. The deterioration is not a single cliff-edge event. It is the slow tightening of several constraints at once: a weakening fiscal position, a monetary policy that must stay punishingly tight to contain prices, an external trade model increasingly dependent upon discounting and evasion, and a labour market distorted by mobilisation, emigration and the substitution of productive investment with war production.

The most revealing data point is not a quarterly growth estimate or a carefully curated statement from a ministry. It is the budget arithmetic. A Reuters report on 4 February 2026, citing calculations by economists from a government-linked think tank, suggested the public deficit could balloon to 3.5 to 4.4 per cent of GDP by the end of 2026, compared with an official plan of 1.6 per cent. The same calculations implied an 18 per cent shortfall in energy revenues against the government’s plan and a six per cent fall in total revenues against plan. The language attributed to a source close to government was blunt: the budget situation is “sharply deteriorating” because revenues are lower whilst expenditures are likely higher. 

This fiscal stress is not theoretical. Government data reported in the same Reuters piece indicated that budget energy revenues halved in January 2026 to 393.3 billion roubles, the lowest since July 2020. That is the sort of number that forces choices. Russia can finance deficits for a time, but the options are all economically corrosive: draw down reserves, borrow more domestically at high interest rates, raise taxes, cut civilian spending, or some mixture of all four. Each choice pulls on another weak thread. Depleting reserves reduces shock-absorption capacity. Borrowing at high rates crowds out investment. Raising taxes squeezes households and firms already facing higher prices. Cutting civilian spending risks social discontent that the Kremlin has tried to prevent through a combination of repression and selective welfare.

Energy is the heart of this problem, not because Russia cannot sell oil but because she must sell it under worsening terms. Western sanctions have not shut down exports so much as forced a new equilibrium built upon discounts, longer logistics, greater risk premia and reliance on a “shadow fleet”. The Reuters report notes oil trading at discounts of more than 20 per cent to international benchmarks. It also highlights a second, underappreciated mechanism: currency strength can be a fiscal enemy. Oil taxes are calculated from dollar prices but paid in rubles. When the ruble rallies, the same barrel produces fewer roubles for the budget. 

That tension between currency management and fiscal needs is now visible in policy choices. Reuters reported in late December 2025 that the Bank of Russia would reduce its own foreign exchange sales from January 2026, cutting a source of support for the ruble. This came after the ruble’s marked strengthening in 2025 and amidst expectations that reduced state sales, lower export prices and policy shifts could weaken the currency in 2026. A weaker ruble may help the budget by inflating ruble-denominated export revenues, but it comes with the classic penalty of import-price inflation. In wartime Russia, import inflation is not merely a consumer issue. It is a military-industrial issue because so many components, machine tools and high-end inputs have to be obtained indirectly, with mark-ups and delays.

Monetary policy is the other half of the vice. The Bank of Russia cut the key rate to 16.00 per cent per annum on 19 December 2025; but even after a cut, 16 per cent is a rate that would be considered crisis-level in most European economies. Reuters, in the February budget-deficit report, characterises the inflation fight as having pushed interest rates to their highest level since the early 2000s and links that tight stance to a sharp slowing of the economy last year. In other words Russia is not enjoying the classic wartime macroeconomic pattern of high spending accompanied by manageable inflation. She is trying to run large wartime outlays whilst also leaning on the monetary brake hard enough to stop price psychology from unmooring.

If one wants a sense of how entrenched inflation expectations have become, the Bank of Russia’s own macroeconomic survey of analysts in February 2026 shows that forecasters raised their inflation projection for 2026 to 5.3 per cent, up from the previous survey. That number, on paper, looks modest compared with the spikes of 2022 or the heightened inflation Russia experienced earlier in the war. But in context it is telling: even with war-driven state direction, administrative pressure and high interest rates, the system struggles to bring inflation back down towards the official target. Moreover weekly inflation reporting suggests persistent volatility. For instance, Rosstat data reported by TASS showed inflation of 0.19 per cent for 20 to 26 January 2026, after 0.45 per cent the previous week. The week-to-week movement matters less than the underlying message: prices remain a political problem and a policy constraint.

Those constraints translate into a more general stagnation outlook. On 19 January 2026 Reuters reported that the IMF cut its forecast for Russia’s 2026 growth to 0.8 per cent. A sub-one per cent growth forecast is not an “economic collapse”, but it is a warning that the wartime adaptation phase is over. The economy that “fared relatively well during the first three years of the war”, as Reuters put it, is now paying the bill: high rates, labour shortages and the diminishing returns of import substitution and fiscal stimulus. 

Labour is the quiet crisis that sits behind all of this. The war has removed men from the civilian workforce through mobilisation and death, encouraged some emigration amongst skilled cohorts, and reallocated labour into defence production and state-directed sectors. Even where employment remains high, the match between skills and needs deteriorates. The result is the kind of wage pressure that is inflationary but not prosperity-enhancing. Reuters’ earlier “five key challenges” framing of the Russian economy pointed to spiralling wage growth amid labour shortages as part of the inflation problem during the war economy phase.  By February 2026, the consequences are compounding: firms face higher borrowing costs and higher wage bills at the same time, with limited access to foreign technology and finance. That combination pushes businesses towards cost cutting, delayed investment and financial engineering, rather than productivity growth.

The Kremlin’s response has increasingly been to treat the economy as a battlefield of administrative measures. Taxes have become a lever. The system can raise VAT, tighten compliance, extract more from large firms and use regulatory pressure to enforce priorities. Yet that, too, has a ceiling. When taxes rise the private economy becomes more defensive and more “short-termist”. When compliance is enforced through fear rather than predictability, investment horizons shrink. The war economy can still produce shells, drones and uniforms, but it struggles to produce the boring foundations of long-term strength: steady capital formation, innovation diffusion, and the kind of institutional trust that keeps money inside the country without coercion.

Sanctions dynamics in early February 2026 worsen the external environment precisely where Russia is most sensitive: oil revenue and the services that make oil trade possible. A Reuters report on 6 February 2026 described a proposed EU sanctions package aimed at hindering seaborne crude exports by restricting maritime services that support Russian oil shipping, alongside measures targeting banks, crypto firms and additional shadow-fleet vessels. The Financial Times reported the EU pushing towards a full ban on maritime services for ships transporting Russian crude, regardless of price, which would be designed to bite beyond the existing price cap framework. The Guardian, the following day, reported the United Kingdom signalling the possibility of seizing a Russia-linked shadow fleet tanker, underscoring that enforcement is moving from paperwork to physical interdiction risk. 

One should not exaggerate what sanctions can do quickly. Russia still exports millions of barrels per day and has become adept at rerouting, reflagging and using intermediaries. But the direction is what matters. The more the West targets services such as insurance, finance and shipping support, the more Russia must rely on opaque channels with higher costs, higher accident risk and higher margins for intermediaries. That is a structural tax on Russia’s own exports. It is also a source of fragility because it concentrates trade in fewer hands and fewer routes, making the system easier to disrupt.

Put these strands together and the deterioration looks systemic rather than cyclical.

The Kremlin can still claim stability, and for a time she can buy it. Russia has instruments that open societies find hard to replicate: coercive control over capital, political command over banks, administrative power over large firms and a security apparatus willing to criminalise economic dissent. These tools can postpone crisis. They cannot create prosperity. They shift costs into places that do not show up immediately on headline indicators: underinvestment, declining quality, corruption in procurement, and the gradual hollowing out of non-military sectors.

The war has turned the Russian economy into an apparatus that prioritises endurance over efficiency. In February 2026, the question is no longer whether the economy can survive sanctions in some basic sense. It can. The question is what kind of country survives on those terms: a state whose finances depend upon selling discounted commodities through risky channels, whose domestic credit is priced like an emergency, and whose civilian economy is squeezed between higher taxes and redirected labour. That is deterioration by design and by necessity. And it is hard to reverse even if the guns were to fall silent, because it is now written into budgets, institutions and expectations.