Russia's economy is fueling new debate over ending the war – Reuters
Photo: Russian leader Vladimir Putin (Getty Images)
Russia’s economy is slowing sharply amid Ukrainian drone strikes and the prolonged war, while Vladimir Putin is opening the fifth St. Petersburg International Economic Forum held during the war in search of new growth ideas, Reuters reports.
A $3 trillion economy is losing momentum
According to Reuters, Russia’s $3 trillion commodity-based economy slowed to about 1% growth last year, down from 4.9% in 2024, and contracted by 0.2% in the first quarter of 2026.
The forecast for this year stands at 0.4%. Russian officials attribute the slowdown to high interest rates, sanctions, and a strong ruble.
Drones and a signal from business
Reuters reports that Ukrainian drone attacks on Russian oil refineries, fertilizer plants, and ports have disrupted a significant portion of the economy and affected roughly a quarter of the country’s oil refining capacity.
Putin has ordered officials to find ways to restore growth, but business leaders say the best solution would be ending the war in Ukraine.
“Rallies and enthusiasm in the Russian stock market following every piece of positive news from US-mediated peace talks for Ukraine indicate what their real answer should be,” a senior corporate executive told Reuters on condition of anonymity.
Peace talks have stalled
The Kremlin said that peace negotiations, which began in February last year, have been suspended as the United States focuses on the war in the Middle East.
According to Reuters, billions of dollars in potential US investment in the Russian economy, as well as discussions about easing sanctions, have also been frozen, fueling pessimism in business circles.
A senior Russian banker told Reuters anonymously that Putin missed a major opportunity to strike a deal last year and that the economy is now showing signs of instability.
“The government essentially has nothing to offer”
The St. Petersburg forum runs from June 3 to June 6, with economic growth as its central theme.
However, former Russian central bank deputy governor Oleg Vyugin told Reuters that with double-digit interest rates, higher taxes to fund the war, and declining investment, there are simply no viable growth ideas.
“The government essentially has nothing to offer for the recovery of growth,” he said.
Rare criticism from parliament
Reuters notes that any boost from rising oil prices linked to the Middle East conflict is likely to be short-lived.
In a rare public criticism, State Duma lawmaker Renat Suleimenov of the Communist Party said the economy would not withstand a prolonged continuation of the “special military operation.”
“What development, investments, and capital expenditures can we talk about? Neither tanks nor shells have consumer value: the economy produces them, but they cannot be consumed by the population,” he said.
Reuters: doomed to stagnation
According to Reuters, Russia, with its population of 140 million, shallow domestic stock and debt markets, and lack of foreign investment, cannot rely on internal growth drivers in the way India or China can.
Without sanctions relief, it is “doomed to stagnation.”
“The economy needs an external push. There won't be one from either the state budget or the banking system,” said Mikhail Matovnikov, head of financial analysis at Sberbank.
Earlier, Ukrainian drone strikes on Russian oil refineries intensified significantly. In May alone, Ukraine’s Defense Forces hit several major plants, while the Russian government banned gasoline exports from April 1 and jet fuel exports through November 30, 2026.
