The Russian oil company Rosneft is one of the beneficiaries of the Iran war. Image: keystone
The Russian economy is weakening, gross domestic product is falling, inflation is rising. In an interview with the Financial Times, the head of Swedish military intelligence speaks of a downward spiral towards financial catastrophe.
April 20, 2026, 6:52 p.mApril 20, 2026, 6:52 p.m
Russia’s oil industry is undoubtedly one of the biggest beneficiaries of the Iran war. The blockade of the Strait of Hormuz is making Russian oil more and more attractive to buyer countries such as India and China, which were previously heavily dependent on oil imports from the Gulf region. At the same time, in the wake of the Israeli and US attack on Iran, the price of Russian Urals crude oil rose to record levels of over $100 per barrel.
Russia is supposed to manipulate its economic indicators
Already in March reported the US business magazine Financial Timesthat Russia generates around $150 million in additional budget revenue per day due to the current situation on the oil market. This is positive news for Russia, as the country is struggling with falling household income. At the end of March, Russian President Vladimir Putin was rather cautious about the additional income from the oil business. According to the Reuters news agency, he called on the oil companies to use the additional revenue to repay their massive debts to Russian banks.
How bad the Russian economy is really doing is difficult to determine from the Kremlin’s official figures. In another article from the Financial Times The head of Swedish military intelligence, Thomas Nilsson, is now talking about information that would indicate that Russia is deliberately manipulating its economic data in order to give the appearance of withstanding Western sanctions.
Record prices for Russian oil will not cover the deficit
According to Nilsson, the additional revenue from the oil business is far from enough to cover the government’s losses: “To close the budget deficit, Russia needs a Urals crude oil price of 100 US dollars per barrel for an entire year.” In order to be able to overcome all economic problems, the price would probably have to remain at the measured maximum values for a longer period, according to Thomas Nilsson.
Thomas Nilsson sees Russia heading for a financial catastrophe.Image: www.imago-images.de
Contrary to the current situation, the switch to a war economy ensured economic growth in the first years of Russia’s invasion of Ukraine. “A surge in government spending led to higher social spending, wages and investment, particularly in the defense industry, and boosted activity in manufacturing and construction.” This is how the World Bank assessed Russia’s economic development in a report two years ago. However, experts predicted that this would pose financial problems for Russia in the medium to long term.
The strong shift of economic resources into defense production means that precisely these resources are missing in the private sector. For example, part of this effect is the shortage of labor throughout the country caused by military mobilization, brain drain and the labor-intensive defense industry. Combined with the sanctions imposed, this creates a weakening economy.
Boomerang effect after switching to a war economy
“It is not a sustainable growth model to produce material for war that is then destroyed on the battlefield,” says Thomas Nilsson. Apart from the drone industry, the Russian defense industry is now also loss-making, riddled with corruption and embezzlement and dependent on loans from state banks, according to Sweden’s military intelligence chief. While Russia’s GDP grew by 3.6 percent in 2023, Putin announced last Wednesday at a meeting with government representatives in Moscow that it had shrunk by 1.8 percent in the first two months of the current year alone. Putin called for “proposals for additional steps to revive the growth of the domestic economy.”
The governor of the Russian central bank also made a surprisingly clear statement at a forum in Moscow a day later: “External conditions are deteriorating almost continuously – for both exports and imports.” Nilsson believes that Russia’s actual economic situation is even more serious than state officials now admit.
“Russia is living on borrowed time”
Nilsson doubts that inflation in Russia, as communicated by the Kremlin, is 5.86 percent. Rather, he believes that the number is close to the key interest rate of 15 percent set by the Russian central bank. However, international forecasts such as those of the International Monetary Fund or analyzes by large investment banks such as JP Morgan contradict this view. They all expect inflation to slow to around 5 percent by the end of the year.
The German federal intelligence service BND also assumes that the Kremlin is concealing the actual economic effects of the war on its own country. The BND assumes that Russia underestimated its budget deficit by $30 million, an assessment shared by the Swedish secret service.
“Russia is living on borrowed time,” says Nilssen, ultimately only one of two scenarios could occur: “A long-term decline or a shock. In both cases, the downward spiral towards financial catastrophe will continue.” In another interview with the Financial Times, Swedish Foreign Minister Maria Malmer Stenergård calls on European countries to increase support for Ukraine through a stalled sanctions package: “Europe is not yet doing everything to harm the Russian economy. I think we have to be prepared to pay a price for that.” Malmer Stenergård describes the fact that not all EU countries are yet ready to change their energy model as “extremely frustrating”.