By Nina Bachkatov
On 18 July, the European Union approved its 18th package of sanctions against Russia, expanding the list of Russian banks excluded from the SWIFT system and imposing a third round of sanctions on companies involved in trading Russian oil above the newly lowered price cap of $45 per barrel—down from $60 previously set by the G7. The objective remains unchanged since the first wave of sanctions in 2022: to deprive the Russian state budget of funds for financing the war, and to weaken the economy to the point where elites or the broader population might pressure President Vladimir Putin to end the conflict—or potentially push him from power.
Yet, the challenge has always been to strike a balance between weakening Russia and protecting the EU’s own economic stability—an issue that has never been adequately addressed. This tension partly explains the difficulties in formulating each successive sanctions package.
Nevertheless, sanctions are having an impact, a fact acknowledged increasingly by officials and even by Putin himself. Speaking at the St Petersburg International Economic Forum in June, he dismissed claims that the war was devastating the Russian economy, famously quoting Mark Twain: “The report of my death is greatly exaggerated.” He cited continued GDP growth, low public debt and economic diversification as evidence of resilience under pressure. However, he also warned that the economy risked cooling too sharply after two years of war-driven expansion. Economy Minister Maxim Reshetnikov echoed the concern, cautioning that Russia was “teetering on the edge of recession,” while business leaders presented sobering figures from their respective sectors.
A month later, the Central Bank of Russia published a report openly outlining the limits and risks of a war-fuelled economic boom, and of the circumvention measures used to evade sanctions. The report addressed their impact on both inflation and growth, highlighting the difficulty of balancing the two. A lengthy section was devoted to the benchmark interest rate, which stood at 21% in October, fell to 20% in June, and was reduced further to 18% just four days after the report’s release. More cuts are anticipated, but rates remain prohibitively high to both control inflation and stimulate growth. Inflation has only recently dipped back into single digits.
The Right Governor
The Central Bank’s insistence on prioritising inflation control—even at the cost of elevated interest rates—has brought it under heavy pressure from various lobbying groups, many of whom favour higher inflation over stifled investment. Business leaders fear a wave of bankruptcies, while regional governors are concerned about layoffs. Persistent rumours have circulated that Central Bank Governor Elvira Nabiullina had considered resigning, and that tensions exist between the Central Bank and other economic ministries.
Yet there is no indication that President Putin’s confidence in her has wavered. Appointed in 2013, Nabiullina first came to his attention during preparations for the 2006 G8 summit in St Petersburg, a moment of geopolitical triumph for the Kremlin. Her tenure is not unique in its longevity by Putin’s standards, but she remains nearly singular in her ability to maintain the President’s support while running the Central Bank with relative autonomy—an institutional “island” amid Russia’s opaque power structures.
Despite describing the war as “something none of us wanted to happen” and warning of labour shortages and ballooning defence budgets, Nabiullina has kept her role, supported by her technical expertise and sense of duty. Putin continues to back her conservative approach to monetary policy, which emphasises inflation control and avoids the use of public funds to bail out poorly managed firms.
A Social Test
Inflation is viewed by the Kremlin as the principal threat to social cohesion. Russian society has proven remarkably resilient, willing to tolerate hardship so long as pain is not concentrated too sharply in one time or place—and provided that the war economy does not appear to enrich a privileged few at the expense of the majority. The focus, therefore, is less on rooting out corruption (long a convenient political scapegoat) than on delivering social support.
The significance of a 14 July meeting on social policy, attended by President Putin, Deputy Prime Minister Tatyana Golikova, Labour Minister Anton Kotyakov, and Health Minister Mikhail Murashko, reflects this priority. Topics included healthcare, demographics, and vocational training. Though these challenges predate the war, the post-2022 economy faces the dual burden of elevated wages and a shrinking workforce. In regions such as the Urals, the labour market is so tight that demand exceeds supply by a factor of 4.5 while some factorise put workers on compulsory part-time.
The Kremlin also continues to monitor food prices closely, which have been rising despite large imports of fruit and vegetables from former Soviet states and China. Russian agriculture is hampered by high transport and equipment costs, compounded by drought across key producing areas in Russia, Belarus, and Kazakhstan. On 23 July, Izvestia reported that the government was preparing new price controls on essential foodstuffs—this time via long-term contracts between producers and retail chains, rather than direct price freezes. The broader goal remains: to attract investment, cut costs, and boost domestic production.
The Test of Time
A shift towards realism has taken hold in Moscow: few now expect sanctions to be lifted any time soon. Living under sanctions is increasingly portrayed as a chronic condition—manageable, if not curable—requiring discipline, adaptation, and social solidarity. In the official narrative, sanctions are not a death blow but a new environment in which development is difficult, though not impossible. So long as the Kremlin maintains domestic stability, it believes it can afford to wait.
For over a decade, Russians—especially the urban middle class once seen as a driver of democratic change—have grown disconnected from the West. Travel abroad are not for academic or cultural exchanges, and now largely means visiting “friendly” nations such as China, Egypt, or Southeast Asia. Emigration, particularly following battlefield losses, is viewed by many as desertion. And in any case, with Western employers wary of hiring Russians amid war and economic uncertainty, relocation is not a viable option for most—except for a handful of prominent opposition figures.