The outcomes of Russia’s economic development over the next decade will largely depend on the decisions made in the Kremlin. However, the Russian economy does not exist in a void. Instead, it actively participates in international trade and is, at times, critically dependent on factors beyond the control or intent of the Russian authorities.
Some of these factors—such as global oil prices and the direction and pace of technological change—must be accepted as givens, since Russia’s ability to affect them is extremely limited. Others—such as Western sanctions, deglobalization, and economic fragmentation—are shaped with more extensive involvement of Russia, but even in these cases, the key decisions are made by other forces.
Although these factors are external, this does not mean they can be overlooked or that the Russian authorities can make policy decisions without taking them into account. This chapter will examine the main ones, those whose impact on the Russian economy is both significant and inevitable. These include global oil prices, Western sanctions, and technological developments we are witnessing unfold in today’s world.
This discussion will sidestep hypotheses about the global “black swan” events capable of radically reshaping all of the current dynamics, such as a war involving several great powers, a global economic crisis, or a revolutionary coup in Russia.
Crude Oil Prices
Over the past decades, oil prices have traditionally been the main unknown variable underpinning all scenarios and forecasts of Russia’s economic development. Their influence remains significant today. However, the importance of this factor for the Russian economy— and especially for the federal budget—has noticeably declined compared to ten years ago and, despite possible short-term fluctuations in either direction, will continue to diminish over the long term.
We identify three groups of factors driving this trend: technological and structural changes in the global oil industry; shifts in the structure of the Russian economy and tax system; and the rising cost of oil production in Russia.
Changes in the Oil Industry
Over the past 15 years, the only region in the world to show growth in oil production has been North America. Between 2008 and 2024, global oil output (in the narrow definition of the term7) increased by 16.2 million barrels per day (mb/d). During that same period, production in the United States and Canada rose by 16.8 mb/d. In other words, oil production outside the U.S. and Canada has remained virtually unchanged, while the share of these two countries in global oil production has jumped to 27.9% from 13.7%.
7 — It includes crude oil, shale oil, tar sands, and natural-gas condensate in need of processing. It does not include liquid fuels from other sources, such as biomass and synthetic coal and natural gas products.
Virtually all of the growth in oil production in North America has come from so-called shale oil (a somewhat inaccurate term, but the one that will be used here due to its widespread acceptance). The production cost of this oil is quite high. According to estimates by the Federal Reserve Bank of Dallas, the break-even price for drilling new wells in various U.S. regions ranges from $61 to $70 per barrel of WTI crude. In the Permian Basin—which accounts for about half of total U.S. oil output—the average break-even price for drilling a new well is currently around $65 per barrel. For most existing wells, the production cost is in the range of $45–50 per barrel.
A distinctive feature of “shale oil” is the rapid change in production volume depending on market price conditions. At conventional oil fields—with development timelines of 20 to 50 years—most of the costs are incurred at the beginning: for exploration, infrastructure construction, the building of extremely expensive offshore platforms, and so on. Once a field reaches a stable production plateau, operating costs remain low—measured in just a few dollars per barrel in the Persian Gulf countries and not exceeding $20 per barrel in Russia. At this stage, investors recoup their initial investments. Even with a sharp drop in oil prices, the operating cost of production at conventional fields typically remains below global market prices, meaning there is little justification for halting production.
Things are quite different when it comes to “shale oil,” where a well’s output declines by roughly half during the first year and by a factor of five to ten after five years. At most wells, production ceases entirely after just three to four years.
A fundamental difference between the American oil industry and the OPEC+ countries lies in the fact that production cuts in the U.S. result from economic analysis rather than administrative decisions. When oil prices fall, drilling new wells is halted first. Then production at wells drilled three to four years earlier is reduced or stopped altogether. This leads to a rapid decline in overall output.
For example, from April 2015 to September 2016, the average daily oil production in the United States fell by 11.5%. When necessary, production can be curtailed even more quickly: between July and September 2008, average daily output dropped by 23.5%, and from February to May 2020, by 24.5%.
Today, more than 20% of the world’s oil is produced from “unconventional fields,” which makes it possible to balance global supply and demand much more quickly than was the case 20 years ago. When prices fall below $55 per barrel, oil production at such fields declines rapidly. When prices exceed $90 per barrel, production increases just as quickly. This economic mechanism significantly enhances the long-term stability of oil prices and reduces the range of their fluctuations.
Between the first oil shock of 1973 and the early 2010s, when shale oil extraction technologies arrived on the scene, the global oil industry’s response to political and market shocks was relatively slow. It often took decades between the decision to develop a new field and the achievement of peak production. This fact explains both the oil overproduction crises of the early 1980s and late 1990s, as well as the industry’s inability to meet the surge in demand during the rapid economic growth of the 2000s.
The events of 2014–2015 and the COVID crisis of 2020 demonstrated that a sharp drop in oil prices immediately triggers a rapid decline in production, restoring market balance. Today, oil prices falling below $55 per barrel for an extended period would be possible only if production costs were significantly reduced through technological progress. Conversely, if oil prices for any reason were to rise above $90 per barrel, the oil industry outside OPEC+ would be capable of increasing production by several million barrels within two to three years.
Since the period up to 2035 is considered as a single whole, what matters for understanding the stability of Russia’s budget and balance of payments is not the oil price in any given year, but its average price over the decade. While at certain points prices may once again fall to $40 or rise above $100 per barrel, their movement outside the $55–$90 range (in 2025 prices) for more than a year now appears far less likely than it did ten years ago.
In this regard, it is improbable that the Russian economy within this time horizon will face either a negative price shock similar to that of the 1980s or a positive one like those of the 1970s or 2000s. Short-term price fluctuations outside this corridor will not have a meaningful impact on the long-term trajectory of Russia’s economic development.
Dependence on Oil: Budget and Economy
The notion that the Russian economy is heavily dependent on the extraction and export of hydrocarbons—primarily oil—has long become a cliché, although, as they say tend to say these days, “things are not what they appear.” The fact is that the budget’s dependence on oil has been declining rapidly: the share of oil and gas revenues in federal budget income has plummeted over the past 15 years, from more than 50% in 2011–2014 to just 25% by mid-2025.
This decline stems from several factors:
- An overall relative decline in global oil prices, which in today’s dollars are now 48% lower than their 2010–2014 levels.
- Stagnation and a subsequent decline in the physical volume of Russian oil exports due to voluntary restrictions under OPEC+ (oil production in Russia in 2024 fell by 8% compared to the 2019 peak) and a reduction in gas exports, which resulted from the Kremlin’s political decisions.
- The 2019 introduction of mechanisms to stabilize retail gasoline prices and to encourage oil companies to modernize refineries, as a result of which, in 2023–2024, one-third of gross revenues from the oil sector were returned from the budget to oil companies; in the first nine months of 2025, this share amounted to 22%.
- Between 2014 and 2024, the Russian oil industry underwent the “tax maneuver” whereby the mineral extraction tax (MET) rate was increased, while the export duty on oil and petroleum products was first halved and then eliminated altogether. It was replaced by a profit-based tax (the additional income tax, AIT), with rates differentiated according to the complexity of extraction conditions. Overall, the tax maneuver is considered fiscally neutral; however, the possibility of setting AIT rates on an individual basis creates potential for a gradual decline in the overall tax burden both due to the development of new fields with more challenging geological and weather conditions, and due to the maneuver’s inherent susceptibility to corruption.
- The rapid strengthening of the ruble from late November 2024 to mid2025. The U.S. dollar weakened by almost 30% against the ruble, which slashed the oil and gas tax revenues, since these tax rates are set in U.S. dollars.
- The impact of Western sanctions, which has led to the discount on Russian oil traded on global markets. Although recently this discount in India and China has narrowed to $2–$5 per barrel, it can regularly rise due to intensified pro-sanctions rhetoric.
- The growing tax burden and the improved tax collection outside the oil and gas sector. Between 2011 and 2024, non-oil-and-gas revenues of the federal budget increased from 9.5% to 12.7% of GDP. During this period, the most significant change in the tax regime outside the oil sector was the increase in VAT from 18% to 20%, but alongside this, almost every year excise duties and other smaller taxes were raised, and one-off levies were introduced: e.g., the tax on Gazprom’s income in 2022, the windfall tax on exporters’excess profits, and the additional export duty pegged to the ruble exchange rate as well as the tax on exchange-rate income in 2023. The continued increase in the tax burden has carried over into 2025, when the corporate income tax rate was raised and a tiered progressive personal income tax scale was introduced. All additional revenues from these tax hikes were allocated to the federal budget. According to the finance ministry, this will raise the 2025 federal budget revenues by 0.9% of GDP.
- The change in the sectoral structure of the economy, driven by the growth of the services sector’s share of GDP, and—since the start of the war—by the rise in defense production.
Only three of the factors listed above—the reduction in oil production under the OPEC+ agreement8, the ruble exchange rate, and the narrowing discount on Russian oil—could potentially reverse their impact on Russia’s budget revenues. The effects of all the other factors will persist, which will, in the long term, continue to reduce the budget’s dependence on oil prices.
8 — This will be a slow-paced process in Russia. OPEC+ began lifting restrictions on oil production in the spring of 2025, but Russia’s economic ministry 2026 federal budget projections imply that in 2028, Russia’s oil production will be 540 million tonnes, a decrease of almost 4% from the 2019 maximums.
However, a reduction in the budget’s dependence on oil is not the same as a reduction in the economy’s overall dependence on oil. Since 2017, when Rosstat began calculating this metric, the share of the oil and gas sector in Russia’s GDP has hovered between 16% and 20%, mainly influenced by changes in global oil prices.
Even the decline in oil production under the OPEC+ agreement and the drop in gas output due to Gazprom’s loss of the European market did not significantly affect this figure. A substantial decrease only began in late 2024, and by the second quarter of 2025, it had fallen to 13.2%.
This was clearly caused by a combination of factors: lower global oil prices, reduced oil production in Russia, and the growing share of the military-industrial complex. However, it is too early to conclude that the Russian economy has finally “kicked the oil habit.”
In addition, it is important to recognize that export revenues from oil sales remain critical for paying for imports, and that exporting companies continue to be a key source of demand for related industries.
Russian oil producers view the coming years with cautious optimism. Although depletion rates at mature fields are running at 6% to 8% per year, existing reserves (including production cuts under OPEC+) and intensified extraction efforts allow for some expectation of modest growth in oil output—albeit below the 2019 level—and for maintaining this output roughly through 2030
The outlook beyond 2030 appears less encouraging, though. The technological blockade imposed on Russia means that the oil industry lacks access to advanced technologies, which rules out the possibility of developing new fields. Under this scenario, maintaining oil production at a stable level could become a difficult—or even unsolvable—task.
This does not imply an imminent collapse of Russia’s oil sector after 2030. Any decline in production would likely be gradual, and the state would take all possible measures, including reducing the tax burden, to slow this process.
As a result, the gap between the declining budgetary dependence on oil and gas and the still high economic dependence on them will continue to widen, while the Russian authorities will make lopsided economic policy decisions, with oil producers as the main beneficiaries and the rest of the economy bearing the brunt of it.
Sanctions
This factor is consistently cited in various discussions about the future of the Russian economy as one of the key elements. However, we believe that its impact is significantly overstated in public discourse.
Sanctions undoubtedly inflicted serious damage on the Russian economy in the spring and summer of 2022, but over time, Russian businesses have adapted to the restrictions, learning to build alternative logistical and financial schemes to mitigate their effects on dayto-day operations.
That said, neither the Kremlin nor the business community has been able to find effective ways to break the technological blockade or to restore access to modern technologies and equipment. This component of Western sanctions remains the most powerful and damaging, though its effects are difficult to capture statistically
Within the time horizon we consider, we see no realistic prospects for a significant tightening of sanctions’impact on Russia’s current economic situation—and we are highly skeptical about the potential benefits of any future easing of the sanctions regime.
Tighten It Up?
Most of the sanctions measures capable of exerting serious pressure on the Russian economy were implemented by the West in the spring and early summer of 2022. After that, the drafting of new sanctions packages effectively turned into a PR stunt for Western politicians. The real trouble is not a lack of political will or insufficient expertise, but rather the fact that, to quote from Donald Trump, the Western coalition has run out of impactful “economic cards” to play
If one assesses the impact of sanctions in monetary terms, the last measure with a noticeable economic effect was the EU’s embargo on Russian oil and petroleum products, which came into force in the winter of 2022–2023. Initially, its effect was estimated at up to $10 billion per year9 (circa 0.5% of Russia’s GDP), but by now, this impact has diminished two- to two-and-a-half-fold.
9 — Russian oil companies were forced to incur additional costs to deliver oil to South Asian and African countries instead of the EU. In the first months after the imposition of sanctions, they also had to sell this oil at a significant discount. In 2023, this led to losses of up to $10–$12 per barrel, with total Russian oil exports amounting to about 1 billion barrels per year. By 2025, after the restructuring of logistics and the establishment of new payment mechanisms, losses had decreased to $3–$5 per barrel, while export volumes remained stable.
The damage from the hundreds of additional measures introduced in numerous sanctions packages since then has either been nonexistent or measured in thousandths of a percentage point of Russia’s GDP.
If we set aside the highly unrealistic scenarios of expanding the sanctions coalition to include China or India, it becomes virtually impossible even in theory to imagine sanctions that could inflict damage on the Russian economy comparable to that of the first half of 2022, while still being enforceable by the West through purely economic means, that is, without resorting to measures like a naval blockade.
This does not mean to say, however, that certain new sanctions could not prove painful for specific enterprises or sectors, or that the Western coalition could not achieve more effective enforcement of existing restrictions.
There is no doubt that the sanctions regime will continue to impede technological modernization and investment, thereby slowing long-term economic growth and reducing the competitiveness of the Russian economy, effects that, nevertheless, will not be readily obvious from official statistics.
We do not see any possibility for the West to intensify sanctions pressure to a degree that would cause a sharp or catastrophic deterioration of the Russian economy over the next decade. Far from it, it is more likely that the Russian business sector will continue to adapt to the new realities and that some of the costs associated with sanctions will gradually decline.
Can Easing the Sanctions Be Beneficial?
To assess the potential consequences of sanctions relief, it is worth taking a closer look at those measures that have, in fact, had a significant impact on the Russian economy
In absolute terms, the freezing of more than $300 billion in assets belonging to the Central Bank of Russia was, from a PR perspective, the most dramatic blow. However, it is important to remember that these are Central Bank assets, and their fate—whether they remain frozen or are hypothetically used to compensate Ukraine—has not had, and will not have, any long-term impact on the functioning of the Russian economy.
If the frozen assets were to be confiscated or transferred to Ukraine as compensation, this would lead to balance-sheet losses for the Central Bank, which would be offset over time through its profits. The real economic effect would be a temporary reduction in the Bank of Russia’s profit transfers to the federal budget, as the law requires 75% of its profits to be remitted to the state. In 2025, the Central Bank transferred 150 billion rubles, or less than 0.4% of total annual budget revenues.
If we assume that some or all of the frozen assets are eventually reclaimed by the Central Bank of Russia, there is no reason to expect that these funds would, in any form, be used to drive economic growth. The previous macroeconomic policy track record under Putin strongly suggests that the government would not withdraw these funds from the Central Bank to finance the budget deficit.
A small positive effect from the return of the frozen assets could occur only if it were accompanied by the lifting of restrictions on international transactions of Russian banks in U.S. dollars and euros. This would lead to a reduction in transaction costs for sectors engaged in foreign trade, but the overall scale of this effect would be statistically insignificant.
Even if we assume the highly unlikely scenario of a complete lifting of the E.U. sanctions on trade with Russia, there is no reason to expect that trade would return to pre-war levels. Both regulators and businesses on either side would seek to protect themselves from political risks and from dependence on potentially unfriendly partners. For businesses, reversing supply chains and switching partners again would entail new costs with uncertain benefits.
When Russian businesses were still closely integrated with European partners, the costs of finding Chinese alternatives often deterred such transitions even when Chinese suppliers offered a better price-to-quality ratio. The reverse process of re-establishing ties with Europe would be just as difficult and costly
Even in the most optimistic scenario, the restoration of economic ties would not be swift. Some increase in trade volumes would certainly occur, but excluding hydrocarbon exports (discussed below), the growth in trade across other sectors would have no meaningful positive impact on the Russian economy. The maximum potential benefit would amount to only a few tenths of a percentage of GDP.
Since these payment difficulties stem primarily from U.S. sanctions rather than European ones, there is a certain probability that they could be eased under specific circumstances. However, the long-term positive effect of such easing would be much smaller than the current losses experienced by Russian businesses.
Thanks to the alternative payment mechanisms developed by Russian entrepreneurs, the costs of conducting international transactions already began to decline in the second half of 2024. The market for international payments in Russia has become highly competitive, with many private players involved, giving strong grounds to expect that the cost of such operations will continue to decrease in the long term.
Undoubtedly, payments made through the traditional international banking system will always be cheaper than those conducted through alternative channels. Therefore, lifting sanctions of this type would in any case provide a certain positive effect for the Russian economy.10 However, assuming that such sanctions remain in place throughout the next decade, we can extrapolate the current trends to see that by 2035, the annual losses incurred by Russian businesses in carrying out cross-border payments will be significantly lower than they are today. In other words, in the long-term perspective, the difference between the presence and absence of such sanctions is steadily diminishing.
10 — For Russian banks and businesses, an alternative to unrestricted international transactions can be an extensive use of stablecoins in international transactions, which is a likely prospect given the U.S. passing GENIUS Act and CLARITY Act in mid-2025.
To these direct losses for the Russian economy, one must also add the sharp decline in Russian pipeline gas exports to Europe, which, while not directly caused by sanctions, has had a major impact. Before the war, Gazprom sold about 30% of its gas production to Europe (including Turkey), and European sales accounted for roughly 75% of Gazprom’s total revenues.
The lifting of restrictions on the import of Russian oil and petroleum products appears more likely than the removal of any other sanctions. The EU’s ban on importing Russian hydrocarbons is economically disadvantageous for both sides.
European companies are currently purchasing liquefied natural gas (LNG), the price of which is 50% to 70% higher than that of Russian pipeline gas, and are also paying significantly more for logistics when buying oil from the Persian Gulf. As a result, Europe’s additional costs for energy imports are roughly comparable to Russia’s losses.
Moreover, the current arrangement has created heightened environmental risks for the EU. To transport oil from the Leningrad Region to Mumbai, it takes four to six times the number of tankers used to deliver the same volume to Rotterdam. Similarly, transporting oil from the Persian Gulf to Rotterdam requires at least twice as many tankers as importing the same amount from Russia.
This increased global demand for tankers has led to the reactivation of older vessels that would otherwise be decommissioned. Consequently, the risks of oil spills have risen, and the overall environmental impact has worsened due to longer shipping routes and the operation of obsolete engines, which produce higher emissions.
Nevertheless, even in the most optimistic scenario of normalization between the E.U. and Russia, neither side would want to return to the pre-war level of interdependence in oil and gas trade. Consequently, even if Russian energy exports to Europe were partially restored, their scale would remain significantly below pre-war levels. Thus, the potential economic gain for Russia from the lifting of such sanctions would likely be in the range of 0.3%–0.7% of GDP.
Lifting sanctions on spare parts and maintenance services for aircraft and engines would certainly ease the burden on Russian businesses and significantly reduce safety risks. However, the quantitative economic impact of this issue is difficult to measure and diffused over time. We must acknowledge the problem, but we believe that over a ten-year horizon, its significance will be considerably lower than that of the factors discussed earlier.
Furthermore, restoring Russian airlines’access to certified maintenance centers would require them to finance substantial repair and refurbishment work, addressing several years of inadequate servicing and the use of non-original spare parts. For Russian companies, this would represent a major financial burden, while for Western firms, it would generate an additional source of revenue.
The potential gains for the Russian economy from a possible easing or lifting of other sanctions are either statistically negligent or purely long-term in nature. Their combined impact over the forecast horizon would amount to only a few hundredths of a percent of GDP.
There is, however, another significant economic consequence of Russia’s confrontation with the West that is not codified in any official documents. The very fact of ongoing confrontation and the unpredictability of the Kremlin’s foreign policy behavior have made all investments in Russia appear substantially riskier, thereby increasing their cost of financing.
In addition, Russian companies have been excluded from numerous global value chains. Even when a specific company or sector is not directly targeted by sanctions, potential foreign partners, including those from so-called “friendly” countries, will—all else being equal—prefer to work with non-Russian counterparts.
This plight exerts, and will continue to exert, a significant negative effect on the Russian economy. It can only change if the West decides to return to a “business as usual” relationship with Moscow—something that appears highly unlikely within the current forecast horizon. A reduction of this effect could occur only in the event of a regime change, or at least a regime facelift, including the stepdown of President Putin.
Given the above, even under the most optimistic assumptions, over the forecast horizon the difference between the most radical easing and the most radical tightening of sanctions policy is unlikely to exceed 2%–3% of GDP over the course of a decade, that is, no more than 0.2%–0.3% of GDP per year.
Under a more conservative scenario—in which the Putin regime remains in power over the next ten years, the conflict in Ukraine remains unresolved (with only an unstable “frozen” situation), and public opinion in Western countries toward Russia retains its strong inertia (thereby imposing serious constraints on political decision-making)—the potential impact of any changes in Western sanctions policy on the Russian economy would fall within the margin of statistical error.
In other words, sanctions policy shifts would not even rank among the five most significant factors affecting Russia’s economic trajectory in the coming decade.
Pivot to the East: Prospects
The “pivot to the East” as Russia’s foreign economic track began to take shape in 2010 in the run-up the APEC Summit in Vladivostok, scheduled for 2012. At that stage, however, it was conceived not as a counterbalance to Russia’s economic relations with Western countries, but rather as an effort to enhance development in Eastern Siberia and the Russian Far East. Asian nations were viewed primarily as potential partners in revitalizing Russia’s depressed regions, while the main emphasis remained on mobilizing domestic resources.11
11 — To this end, Russia established the Ministry of the Far East and Arctic Development.
After the introduction of Western sanctions in 2014—linked to the annexation of Crimea and the de facto occupation of parts of Ukraine’s Luhansk and Donetsk regions—the Kremlin began to seek in China an alternative source of capital markets and technological solutions. However, since those sanctions did not restrict Russian exports of raw materials, trade with European countries remained largely unaffected.
The most significant change in scale was Russia’s embargo on imports of European agricultural products, introduced as a retaliatory measure. The volume of banned imports was estimated at €5.1 billion, or roughly 1.9% of total trade turnover between Russia and the E.U. countries.
The Kremlin’s hopes that China would provide access to capital markets and advanced technologies did not materialize. Chinese banks were extremely cautious about extending loans to Russian companies, and raising funds on the Chinese stock market proved highly difficult.12
12 — To be able to issue bonds on China’s domestic market, a company must first provide its financial statements prepared in accordance with Chinese accounting standards, obtain a domestic credit rating, and submit a legal opinion confirming compliance with Chinese laws and regulatory requirements.
Direct investment by Chinese companies in Russia remained minimal. On one hand, the Kremlin was reluctant to approve Chinese investment in Russia’s mining sector; on the other, the transfer of modern technologies to Russia could have enabled the emergence of potential competitors to Chinese firms in third-country markets, which did not align with Beijing’s interests.
The sanctions imposed by Western countries following Russia’s invasion of Ukraine struck at the core of Russia’s export structure and limited importers’ability to use European logistics networks and service hubs.
In addition, the“moral sanctions”manifested in the withdrawal of numerous Western companies that had operated in Russia or supplied consumer and industrial goods forced Russian businesses to seek alternative suppliers.
As a result, Russia rapidly transformed the structure of its foreign trade. Since 2021, the share of Russian energy exports directed to China has increased from 28% to over 50%, and by the end of 2024, China accounted for roughly 31% of Russia’s total exports.
China plays an equally significant role in supporting Russian imports: the vast majority of electronics, passenger cars, telecommunications equipment, and consumer goods now come from China. Beijing is also Russia’s largest supplier of dual-use goods and technological products, many of which were copied from Western designs but do not represent cuttingedge technology.
Since 2023, the Chinese yuan has become the main currency used in Russia’s foreign trade, and as early as December 2022, Russia’s Ministry of Finance designated it as the sole currency for holding assets in the National Wealth Fund.
This growing dependence poses serious long-term risks for the Russian economy. The primary risk lies in the asymmetry of economic interests.
While Russia’s role as a supplier of primary resources aligns with China’s strategic needs—and many Russian companies benefit from long-term contracts—China has little incentive to grant Russia access to advanced technologies.
As Chinese experts overtly point out,“Chinese technologies can replace European automobiles, high-speed rail, communications systems, renewable energy, computers, and mobile phones <…> For economic gains, what matters is not only investment, equipment, and technology, but also the ability to purchase necessary goods and services from abroad, as well as to earn foreign currency from exports and trade in services.”13
13 — Huasheng Zhao. Russia’s Pivot to the East and the Russia–China Relations. Russia and APAC. No. 2. 2025
Another risk to Russia’s long-term development trajectory is the emerging process of global bifurcation, the movement toward a bipolar world dominated by the U.S. and China. Following more than three decades of globalization, the world economy is getting split in terms of technology, financial and payment systems, and trade.
Initially driven by national security concerns, the mutual distrust between the world’s two largest economies has been steadily deepening. The rise of authoritarian leaders in both countries — leaders who view international relations as a zero-sum game — makes the fragmentation of the world into rival blocs increasingly difficult to prevent.
Today, the technological divide is already visible. The split in 5G mobile communication platforms has become virtually complete. The West’s extensive use of financial sanctions against Russia has pushed China toward developing an alternative payment system, supported by large-scale credit lines to its trading partners. Meanwhile, in trade negotiations, the United States is pressing its economic allies to impose restrictions on Chinese goods and technologies.
Presently, no one can clearly delineate which countries will ultimately align with either of the two emerging global blocs. However, it is highly likely that the most economically developed nations, primarily those belonging to the OECD, will choose to join the Pax Americana. Beyond their advanced levels of economic and technological development, these countries share another crucial advantage: they are largely self-sufficient in primary resources, a feature that will play a key role in shaping their long-term economic stability.
China, by contrast, faces a persistent structural challenge: securing access to essential resources remains one of its core foreign policy objectives.
In this context, Russia holds limited economic appeal for the Pax Americana bloc. Its natural resources can generally be sourced elsewhere, and throughout Putin’s tenure, Russia has shown little genuine interest in integrating into Western technological and industrial value chains.
For China, however, Russia stands for a strategically valuable partner. It is abundant in natural resources; it is offering simple and secure logistics and providing a reliable supply base that is relatively insulated from third-party blockades. Consequently, the loss of Russia or its reorientation toward the West would pose serious risks to China’s long-term resource security.
Thus, China’s policy toward Russia will continue to be shaped by economic pragmatism: outwardly strong displays of friendship and rhetorical support for building a “new world order” opposed to Western hegemony, coupled with tightly constrained technological cooperation and a clear asymmetry of interests in favor of Beijing.
This political track will manifest itself in China “forgetting” that in the second half of the 19th century, when China was struggling, Russia acted more rapaciously and aggressively than any other imperialist power and seized vast swathes of territory from it.14 The leaders of the two countries will regularly make pompous mutual visits, accompanied by every imaginable display of courtesy, and will sign numerous lengthy declarations and statements whose content will reflect the Kremlin’s ambitions and create the illusion of an equal partnership. However, this will not lead to any qualitative change in the nature of economic relations between the two countries.15 Russia’s place in China’s policy—as a supplier of raw materials and a market for Chinese goods—remains unchanged and is unlikely to change, according to independent experts and observers.
14 — Under the Beijing and Aigun treaties, Russia took from China the territories that now comprise the Primorsky and Khabarovsk regions, with a total area of 1.5 million square kilometers, amounting to 8.8% of its current territory.
15 — The China Global Investment Tracker database, run by the American Enterprise Institute (AEI), contains information on nearly 2,400 investment projects worth over $100 million each, implemented by Chinese companies around the world between January 2005 and June 2025. According to this source, since the spring of 2014 (after the annexation of Crimea), Chinese companies have carried out 24 projects in Russia with a total value of $16.5 billion. Just over half of this amount consisted of portfolio investments in Yamal LNG, Arctic LNG2, and Sibur. The most recent project dates from January 2021. (After the start of the war, Chinese companies participated in the construction of six facilities.)
It is obvious that the longer Russia continues its confrontation with the West, the more closely it will become tied to China, gradually being drawn into its technological orbit, and the harder it will be for the Russian economy to break free from China’s tight embrace. In our opinion, the Kremlin’s “pivot to the East” is a mistake from the standpoint of Russia’s longterm economic interests. So far, neither China’s ability nor its willingness to contribute to the modernization of Russia’s industrial potential has been demonstrated in any way.
Sidelined
Although present-day Russia is not a technological leader or a pioneer of innovation by any stretch of imagination, from the early 2000s until the annexation of Crimea in 2014, the Russian economy had opportunities for relatively rapid acquisition and implementation of new technologies. This did not apply to the most advanced high-tech industries, but it did help much of the economy to augment labor productivity, keeping pace with global technological progress.
The main sources of technology, managerial know-how, and direct foreign investment in Russia traditionally came from European countries. However, after the Russian army’s invasion of Ukraine, this process came to a halt. Those European and American companies that did not leave Russia and continue to operate there sometimes expand their business by reinvesting their profits, but they too have stopped importing new technologies and equipment, especially since the level of technological competition in the Russian market has steeply declined.
Sure enough, Russian businesses think about development and investment and are engaged in modernizing their production facilities. However, the technological solutions available to them are not cutting edge. Should this scenario persist, the competitiveness of Russian goods will gradually lag behind that of imported products, first and foremost, imports from China. The most striking example of this trend can be seen in the Russian automobile market, both passenger and commercial, where the share of Chinese vehicles continues to grow despite the efforts of Russian authorities to support domestic manufacturers.16
16 — An increase in the utilization fee, the provision of budgetary subsidies and concessional loans by state-owned banks, and the adoption of a law that would lead to taxi drivers being able to operate only Russian-made vehicles.
Technological backwardness is not obvious in current statistics. The freezing of investment projects does not immediately affect current production levels. But that does not mean the gap isn’t widening or that quantity will not eventually turn into quality. Even if we start counting Russia’s technological blockade from the day of its invasion of Ukraine, it has already lasted almost four years. If the confrontation with the West—even in its “cold” form—continues for decades, the Russian economy risks finding itself at the technological level of countries very different from those it once aspired to emulate.