Anniversaries, even those as somber as today’s, offer a crucial opportunity for reflection. As we mark the third anniversary of Russia’s full-scale invasion of Ukraine, it is essential to assess how this war—and the sweeping sanctions imposed in response—have fundamentally reshaped the geopolitical and economic landscape.
Over the past three years, sanctions imposed by the United States and a coalition of like-minded allies (hereafter, the Coalition) have inflicted significant economic damage on Russia, driven the emergence of complex illicit trade networks that challenge enforcement efforts, and compelled Moscow to restructure its economy around military production.
It is vital to recognize the profound impact of these sanctions—not only as evidence of their effectiveness but also as a stark reminder that the Russian economy of three years ago no longer exists. Any rapprochement with Russia that eases sanctions without addressing its new war-driven economic model would risk profound destabilization. While economic measures alone may not be enough to secure a just and lasting peace, such a peace cannot be achieved without them.
The Efficacy of Sanctions on Russia’s Economy
The sanctions imposed by Coalition nations have unequivocally impaired Russia’s economic capabilities, constraining its capacity to sustain its military endeavors in Ukraine. In 2022, Russia’s GDP experienced a contraction of 2.1 percent, and while it was able to regain growth as the war dragged on, this growth was the result of its shift to a war economy built on the production (followed by destruction) of weapons of war.
The breadth and depth of these sanctions have been unprecedented. As of January 2024, over 16,000 restrictions have been placed on Russian individuals and entities, making Russia the most sanctioned country in the world. Approximately 70 percent of assets within the Russian banking system are now under sanctions, crippling its financial sector. Key figures in the Russian government, military officials, and oligarchs have faced asset freezes and travel bans, further limiting Russia’s economic maneuverability. Between these frozen assets and the impact of the oil price cap, the Coalition has already deprived Russia of more than $500 billion that it could have put toward its war effort. On top of this, sanctions and export controls on coalition products have reduced Russia’s access to critically needed components and have made it pay markups upwards of 10 times world prices for key industrial inputs.
As a result of these Coalition actions, inflation and interest rates have surged. Russia’s central bank has raised interest rates to 21 percent as of February 2025 to counteract inflation, which has eroded purchasing power and weakened domestic demand. Additionally, workforce shortages have emerged as skilled laborers have either fled the country, been absorbed into the military production sector, or have become active participants in the war. The Center for European Policy Analysis estimates that “between 10,000 and 30,000 workers join the army every month, about 0.5 percent of the total supply.”
Prioritizing military production and financial stability has come at the cost of long-term economic and productivity growth. Estimates suggest that had Russia not initiated its aggressive actions in Ukraine in 2014, its economy could have been nearly 20 percent larger today. This lost growth adds up to nearly three-quarters of a trillion dollars in lost income. With continued Coalition pressure and the Kremlin’s continued prioritization of rebuilding its military, growth is expected to continue to be sluggish: Estimates suggest that the Russian economy will only grow at about 1 percent per year going forward. However, despite these profound impacts, three years have also provided Russia with the opportunity to adapt, building alternative financial networks and establishing deeper economic partnerships with nations willing to defy Coalition sanctions.
The Unprecedented Reorganization of the Global Economy
The sanctions have precipitated a remarkable reorganization of the global economic order, with Russia increasingly pivoting towards the People’s Republic of China (PRC) to mitigate the impact of Western isolation. This burgeoning relationship has seen bilateral trade between the two nations reach unprecedented levels. In 2023, trade turnover between Russia and China hit a record $237 billion, marking a more than nearly 70 percent increase since 2021.
While much of this trade has been in goods produced by China, the PRC has also become the largest transhipper of coalition products to Russia, playing a vital role as Russia’s main partner for sanctions circumvention. Since the war began, China has supplied over 90 percent of all Russian semiconductor imports, more than half of which have been Western-branded or produced. Russia has also found workarounds to continue exporting crude oil, including through a growing “shadow fleet” of vessels that operate outside of Western sanctions regimes. With its over 500 vessels accounting for roughly one-fourth of the global crude oil fleet, this shadow fleet allows Russia, Iran, Syria, and Venezuela to bring in crucial revenue to support their autocratic aims. The PRC is the leading destination for illicit oil, with imports of over 97 million metric tons between 2017 and 2023, roughly 15 percent of total sanctioned oil exports. These circumvention networks developed over the past three years highlight the need for continuous enforcement and adaptive countermeasures to prevent Russia from sustaining its military-industrial complex despite economic restrictions.
The Lasting Transformation of Russia’s Economy
Despite the immense pressure of international sanctions, Russia’s economy has shown remarkable resilience, largely due to its vast natural resources and support from key allies like China. The country’s ability to produce essential commodities, such as food and energy, has allowed it to withstand prolonged economic pressure, much like other heavily sanctioned states. However, this endurance is no accident—over the past three years, Russia has deliberately restructured its economy, shifting priorities from civilian prosperity to military production.
Even if hostilities were to cease immediately, Russia’s economic transformation is unlikely to be reversed. The Kremlin has redirected vast industrial capacities toward defense production, fundamentally reshaping the economic landscape. This shift has created a new class of economic beneficiaries—industries and individuals profiting from the war—who now have a vested interest in sustaining Putin’s war economy. The substantial investment in military infrastructure and the prioritization of defense industries indicate that Russia is preparing for prolonged geopolitical tensions, with an economy increasingly centered on military capabilities. Reversing this trajectory would require not only political will but also extensive economic reforms—both of which remain improbable in the near future.
Given this reality, the international community faces a crucial decision on how to engage with Russia’s militarized economy in the post-conflict era. Lifting sanctions without securing tangible changes in Russia’s foreign policy and military posture could inadvertently accelerate the resurgence of its military strength. A strategic framework that conditions sanctions relief not only on a cessation of hostilities but also on verifiable reforms will be essential to prevent future aggression and ensure lasting stability.
Conclusion
The past three years have made one thing clear: While sanctions are a powerful tool for economic pressure, they are not a standalone solution to geopolitical conflicts. The complex interplay between economic restrictions, global trade shifts, and military strategy demands a comprehensive, sustained approach. To effectively confront the challenges posed by Russia’s actions in Ukraine, the international community must:
Enhance and Enforce Sanctions: Strengthening existing sanctions and closing loopholes will increase economic pressure on Russia, limiting its capacity to fund military operations.
Strengthening existing sanctions and closing loopholes will increase economic pressure on Russia, limiting its capacity to fund military operations. Counter Circumvention Networks: The evolution of illicit trade routes, especially through the PRC, demands constant vigilance, coordinated enforcement, and diplomatic pressure to prevent continued access to restricted goods.
The evolution of illicit trade routes, especially through the PRC, demands constant vigilance, coordinated enforcement, and diplomatic pressure to prevent continued access to restricted goods. Sustain Support for Ukraine: Long-term economic and military assistance is vital to ensure Ukraine’s resilience and ultimate victory.
Long-term economic and military assistance is vital to ensure Ukraine’s resilience and ultimate victory. Plan for Post-War Containment: Even after the war, stringent policies must remain in place to prevent Russia from rebuilding its military capabilities unchecked.
Until Russia undergoes a fundamental transformation in its society and approach to international relations, the global community must remain resolute in its economic, diplomatic, and military strategies to counter its aggression and prevent the resurgence of its war-making capacity. The stakes extend far beyond Ukraine—at risk is the very integrity of the international order. Only through unwavering resolve and sustained economic isolation can the world deter future acts of territorial conquest and uphold the principles of sovereignty and stability.
Philip Luck is the director of the Economics Program and Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.