Russia’s old economy is gone, and its wartime transformation has the military primed for a resurgence, former State Dept. official warns

Jason Ma

<ul>
<li>Any settlement that ends Russia&#8217;s war on Ukraine must consider the Western sanctions that have helped constrain Vladimir Putin&#8217;s military, a former State Department official said. If sanctions are lifted without any major changes to Moscow&#8217;s foreign policy, Russia could accelerate the resurgence of its military as the wartime economy isn&#8217;t going away.</li>
</ul>



The unprecedented sanctions regime that the West imposed on Russia after its invasion of Ukraine hasn&#8217;t stopped Vladimir Putin&#8217;s war machine, but it still transformed his economy, according to a former State Department official.<div class="paywall-selector"></div><div class="paywall">



As global powers struggle to bring an end to the fighting, the future of those sanctions will be critical to the postwar landscape, said Philip Luck, who served as the State Department&#8217;s deputy chief economist in the Biden administration and is now director of the CSIS Economics Program.



&#8220;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,&#8221; he <a href="https://www.csis.org/analysis/how-sanctions-have-reshaped-russias-future" data-type="link" data-id="https://www.csis.org/analysis/how-sanctions-have-reshaped-russias-future" target="_blank" rel="noreferrer noopener">wrote Monday in a commentary for CSIS</a>. 



&#8220;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.&#8221;



After the <a href="https://fortune.com/2025/02/28/trump-vance-tell-zelensky-he-cant-win-the-war-he-told-them-theyre-naive-for-believing-putin/" data-type="link" data-id="https://fortune.com/2025/02/28/trump-vance-tell-zelensky-he-cant-win-the-war-he-told-them-theyre-naive-for-believing-putin/">Oval Office shouting match</a> between President Donald Trump and Ukrainian President Volodymyr Zelensky on Friday, hopes for a peace deal sank. 



The <a href="https://fortune.com/2025/02/28/russian-ruble-stock-market-today-donald-trump-ukraine-volodymyr-zelensky-dow-inflation/" data-type="link" data-id="https://fortune.com/2025/02/28/russian-ruble-stock-market-today-donald-trump-ukraine-volodymyr-zelensky-dow-inflation/" target="_blank" rel="noreferrer noopener">ruble tumbled</a> after the blowup, denting a <a href="https://fortune.com/2025/02/16/ruble-russia-economy-ukraine-war-talks-trump-putin-europe/" data-type="link" data-id="https://fortune.com/2025/02/16/ruble-russia-economy-ukraine-war-talks-trump-putin-europe/" target="_blank" rel="noreferrer noopener">massive rally</a> built on expectations that the new Trump administration and a more favorable stance toward Russia would hasten a settlement. That could potentially lift sanctions, clearing the way for renewed business ties, hard currency inflows, investment, and energy export revenue.



<a href="https://fortune.com/2025/01/26/russian-war-economy-moment-of-truth-vladimir-putin-stagflation-cash-reserves-financial-crash/" data-type="link" data-id="https://fortune.com/2025/01/26/russian-war-economy-moment-of-truth-vladimir-putin-stagflation-cash-reserves-financial-crash/" target="_blank" rel="noreferrer noopener">Russia&#8217;s economy is showing increasing strains</a> from all the sanctions, which Luck said has deprived Russia of more than $500 billion that it could gone toward its war on Ukraine.



&#8220;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,&#8221; he added.



That&#8217;s as the Kremlin has poured billions into the military while trade partners like China have scooped up its discounted energy exports and helped Moscow evade sanctions.



Russia&#8217;s resilience and wartime shift have also created constituencies with a vested interest in sustaining the new economy, Luck noted.



&#8220;Even if hostilities were to cease immediately, Russia’s economic transformation is unlikely to be reversed,&#8221; he pointed out. &#8220;The Kremlin has redirected vast industrial capacities toward defense production, fundamentally reshaping the economic landscape.&#8221;



That indicates Russia is preparing for prolonged geopolitical tensions as the economy focuses on military capabilities, he added.



To prevent future aggression from Russia, any relief from sanctions should not only require an end to the fighting but also be conditioned on verifiable reforms.



&#8220;Lifting sanctions without securing tangible changes in Russia’s foreign policy and military posture could inadvertently accelerate the resurgence of its military strength,&#8221; Luck warned.



In the meantime, he called for enhancing sanctions, closing loopholes, continuing support for Ukraine, and planning for postwar containment of Russia&#8217;s military.



Support from the US may not last much longer, as the Trump administration is reportedly considering a <a href="https://www.washingtonpost.com/politics/2025/02/28/trump-presidency-news/#link-U4SPRIDWBNBPZBXDLEHMNTMD7E" target="_blank" rel="noreferrer noopener">halt to all US military aid</a>.



But Trump&#8217;s turn away from Ukraine and European allies <a href="https://fortune.com/2025/03/01/europe-seizure-frozen-russian-assets-ukraine-war-trump-zelensky/" target="_blank" rel="noreferrer noopener">may make the EU more willing to seize Russian assets</a> it froze and use them to keep aid to Kyiv flowing.



<a href="https://fortune.com/2025/02/23/american-troops-european-armies-nato-russia-war-us-security-cost/" target="_blank" rel="noreferrer noopener">Europe is also contemplating a possible future without US leadership</a>, and the EU’s top diplomat, Kaja Kallas, signaled after the Trump-Zelensky shouting match on Friday that Europe will try to fill the void.



“The free world needs a new leader,” she said. “It’s up to us, Europeans, to take this challenge.”</div>

"Even if hostilities were to cease immediately, Russia’s economic transformation is unlikely to be reversed."

Russia's economic transformation has military primed for resurgence

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