Opinion Russia has shown economic resilience. But is it sustainable?

Construction and urban infrastructure are clear examples. Sanctions meant to stall investment have spurred innovation. Moscow’s crane-filled skyline reflects a construction boom now driven largely by domestic suppliers. Contractors once reliant on Western engineering and materials have shifted to local production or Asian intermediaries. What began as an emergency substitution has evolved into de facto industrial policy.

Yet, this apparent resilience carries its own strains. Local substitutes often cost more, take longer, and deliver uneven quality. The shift to Asian — especially Chinese — supply chains diversifies partners but creates new dependencies. Tourism reflects the same duality. With Europe off-limits, Russians have turned to Sochi, Altai, Baikal, and Karelia, helped by subsidies and new regional airports. The sector is thriving, but its revival stems from constrained mobility.

The broader picture is similarly uneven. Military-linked industries and resource sectors are expanding, but civilian firms face high borrowing costs and scarce credit. Interest rates above 15 per cent have tamed inflation while stifling private investment, and a VAT hike in early 2026 will likely squeeze consumers further. The economy is functioning, but largely through state-driven redistribution rather than genuine, broad-based growth.

A deeper layer of adaptation is emerging in science and technology. Drawing on its Soviet-era intellectual base, Russia is pushing for advances in semiconductors, AI, and digital infrastructure. Institutions are collaborating to build domestic innovation ecosystems. Import-substitution has expanded into microelectronics, robotics, and cybersecurity. Yet without access to advanced Western machinery and expertise, the gap with global leaders endures.

At the core of Russia’s endurance is its vast resource base. Stretching across eleven time zones, its oil, gas, metals, and rare earths continue to anchor export revenue and fiscal stability. Even under sanctions, redirected energy flows to China and India have sustained earnings, albeit at discounts. This resource backbone funds military spending, supports social programmes, and cushions external shocks. But it also entrenches an extractive model of resilience rather than diversified growth.

These dynamics are most pronounced in the Arctic and Far East. Climate change has opened new maritime routes and resource opportunities. The Northern Sea Route — once passable only by icebreakers — is being developed as a commercial corridor between Europe and Asia. Moscow is investing heavily in Arctic ports, LNG terminals, and mining projects, drawing development into Siberia and the Far East. The strategy widens export routes and strengthens Russia’s geopolitical position in a region of rising competition. But environmental risks, logistical challenges, and limited foreign capital complicate these ambitions.

Russia’s hybrid economic model — defined by a state-business partnership — underpins this overall adjustment. The Kremlin sets strategic priorities such as financial stability and technological sovereignty, while private enterprise operates within managed boundaries. Cultural narratives, reinforced by the Russian Orthodox Church, cast economic endurance as a moral duty, blending nationalism with pragmatism and narrowing space for dissent.

Russia’s record of emerging from crises — the post-Soviet collapse, the 2008 financial shock, and the 2014 sanctions — has refined its capacity for fiscal discipline and strategic redirection. Over time, the effectiveness of sanctions erodes as economic links diminish. As economic ties with the West shrink, so too does Washington’s ability to exert pressure.

Designed to cripple Russia, the sanctions have instead driven a economic recalibration — rooted in resource wealth, institutional memory, and a deeply ingrained instinct for endurance

The writer is senior fellow, Manohar Parrikar Institute for Defence Studies and Analyses, New Delhi