Reserves at Zero: How russia Is Eating up the Last Savings, While Continuing the War

russia won’t go bankrupt tomorrow. But it is already running on fumes. This conclusion follows from a joint report by the Kiel Institute for the World Economy (IfW) and the Stockholm Institute of Transition Economics (SITE) entitled “Endgame: The State of the Russian Economy”. The authors do not paint a picture of an immediate collapse, but they do document the slow, almost imperceptible exhaustion of the model that has kept the kremlin afloat until now.

The liquid portion of the national wealth fund has shrunk from 6.5% of GDP in February 2022 to 1.8% in 2026. To plug budget holes, moscow is selling gold. The federal budget deficit exceeded 90% of the annual target in just the first few months of 2026, while oil and gas revenues in the first quarter plummeted by nearly 45% compared to 2025. Military spending is increasingly being covered not by reserves but by bank loans, which appear on corporate balance sheets as hidden debt.

But money, as it turns out, is no longer the main problem.

Even if oil prices rise and oil and gas revenues recover, russia will not be able to quickly convert them into more weapons or more soldiers. Sanctions and export controls have cut it off from critical technologies and equipment. The labor market is overheated. Industrial capacity is running at full throttle. Increasing budget spending under these circumstances does not yield a proportional increase in production; instead, it fuels inflation.

Against this background, China has become moscow’s only real economic lifeline. Its share of russia’s foreign trade has reached 35%, while dependence on Chinese dual-use goods in certain categories exceeds 80%. For moscow, Beijing is a supplier of components, a source of technology, and a financial intermediary. However, major Chinese banks and companies are in no hurry to take risks for putin’s sake: the threat of secondary sanctions is forcing them to keep their distance, which complicates transactions and deliveries.

The report’s authors do not stop at a diagnosis. They state outright: The West has a window of opportunity which it should use. The priorities, in their view, are clear: stricter export controls; pressure on Chinese companies doing business with russia as a condition for access to US and EU markets; additional trade restrictions; more effective enforcement of oil price caps; and shutting down schemes to circumvent sanctions via the “shadow fleet”.