# DECODING: Structural Exhaustion: What the Kiel Institute Report Really Says About Russia's Economy

> The Kiel Institute (IfW Kiel) is one of the most respected and widely cited economic institutes in Europe. Founded in 1914, it has earned a reputation for analytical rigor and intellectual independence that grants it particular authority in debates on the international economy. When its researchers introduce into their lexicon the term "structural exhaustion" to describe the st

- Author: Maxime Marquette
- Publisher: MadMax (https://mad-max.co)
- Section: Analysis
- Published: 2026-06-28
- Canonical URL: https://mad-max.co/en/article/decryptage-epuisement-structurel-ce-que-le-rapport-de-l-institut-de-kiel-dit-vra

## Key takeaways

- The article says Russian GDP contracted 0.2% in Q1 2026, and the IMF cut its 2026 growth forecast to 0.8%.
- It describes two mechanisms: depletion of physical capital that sanctions prevent renewing, and erosion of human capital through mobilization and emigration of 700,000 to 800,000 Russians.
- It cites an 80-billion-dollar deficit, government bonds yielding 15%, and a central bank key rate around 16%.
- It notes sanctions have real effects but are partly offset by circumvention routes and trade with China and India.
- The author argues for combining economic sanctions with military support for Ukraine, and notes The Economist's view that Russia "has problems but is not about to crash."

## Introduction: when economic experts dissect the myth of Russian resilience

### The Kiel Institute and its analytical authority

The **Kiel Institute** (**IfW Kiel**) is one of the most respected and widely cited economic institutes in **Europe**. Founded in **1914**, it has earned a reputation for analytical rigor and intellectual independence that grants it particular authority in debates on the international economy. When its researchers introduce into their lexicon the term "**structural exhaustion**" to describe the state of the Russian economy in **2026**, this is not political propaganda — it is a serious economic diagnosis, grounded in a systematic analysis of available data.

This diagnosis, relayed by the **Foreign Affairs Forum** of **June 23, 2026**, comes in a context where the debate about the "resilience" of the Russian economy in the face of Western sanctions has dominated expert discussions since **2022**. Some analysts highlighted Russia's capacity to maintain positive growth, to reconvert its economy toward war production, and to circumvent sanctions. The **Kiel Institute** brings a more nuanced and more troubling reading for **Moscow**: beneath the surface of these favorable indicators, the fundamentals are deteriorating.

### What is structural exhaustion?

"**Structural exhaustion**" is an economic concept that describes a situation where an economy is not merely going through correctable cyclical difficulties — it is suffering from degradation of its very fundamentals, those that determine its long-term productive capacity. These fundamentals include physical capital (machinery, infrastructure, industrial equipment), human capital (skills, education, workforce experience), technological innovation, and the quality of economic institutions.

When an economy is structurally exhausted, it can maintain for a time an appearance of normal functioning — by consuming its capital without renewing it, by overexploiting its natural resources, by mobilizing its workforce in the short term at the expense of long-term training and development. But this appearance conceals an underground deterioration that eventually shows up in statistics with a delay of several years. This is precisely what the **Kiel Institute** identifies in the Russian economy of **2026**.

*"Structural exhaustion" is a concept I might have called "accelerated economic aging." An economy aging badly under the weight of war — losing its productive youth, wearing out its machines without replacing them, giving up innovation to produce shells. An economy that mortgages its coming decades to hold its current months.*

## Russia's GDP: the data that betray the official narrative

### The first-quarter 2026 contraction

The first concrete indicator of the "structural exhaustion" of the Russian economy is the contraction of **GDP** in the first quarter of **2026**. According to data compiled by the **Foreign Affairs Forum** of **June 23, 2026**, Russian **GDP** contracted by **0.2%** during that quarter. This figure may seem modest in absolute value. In the context of a war economy supposedly overheating from massive military spending, it is an alarming signal.

The explanation for the paradox — how an economy spending so much on defense can enter recession — lies precisely in the concept of structural exhaustion. Military spending generates activity in the armaments sectors, but it simultaneously "**suffocates**" productive civilian sectors by absorbing skilled labor, monopolizing capital resources, and creating price and incentive distortions that discourage private investment in the civilian economy.

### The IMF's downward revision

The **IMF** (International Monetary Fund) revised its growth forecasts for **Russia** in **2026** downward, bringing them to **0.8%** according to available data. This revision is significant: the **IMF**, as an institution, is generally cautious in its analyses and tends to avoid conclusions that are too alarmist, conclusions that might create market panic. When the **IMF** revises downward, the underlying situation is generally more difficult than the revision suggests.

**0.8% growth** in a context of massive military spending that should have stimulated domestic demand is a very weak economic performance. It reflects an economy where military stimulus is counterbalanced by powerful degradation forces: capital flight, shortages of imported components, high inflation eroding consumption, and underinvestment in productive civilian sectors.

*0.8% growth with 7% of GDP in military spending. Do the math: without war spending, the Russian economy would be in deep recession. Military spending is literally the only thing keeping GDP afloat. This is the very definition of an unbalanced war economy — and one that is caving in beneath its leaders' feet.*

## The mechanisms of structural exhaustion in the Russian economy

### The destruction of physical capital without replacement

The first mechanism of structural exhaustion documented by the **Kiel Institute** is the consumption of physical capital without adequate replacement. Russian factories often operate with aging machinery that sanctions make impossible to replace or maintain properly. Advanced industrial equipment requiring Western-sourced components or software subject to export controls degrades progressively without access to optimal maintenance.

This reality is particularly striking in advanced technology sectors — civil aviation, information technology, medical equipment — where dependence on Western components or software was greatest. **Russia** has certainly developed local alternatives in certain areas, but these alternatives are generally less efficient and more expensive than the products they replace. The technological level of Russia's civilian economy is regressing, slowly but surely.

### The erosion of productive human capital

The second mechanism is more difficult to quantify but potentially even more serious: the erosion of productive human capital. Military mobilization has removed hundreds of thousands of workers — often young active men, often with technical qualifications — from the productive economy. Forced labor arrangements in armaments factories, with long hours and restrictions on mobility, physically and mentally exhaust workers.

At the same time, the **700,000 to 800,000 Russians** who have left the country since the start of the war (according to various estimates) represent a hemorrhage of human capital that the country cannot afford. These emigrants are overrepresented in high-value-added categories: engineers, software developers, entrepreneurs, doctors, financiers. Their departure deprives the Russian economy of the innovators and value creators it would need to regenerate once the war ends.

*I think of the Russian developers coding in Berlin, the engineers working in Amsterdam, the doctors practicing in Prague. These people are not enemies of Russia — they are collateral victims of a regime that forced them to choose between their conscience and their safety. And Putin loses their genius the moment he drives them away.*

## Sanctions: an assessment the Kiel Institute nuances

### The limits of sanctions in an autarkic economy

The **Kiel Institute** adopts a nuanced position on the effectiveness of sanctions. It acknowledges that they have created real disruptions and that their cumulative impact is significant. But it also highlights their limits: **Russia** has developed circumvention mechanisms — use of intermediaries in third countries, development of alternative payment circuits bypassing **SWIFT**, recourse to **China** and other partners not aligned with the sanctions.

These circumvention mechanisms do not neutralize the effects of sanctions, but they reduce their immediate impact. Electronic components still arrive in **Russia** via indirect trade routes, even if their prices are higher and their delivery times longer due to the circumvention. Russian oil continues to be sold, even at a discount, to countries like **India** and **China** that have not joined the sanctions. An honest assessment of sanctions must recognize both their real effects and their limits.

### The European "sanctions wall" and its components

**Euromaidan Press** of **June 26, 2026** described how the **EU** maintains its "**complete economic wall**" against **Russia** through **2027** — covering trade, banking, energy, and cryptocurrencies. This "wall" is remarkably multidimensional: it is not limited to traditional commercial and financial sectors, but extends to cryptocurrencies that could have served as a route of escape from financial sanctions, and to the energy sectors that are Russia's main revenue source.

The **Kiel Institute** notes that this set of sanctions creates a "**layered pressure**" on the Russian economy: each layer individually insufficient to cause a collapse, but their combination creating permanent friction that accumulates costs and reduces room to maneuver. It is an economic attrition strategy that resembles, in principle, a military attrition strategy — no decisive blow, but continuous pressure that exhausts the adversary's resources.

*The EU's "sanctions wall" is a remarkable political achievement. Maintaining the cohesion of 27 countries, with such divergent economic interests, over four years of sanctions against a major power — this is unprecedented in the history of European integration. This success deserves to be recognized, even if the effects on Putin are slower than we would like.*

## The Economist and the balanced verdict

### "Problems but no crash": decoding a formula

**The Economist**'s formula of **June 22, 2026** — "Russia's war economy has problems but is not about to crash" — deserves careful unpacking. The first part — "has problems" — is largely corroborated by the data: an **80-billion** deficit, bonds yielding **15%**, brain drain, degradation of civilian sectors. These problems are real, documented, and growing.

The second part — "not about to crash" — is a short-term prediction that rests on real resistance factors: still significant foreign exchange reserves (even if reduced from pre-war levels), oil revenues that continue to flow despite sanctions, a population bearing significant economic sacrifices under the pressure of political controls, and a government prepared to make every trade-off to maintain the military effort. "No short-term crash" does not mean "in good economic health."

### What "no crash" should mean for Western strategy

**The Economist**'s conclusion that the Russian economy is not about to crash in the short term has important strategic implications for the **West**. It invalidates the strategy of "**waiting for Russia to collapse economically**" to resolve the conflict without military effort or more costly support for **Ukraine**. This passive wait would be a strategic mistake: collapse is not imminent, and waiting while reducing support for **Kyiv** would allow **Putin** to consolidate his military gains.

The correct strategy, which the **Kiel Institute**'s analysis implicitly suggests, is a combination of continuous economic pressure — maintained sanctions, reinforced oil embargo — and sustained military support for **Ukraine**. These two combined pressures create a strategic pincer: one exhausts Russian resources, the other imposes growing military costs. Neither alone is sufficient; together they constitute the most effective endurance strategy available to the **West**.

*Waiting for the Russian economic collapse as a conflict resolution strategy is as naive as waiting for Putin to die of old age. This is not a strategy — it is a way of avoiding difficult decisions. The Economist is right: the Russian economy has problems. It is not collapsing. So we must continue to act.*

## International comparisons: Russia in the context of war economies

### USSR vs. Russia: similarities and differences

The **Kiel Institute** places its analysis in the comparative context of historical war economies. The most obvious comparison is with the **USSR** of the **1980s**, whose economic drift under the weight of military spending contributed to the political collapse of **1991**. The similarities are real: in both cases, a Soviet or post-Soviet economy devotes a disproportionate share of its GDP to military spending, to the detriment of civilian consumption and productive investment.

But the differences are equally important. **Putin**'s **Russia** is less planned, more integrated into the world economy (even partially), and has a private sector that can absorb some shocks. It also benefits from the discreet economic support of **China**, a partner that did not exist for the **USSR** in its collapse phase. These factors extend Russia's economic resistance duration compared to the **USSR**, even if the direction of the trajectory is similar.

### World War II war economies as models

Another relevant comparative framework is that of **Second World War** war economies. **Nazi Germany**, **Imperial Japan**, and **Stalin's USSR** all sustained intensive war economies for several years, at the cost of considerable structural distortions. In all these cases, the war economy held far longer than many observers anticipated — but it eventually gave way under a combination of external military pressure and internal exhaustion.

The lesson from these precedents is twofold: first, authoritarian war economies have resistance capabilities that market economies sometimes underestimate; second, this resistance is not unlimited — structural degradations accumulate to a point of no return. The challenge for the **West** is to maintain sufficient pressure for that point to be reached — and to support **Ukraine** militarily for however long that takes.

*World War II war economies held far longer than expected. But they all yielded. This is no consolation for the millions of deaths it cost. It is a lesson about the importance of not releasing pressure until resistance is broken. The road is long and costly. There is no shortcut.*

## The impact on the Russian population: between endurance and limit

### What ordinary Russians live through and do not say

Behind the macroeconomic statistics are the ordinary lives of Russians living under the combined impact of war, sanctions, and political repression. Data directly accessible from the outside is limited — independent Russian media have been shut down or have emigrated, opinion polls under an authoritarian regime are of uncertain reliability, and testimonies are filtered by fear of repression.

What filters through nonetheless — via social media that censorship cannot entirely control, through contacts with journalists in exile, through consumption data that foreign companies compiled before leaving **Russia** — suggests a progressive deterioration in living conditions for the ordinary population. Rising prices, shortages of certain imported goods, degradation of public services in indebted regions — these realities affect the daily lives of Russians even if propaganda attributes them to "hostile Western sanctions."

### The psychological resistance of a conditioned population

The capacity of the Russian population to endure economic hardships without revolting against the regime must not be underestimated. Decades of authoritarian regimes — Soviet then post-Soviet — have conditioned Russians to accept economic sacrifices presented as necessary for national greatness or to resist external enemies. **Putin** exploits this conditioning with considerable skill: the war is presented as defensive, the difficulties as the fault of Western sanctions, and any sign of discontent as national betrayal.

This psychological resistance is real but has its limits. The history of Soviet regimes shows that populations can endure for a long time — but that there is a threshold beyond which economic sacrifices, coupled with disappointment over promises of victory, create tensions that become uncontrollable. This threshold is difficult to predict from the outside. It depends on unpredictable factors — a humiliating military defeat, a particularly visible shortage, an incident that breaks the official narrative — none of which is clearly visible today.

*The resistance of a population under authoritarian rule is a fascinating and troubling thing to analyze. These people are not all Putin supporters — many live in fear, indifference, or resignation. But between these three states and active revolt there is an immense distance that repression maintains. Do not confuse submission with support.*

## The informal economy and survival mechanisms

### The grey economy as shock absorber

An important component of Russian economic resilience that official analyses often underestimate is the **informal economy**. **Russia**, like other post-Soviet economies, has a significant informal sector that absorbs part of the disruptions created by sanctions and the war. Parallel trade circuits, cash or barter exchanges, local mutual aid networks — all of these forms of informal economy contribute to softening the most direct effects of economic shocks on the ordinary population.

These survival mechanisms have their limits: they cannot compensate for shortages of medications or industrial equipment, they do not replace deteriorating public services, and they do not reconstitute the human capital lost to emigration. But they explain why predictions of immediate social collapse have repeatedly proven inaccurate. Russia's informal economy is a shock-absorbing layer that conventional economic models poorly integrate.

### Access to imports via third countries

Despite the sanctions, many Western products continue to arrive in **Russia** via third countries that have not joined the sanctions or that loosely enforce export controls. **Electronic components** transit through **Armenia**, **Kazakhstan**, the **United Arab Emirates**, and other countries. Consumer goods arrive through parallel trade. These flows reduce the impact of sanctions on everyday Russian life and on industrial production, even if they do so at higher costs and with longer delivery times.

The **EU** and the **United States** have intensified their efforts to close these circumvention routes — notably by threatening secondary sanctions against third countries that facilitate evasion of primary sanctions. The proposed **21st sanctions package** likely includes measures in this direction. But the effectiveness of these secondary controls is limited by the political will of the third countries concerned and by the inexhaustible creativity of economic actors in finding new routes.

*Sanctions circumvention routes are a permanent game of cat and mouse. The West closes them; new ones open. This is frustrating, but the point is not to achieve perfection — it is to maintain sufficient pressure that costs remain significant. Perfect sanctions enforcement is not a realistic objective.*

## Sectors in a state of advanced crisis

### Civil aviation: a sector in decay

Russia's civil aviation sector is one of those that best illustrates the **structural exhaustion** documented by the **Kiel Institute**. Russian airlines operate primarily with **Boeing** and **Airbus** aircraft whose maintenance requires spare parts and software that sanctions now make inaccessible. These aircraft are aging without optimal maintenance, and their safety is progressively deteriorating.

**Russia** has developed a local alternative — the **Ilyushin IL-96** and the **Superjet-100** — but these aircraft are insufficient in number and capability to replace the existing fleet. The result is a progressive contraction of Russia's air network, with reduced domestic routes and a civil aviation industry regressing toward Soviet-era technical standards. This is not spectacular for the outside observer, but it is emblematic of the structural exhaustion process.

### Information technology: the talent exodus makes everything worse

Russia's **information technology** sector was one of the most developed in the world before **2022**. **Russia** produced high-quality software engineers, had international-caliber technology companies like **Yandex** and **Kaspersky**, and had developed a dynamic startup ecosystem. Since **2022**, this ecosystem has been decimated by talent emigration, difficulties accessing Western technologies and markets, and a political environment hostile to innovation.

This degradation of the technology sector is particularly damaging in the long run because information technologies are transversal to the entire modern economy — they improve productivity in all sectors, from industry to services. A country that loses its technological base simultaneously loses its capacity to modernize and improve productivity across its entire economy. This is one of those invisible but profound forms of damage that the **Kiel Institute**'s "structural exhaustion" seeks to capture.

*Yandex, the "Russian Google," has progressively transferred its operations outside Russia. It is the perfect symbol of structural exhaustion: even Russia's most sophisticated companies prefer to operate from abroad. When your own technology champions flee, it is an economic alarm of extreme gravity.*

## Government bonds at 15%: the most eloquent market signal

### Reading interest rates as an economic thermometer

Economists have a saying: financial markets often know what official statistics have not yet said. **Russian government bonds** yielding **15%**, documented by the Russian press on **June 22, 2026**, are a particularly revealing economic thermometer. This rate level means that investors demand a high risk premium to hold Russian public debt — they anticipate either a significant default risk, or future inflation that would erode the real value of these bonds.

For the Russian government, financing its deficit at these rates is extremely costly. Borrowing **80 billion dollars** at **15%** interest generates annual interest charges of **12 billion dollars** — yet more deficit the following year, which must itself be financed at even higher rates if the situation deteriorates. This is the vicious cycle of sovereign debt under stress: markets demand growing risk premiums that themselves aggravate the risk they seek to compensate.

### Russia's central bank caught between inflation and recession

The **Bank of Russia** is caught in a bind between two contradictory objectives. To fight inflation, it should maintain high rates — which it does with key rates around **16%** in spring **2026**. But these high rates slow investment and consumption, contributing to the slight recession of the first quarter. Lowering them to stimulate the economy would risk aggravating already significant inflation.

This monetary policy dilemma is classic in war economies: military spending is inflationary, but high rates to control inflation are recessionary. There is no good technical solution in this context — only trade-offs between different evils. Russia's central bank is currently choosing to prioritize the fight against inflation at the risk of weak growth, which partly explains the **0.8%** growth forecast by the **IMF**.

*Russia's central bank is doing what it can with the tools it has. But it cannot resolve a political problem with monetary instruments. The real problem is not interest rates — it is the war devouring the economy. And that, monetary policy cannot fix.*

## What the Kiel analysis implicitly recommends

### Patience and consistency as strategic virtues

The **Kiel Institute**'s analysis does not explicitly formulate policy recommendations — that is not its role as an academic institution. But its implicit conclusions are relatively clear for anyone who knows how to read them. First: sanctions work, even if their effect is gradual and not spectacular. It would be counterproductive to lift or weaken them before pressure has produced its effects.

Second: "structural exhaustion" is a long-term process measured in years, not quarters. The economic pressure strategy requires patience and consistency that the political cycles of democracies make difficult to maintain. The moments of temptation to ease sanctions — when the economic costs for the sanctioning countries themselves become visible, when public opinion grows tired — are precisely the moments when consistency is most decisive.

### Military support as an indispensable complement

Finally, **Kiel**'s analysis implicitly suggests that economic pressure alone is insufficient. Without parallel military pressure — support for **Ukraine** to impose growing military costs on **Russia** — the economic degradation would be too slow to compel **Putin** to negotiate within an acceptable timeframe. The strategic economic-military pincer is more effective than either of its branches acting alone.

This is the logic that underpins the continued support of Western countries for **Ukraine** despite the cost and duration of the conflict. This support is not charity — it is a strategic investment in pressure that adds to the economic pressure of sanctions to create a combined force capable of shifting **Putin**'s calculation. The decisions of the **Ankara** summit on defense spending and support for **Ukraine** fit directly into this logic.

*The Kiel report on Russian structural exhaustion is a strong argument for maintaining economic pressure AND military support simultaneously. Those who argue for reducing one or the other in the hope that the remaining pressure will suffice are on the wrong track. The pincer must remain whole to work.*

## Long-term prospects for the Russian economy

### The post-war scenario according to Kiel

The **Kiel Institute** also examines the state of the Russian economy in a post-war scenario. Its conclusions are sober: even in a scenario where the conflict ends relatively quickly, **Russia** will inherit considerable economic scars. Rebuilding degraded or worn-out physical capital will take decades. The return of emigrated human capital — if it occurs at all — will be partial and conditional on significant political transformation of the regime.

The post-war Russian economy will be fundamentally different from what it was in **2021**. Less technological, more dependent on hydrocarbons, more isolated from Western markets and technologies, more oriented toward a dependency relationship with **China**. This prospect is not encouraging for ordinary Russians — nor for the long-term geopolitical stability of **Europe**, which would prefer a more prosperous and less aggressive **Russia** on its borders.

### Ukraine's reconstruction as an inverse model

As a mirror to the Russian structural exhaustion scenario, the **Kiel Institute** has also analyzed Ukrainian reconstruction prospects. **Ukraine**, supported by massive Western investments, has an educated workforce and a potentially dynamic economy in a post-war context. Ukrainian reconstruction — if the political and security conditions allow — could be spectacularly faster and deeper than Russian economic reconstruction.

This potential asymmetry — an economically exhausted **Russia** facing a dynamically rebuilding **Ukraine** — is one of the most powerful arguments in favor of Western support for **Kyiv**. It is not merely a question of justice or solidarity: it is an investment in a stable **Europe** over the long term where the continent's borders cannot be redrawn by force.

*Russia's structural exhaustion and Ukraine's reconstruction potential are two sides of the same geopolitical coin. Putin plays endurance; we must play the future. And Europe's economic future is far more tied to a free and prosperous Ukraine than to a Russia appeased at the price of Kyiv's capitulation.*

## Demographics as a long-term exhaustion factor

### Russian human losses and their impact on the labor market

The Kiel Institute and other economic think tanks highlight a frequently overlooked dimension of Russian structural exhaustion: **demographics**. Russian military losses in **Ukraine**, estimated by various Western sources at several hundred thousand killed and wounded soldiers, represent a massive drain on the country's active population. A disproportionate share of these losses involves young men from **rural and peripheral regions** of **Russia** — populations already economically fragile whose disappearance deepens pre-existing regional inequalities.

The **partial mobilization** of October **2022**, with its roughly **300,000** officially mobilized men, amplified this phenomenon. Entire sectors of the civilian economy — construction, agriculture, transportation, light industry — have seen their working-age employees leave. This demographic shock on labor supply directly fuels inflationary pressures, as civilian firms must compete to retain a scarcer workforce with rising wages, while the defense sector offers enlistment bonuses that draw away available workers.

### Declining birth rates and Russia's demographic vicious cycle

**Russia** already suffered from a deep **demographic crisis** before the war: insufficient birth rates, life expectancy below European standards, net emigration of its most qualified population. The war in **Ukraine** has dramatically worsened each of these parameters. Economic and security uncertainty weighs on decisions to start a family. The emigration of educated middle classes accelerated after **2022**. And battlefield losses are permanently removing men of reproductive age from Russian society.

Long-term demographic projections for **Russia** are particularly bleak in this context. A declining and aging population, combined with a human capital stock impoverished by elite exodus, paints an economy structurally weakened for decades to come. The Kiel Institute notes that this demographic exhaustion is one of the most underestimated factors in analyses of Russia's capacity to sustain the war effort over the long term. It is a time bomb that quarterly statistics do not yet fully capture.

*A war is also won with demographers. Putin's Russia is bleeding out its own men on Ukrainian battlefields, and Moscow presents this as a victory. In twenty years, it will be entire regions of Siberia and the Urals that pay the price of this madness — if the regime survives that long.*

## Russia's leading economic indicators: what the markets are really saying

### The ruble, interest rates, and signals from Russia's financial markets

Beyond official macroeconomic data, Russian financial markets are sending signals that corroborate the Kiel Institute's diagnosis. The **Bank of Russia**'s key rate, maintained at historically high levels — more than **16%** in early **2024** before being raised further — reflects a permanent struggle against structural inflation that administrative measures cannot control. Such a high rate signals an overheating economy that can only finance itself at prohibitive costs.

Long-term **Russian government bonds** display yields that incorporate a significant risk premium, implicitly acknowledging uncertainty about the country's budgetary trajectory. The **ruble**, despite the capital controls imposed since **2022** and central bank interventions, remains under pressure. These market indicators are all the more revealing for emerging in a context where Russian authorities tightly control official economic information. When even domestically controlled markets send negative signals, the message is difficult to ignore.

### Real estate and domestic consumption: the dual reality of the Russian economy

The Russian economy displays a striking duality. On one side, certain sectors are recording significant nominal growth fueled by military spending: the defense industry, wages in war-related sectors, military enlistment bonuses. This wartime "boom" has translated into sustained domestic consumption in certain household categories — those with a mobilized member receiving associated benefits. The real estate market in some cities paradoxically benefited from these cash inflows.

But this surface prosperity masks the deep deterioration of economic fundamentals. **SMEs**, deprived of bank financing at accessible rates, are cutting investment. Technology sectors, deprived of Western components and equipment, stagnate or regress. Agriculture, hit by the scarcity of the workforce, faces difficulties that fuel food inflation. The Kiel Institute synthesizes all of this into a diagnosis of "structural exhaustion" that is not yet visible in official aggregates but will manifest in an increasingly obvious way over the coming quarters.

*Kiel's economists do not do politics. They read the data. And what they read is an economy burning its strategic reserves to fuel a war it cannot afford over the long term. Putin knows this. That is why he bets on Western fatigue before his own economy capitulates. Every dollar of support for Ukraine is a dollar that shortens that timeline.*

## Conclusion: economic analysis as a strategic weapon

### Understanding to decide better

The **Kiel Institute**'s work on the "structural exhaustion" of the Russian economy is more than an academic analysis: it is a strategic instrument for political decision-makers who must calibrate pressure and support for **Ukraine**. Understanding that Russian economic degradation is real but gradual allows one to define a long-term strategy — sanctions maintenance, durable military support, patience — rather than yielding to contradictory impulses of acceleration or abandonment.

This understanding must inform the decisions of the **Ankara** summit. When allied leaders commit to increasing defense spending, they commit to maintaining the military pressure that is the indispensable complement of the economic pressure from sanctions. When the **EU** extends its sanctions and proposes a **21st package**, it adds another layer to the structural exhaustion documented by **Kiel**. Every decision counts, even if its effects will only be visible in months or years.

### The arithmetic of exhaustion

Structural exhaustion is a slow but inexorable arithmetic. Every additional month of war consumes Russian physical capital that sanctions prevent from being renewed. Every engineer who emigrates is an asset that will not return. Every bond at **15%** interest aggravates the future deficit. These processes do not stop while **Putin** proclaims the resilience of his economy — they continue, silently, inexorably, until their cumulation becomes impossible to ignore.

**Zelensky** is holding the front. The **Kiel Institute** is analyzing economic reality. The **West** must maintain the consistency of its strategy. These three dimensions — Ukrainian military resistance, rigorous economic analysis, and Western political determination — are the components of a response equal to the challenge posed by **Putin**'s war. The structural exhaustion of **Russia** is the direction of travel. The question is whether the **West** will have the patience to go all the way.

**By Maxime Marquette, columnist**

## Columnist's transparency note

### Editorial stance

I am not a journalist but a **columnist and analyst**. My expertise lies in observing and analysing the geopolitical, economic and strategic dynamics that shape our world. My work is to take political strategies apart, to understand global economic movements, to put the decisions of international actors in context and to offer analytical perspectives on the changes that are redefining our societies.

I do not claim the cold objectivity of traditional journalism, which stops at reporting facts. **I claim analytical clarity**, rigorous interpretation and a deep understanding of the complex issues that concern us all. My role is to give meaning to the facts, to place them in their historical and strategic context, and to offer a critical reading of events.

### Method and sources

This text keeps the basic distinction between **verified facts and interpretive analysis**. The rule never changes: a factual claim is published only when a verifiable source supports it, and the sources this article actually used are listed under **Sources**, never here.

**Primary source families** used by the publication, when the story has them: official statements from governments and international institutions, public statements by political leaders, reports from intergovernmental organisations, dispatches from recognised international news agencies.

**Secondary source families**: specialised publications, internationally recognised news media, analyses from established research institutions, reports from industry organisations.

When an article cites statistical, economic or geopolitical data, it comes from the institutions that produce it (intergovernmental organisations, central banks, national statistics offices), and the exact institution is named under **Sources**.

### Nature of the analysis

The analyses, interpretations and perspectives in the analytical sections of this article are a **critical, contextual synthesis** based on the information available, the trends observed and the expert comments cited in the sources consulted.

My role is to interpret these facts, to set them in the context of today's geopolitical and economic dynamics, and to give them a coherent meaning within the larger story of the changes shaping our time. These analyses reflect expertise built through continuous observation of international affairs and an understanding of the strategic mechanisms that drive global actors.

This article describes a documented state of affairs on its publication date, not a prediction: later developments may shift its outlook. No update is promised in advance; when an article is corrected or completed, the change is dated in the text.

*Rigorous economic analysis is an underestimated strategic weapon. When the **Kiel Institute** publishes its diagnoses on the structural exhaustion of the Russian economy, it is not just producing academic research — it is producing open-source strategic intelligence that all allied governments should integrate into their political decisions. Understanding that **Putin** is under real economic pressure means understanding the urgency of maintaining that pressure rather than offering premature relief.*

## Sources

### Primary sources

- [Foreign Affairs Forum — Kiel Institute: Russia's war economy structural exhaustion — June 23, 2026](https://www.faf.ae/home/2026/6/23/russias-war-economy-has-problems-but-is-not-about-to-crash-vladimir-putin-is-still-able-to-fund-his-aggression)

- [The Economist — Russia's war economy has problems but is not about to crash — June 22, 2026](https://www.economist.com/finance-and-economics/2026/06/22/russias-war-economy-has-problems-but-is-not-about-to-crash)

- [United24 Media — Russia's budget deficit tops 80 billion — June 23, 2026](https://united24media.com/world/russias-budget-deficit-tops-80-billion-despite-kremlin-stability-claims-20083)

- [Euromaidan Press — EU keeps full Russia economic sanctions wall to 2027 — June 26, 2026](https://euromaidanpress.com/2026/06/26/trade-banks-energy-crypto-the-eu-keeps-its-full-russia-economic-sanctions-wall-standing-to-2027/)

### Secondary sources

- [Ground News/Bloomberg — Russia to increase war spending by 4–5 trillion rubles — June 23, 2026](https://ground.news/article/bloomberg-russia-to-increase-war-spending-by-an-additional-45-trillion-rubles-in-2026)

- [RBC-Ukraine — Russia's economy has reached a dead end — June 26, 2026](https://newsukraine.rbc.ua/news/russia-s-economy-has-reached-dead-end-zelenskyy-1782474737.html)

- [Daily Finland — EU proposes 21st package of sanctions against Russia — June 27, 2026](https://www.dailyfinland.fi/europe/49757/EU-proposes-21st-package-of-sanctions-against-Russia)

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Source: Maxime Marquette, MadMax. When citing, name the author and link https://mad-max.co/en/article/decryptage-epuisement-structurel-ce-que-le-rapport-de-l-institut-de-kiel-dit-vra