KSE Institute has published its year in review, Sanctions and the Russian Economy, which assesses key developments in sanctions and the Russian economy in 2025, and looks ahead at next steps and expectations for 2026. Its headline conclusions are as follows:

Looking back: Sanctions in 2025

The sanctions coalition applied new pressures to the Russian economy in 2025 that focused primarily on reducing its oil and gas export earnings. From sanctions on oil majors to shadow fleet designations and plans to phase out Russian energy imports, sanctions aimed to impose both short-term and long-term costs while ensuring energy security. Developments predominantly came from Europe, but the US’ surprise actions in October contributed to major disruptions in the Russian oil industry amid an oversupplied global oil market. Beyond the energy sector, the EU indefinitely immobilized €210 billion of sovereign Russian assets and sanctioned a handful of third-country financial institutions that facilitate sanctions circumvention.

Looking back: The Russian economy in 2025

Russia’s macroeconomic picture changed fundamentally in 2025 as the war-induced economic boom of the previous years came to an end. The budget deficit rose sharply due to suppressed oil and gas revenues and soaring spending, fiscal financing increasingly required unorthodox measures, and the central bank’s extremely tight monetary policy—while reining in inflation—weighed heavily on economic activity. Sanctions played a key role in these outcomes, but so did an increasingly unfavorable macroeconomic environment with low global oil prices.

Looking ahead: The Russian economy in 2026

The macroeconomic conditions that Russia is facing—and the challenges that come with them—will likely persist in 2026. Fundamental growth constraints and persistent clashes between policy priorities (i.e., sustaining the war effort and maintaining macroeconomic stability, particularly inflation) are here to stay, while global oil prices are expected to remain low. In addition, US sanctions on Rosneft and Lukoil have the potential to significantly weaken Russia’s external accounts and further weaken its fiscal position in the context of persistently high war spending and constrained financing.

Looking ahead: Next steps on sanctions in 2026

With the global oil market well supplied for the foreseeable future, the sanctions coalition is in a strong position to reduce Russian oil revenues without spiking their own prices. Two measures should headline this approach: a continuation of the designation campaign of Russian oil companies, including those that have replaced Rosneft and Lukoil after they were sanctioned, and a maritime services ban for all Russian oil. These efforts should be complemented by an expanded campaign against shadow fleet ecosystems and an alignment of designations across the coalition. To curb Russia’s ability to circumvent export controls on sensitive technologies, the coalition should target third-country intermediaries and require stricter due-diligence requirements for its own companies.