Russia’s war economy is under increasing pressure, with a new report warning that it could collapse before Ukraine’s – despite the Kremlin’s military advantage. The assessment, published by LSE IDEAS, the foreign policy think tank at the London School of Economics, highlights what it describes as the “brittleness” of the Russian economic model compared with the relative strength of Ukraine’s position.

Author Dr Luke Cooper, Associate Professorial Research Fellow in International Relations, argues in his 60-page report that Moscow’s dependence on oil and gas revenues exposes deep vulnerabilities. Dr Cooper said: “Despite fighting a vastly more powerful adversary, Ukraine’s wartime economy has proven surprisingly resilient. Sustained by the inflow of external aid and the mobilisation of the Ukrainian people, Ukraine’s wartime economy has helped level the playing field.”

He continued: “Russia, by contrast, is betting its war effort on volatile oil rents and a fragile financial system that is coming under considerable strain.

“Even in the face of the Trump administration’s apparent pivot towards the Russian side, Ukraine and its European allies hold more ‘cards’ than many, including President Trump, seem to believe.”

The report – published under the Peace and Conflict Resolution Evidence Platform (PeaceRep) – compares the two countries’ economic strategies and highlights the role of Western support in keeping Ukraine afloat.

Both Russia and Ukraine have pursued what the report refers to as “military Keynesian” policies, using war spending to prop up their economies.

However, it adds that while Ukraine’s democratic checks and EU ambitions have helped guard against corruption and rent-seeking, Russia’s centralised system has reinforced the power of entrenched elites with a vested interest in prolonging the conflict.

The report warns of a potential “systemic banking crisis” in Russia, citing falling export revenues, rising fiscal pressure, and increasing difficulty securing credit.

Ukraine, by contrast, receives sustained external financial support, with US and EU funding already secured through to 2027.

Tax revenues within Ukraine have also remained unexpectedly strong, with the government mobilising domestic resources even as the war continues.

However, Dr Cooper warned that Ukraine risks being side-lined in ongoing US-Russia talks, and said any future negotiations must be inclusive and grounded in clear, rights-based principles.

He said: “Peace talks should include independent human rights monitoring in occupied territories, and must not become a vehicle for great-power compromise at Ukraine’s expense.”

While the report does not predict a decisive outcome for either side, it suggests that economic pressure could force Moscow to change its calculations.

Dr Cooper said: “Russia’s internal vulnerabilities may not yet have reached breaking point, but they are accelerating – and that matters more to the future of this war than many realise.”

Russia's economy remains heavily dependent on oil and gas exports, leaving it vulnerable to global price fluctuations and Western sanctions.

Inflation has continued to rise, fuelled by a weak rouble, labour shortages, and war-driven public spending.

While official figures put annual inflation at just under 8%, independent analysts suggest the real rate is likely higher, with food and consumer goods especially affected.

The Kremlin has propped up spending through windfall energy revenues, but falling export volumes and tightening sanctions are straining the budget.

As the war drags on, Russia’s reliance on oil income to sustain both domestic stability and military operations is looking increasingly unsustainable.