Russia’s ability to withstand Western sanctions is showing signs of strain as fiscal and external buffers erode, according to a note by senior economists at the Institute of International Finance (IIF).

“Trade diversion, capital controls, a current account surplus, and a $700bn reserve buffer have blunted sanctions so far,” said Marcello Estevão, Managing Director and Chief Economist, and Garbis Iradian, Chief Economist for MENA, in a Global Macro Views report. “Oil exports pivoted to China and India supported by a 350-tanker ‘shadow fleet’ bypassing the G7 price cap. But sanctions need the support of a larger coalition of advanced and emerging economies to be fully effective.”

Sanctions imposed since 2022 had “fallen short of fully isolating Russia,” they said. Real GDP grew by an average of 2.3% between 2022 and 2024, supported by defence spending and redirected trade. In 2024, China and India accounted for 41% of Russian exports, while China supplied 53% of Russia’s imports.

The EU’s July 2025 the eighteenth sanctions package lowered the oil price cap from $60 to $47.6 per barrel under a new floating rate oil price sanctions cap of 15% below market rates for the Urals blend, Russia’s main export product.

The sanctions prohibited imports of Russian-derived petroleum processed in third countries, banned transactions with Nord Stream pipelines, denied port access to over 100 oil tankers, and sanctioned two Chinese banks.

This package, the economists said, “could represent a turning point depending on enforcement and global coordination.” However, “without Trump’s secondary sanctions, EU sanctions are unlikely to substantially reduce oil exports.”

The potential impact of those US secondary sanctions could be severe. “If Trump’s threatened secondary sanctions are enacted and complied with, Russia’s current account surplus would go into deficit and the economy could contract,” the analysts said. “In the absence of these secondary sanctions, Russia’s current account balance will remain in sizable surpluses in 2025 and 2026.”

Russia earned an all-time record current account surplus of $227bn in 2022 thanks to the energy crisis – double the amount a year earlier, which was also already an all-time record – but the current account surplus has fallen since to a still respectable $95bn in 2024 and comparable to the pre-war averages.

The analysts cautioned that enforcement would be “critical” and that “sanctions are most effective when they are universal.” But full adherence from major emerging economies remains unlikely: “Given the current geopolitical environment, full adherence from countries like China and India is not likely.”

In the last few days, both China and India have said they will not abide by US President Donald Trump’s order to halt Russian crude imports. For China it’s a matter of principle; India is being driven more by commercial considerations.

The economists also highlighted the risk of global market disruption. “If Russia’s oil and gas exports were to fall by 20% in volume terms, then global energy prices would surge, as spare production capacity in other major oil exporters would not be enough in the near term to offset such disruption.”

As bne IntelliNews has reported, other analysts are also sceptical that Trump’s secondary sanctions can be made to work and warn that energy prices would inevitably rise – especially LNG prices. Strict enforcement of US secondary sanctions could also send global oil prices “surging above $90/b” and drive inflation higher in both advanced and emerging markets.

Russia entered the war in 2022 with “significant buffers: a strong macro framework, ample reserves, persistent current account surpluses, small fiscal deficits, and low public and external debt,” which allowed it to ramp up spending and limit the initial contraction to –1.4% in 2022. However, IIF now expects GDP growth to slow to 0.8% in 2025, the current account surplus to narrow from 2.9% of GDP in 2024 to 1.8% in 2025, and the fiscal deficit to widen from 2.3% to 3.3% of GDP. All this will be painful, but it won’t be painful enough to force Russian President Vladimir Putin to end the war in Ukraine. And with a $65bn shortfall in funding to reach the end of 2026, Ukraine’s economy is in far worse shape than Russia’s.

“Shrinking surpluses and narrowing fiscal space suggest that Russia’s ability to absorb shocks is being tested more than at any point since 2022,” Estevão and Iradian concluded. “CBR reserve drawdown, oil volumes, and trade finance data will be early indicators of stress.”