Russia's war economy slips with market crash while Arctic ambitions draw European funding

Russia's economy shows acute strain as the Moscow Exchange index fell below 1,900 points, the steepest decline since 2022, reflecting the impact of sanctions, a fuel crisis and stalled Ukraine negotiations. Analysts link the tumble to rising inflation, a looming stagflation scenario and a high central bank rate of 14.25%.

A surge in cash usage, driven by intermittent internet shutdowns, has released roughly 1.56 trillion rubles (about €17 billion) into circulation, creating a tax gap that threatens state revenues. Meanwhile, Ukrainian drone raids have damaged Russian oil facilities and logistics, prompting a drop in President Vladimir Putin's domestic approval to its lowest level since autumn 2022.

Despite these pressures, Russia continues to expand its Arctic presence. Satellite analysis shows that in 2025 it completed about 100 voyages on the Northern Sea Route, moving three million tonnes of cargo. Europe is financing the venture with nearly €6 billion, and Russia maintains the world’s largest ice‑breaker fleet of 42 vessels, though new construction has slowed.

In Crimea, a growing underground resistance, supported by Ukrainian intelligence and local activists, has increased drone strikes on Russian targets, signalling heightened local opposition.