As the cabinet, the Duma, and the middling bureaucracy tasked with executing pivot after pivot in economic policy puzzle over what to do, the structural crisis of late Putinism reveals itself. For every intervention the state takes to achieve some goal—typically justified with market logic—two more eventually become necessary to manage the fallout. This pattern became commonplace during 2020−2021, when now-Defense Minister Andrei Belousov began building an ad hoc system of inflation management intended to cushion an external shock such as the 2022 invasion. Now it has come home to roost for Russia’s ostensibly «strong» manufacturing growth since then.
MinPromTorg is apparently working up a new, tightened regulatory framework for quality control in industrial production because of sanctions. The loss of higher-quality imported components and easy money from state procurements has, over the last few years, pushed the ministry to empower Rosstandart—one of Denis Manturov’s creations from 2014−2015, designed to apply state-approved quality branding that could, coincidentally, be used over time to arbitrarily force businesses and consumers to «buy Russian.» If you produce better-quality goods, you won’t face many snap inspections. If you fail to, regulators will be knocking on your door early and often.
It’s a classic problem: strengthening the state’s capacity to monitor inevitably shifts the locus of rents, bribes, and quiet agreements to get around scrutiny, thereby entrenching a new form of graft into the regime. MinEkonomiki is engaged in a new effort to tighten the guidelines around which municipal, regional, or federal authorities review concession agreements, based on the size of the contract. They are trying to stretch budget money further, since concession agreements are essentially structured as payment plans that frequently return substantial sums to investors without guaranteeing quality. Given the precipitous decline in oil and gas revenues, this isn’t surprising. But it establishes a form of competence that is actually secondary when it comes to delivering better outcomes. For instance, MinStroy is warning that 70,000 elevators nationwide—whose useful life has been extended to 2030—need repair lest they stop working. Perhaps there is a regulatory issue at play, but the explanation seems much simpler: asset owners skimp on spending because their returns are tight, or they have to skim off the top, and the regime abandoned meaningful antitrust enforcement almost immediately after launching the Federal Anti-Monopoly Service in the mid-2000s.
If you aren’t going to protect true competition, these issues—informality, underinvestment from wringing cash out of existing assets, and indirect costs—become entrenched at the same time they are regulated against, in an endless loop that has intensified since 2020 and is now inescapably dragging down the economy’s prospects. E-retail was one of the success stories of the last decade, though its rise since 2015 often reflected Russians’ loss of spending power and the ability of online marketplaces to offer goods more cheaply while addressing some logistics bottlenecks. But it turns out that much of this growth was built on regulatory arbitrage. Physical retailers are now asking the government to regulate online food sales the same way it regulates physical sales, because e-retailers’ scale allows them to provide discounts through financing that are illegal for physical retailers and interfere with price levels. Yet even the e-retailers, led by Ozon, are raising the commission costs borne by sellers to the point that there is no longer a financial benefit to selling online rather than in person.
Should the government attempt to level the playing field to protect more small and medium-sized businesses, it will likely lead to price increases and more inflation. At his first public meeting on economic issues, Putin claimed inflation would fall to 5% by December based on past trends. Alexander Shokhin, the long-standing head of the RUIE, isn’t expecting the Bank of Russia to significantly cut interest rates—a de facto admission that inflation will remain higher than target. What emerges is an example of how attempting to force businesses to compete on equal terms, without actually addressing the structural market inequalities built into the economy, ends up raising prices that the state then tries to restrain through further official or informal administrative interventions.
These fights over who pays what cost—especially when the state is trying to pinch kopecks—are intensifying against a rapidly deteriorating outlook for large companies. Severstal has been hard hit by the large domestic decline in steel demand, registering 2025 profits that were scarcely more than 20% of 2024 figures (just 32 billion rubles). Russian Railways has cut this year’s investment program to under 800 billion rubles (a 20% reduction) because of last year’s decline in revenues. Half of retailers expect their profits to decline in 2026. Most worrisome, the banking sector’s profits fell for the first time since 2022 in 2025 and are structurally on track to decline further from the pullback in lending and economic activity. While I’m not a fan of the obsessive tracking of monetary aggregates—they rarely help one understand qualitatively how or why money is moving—if January’s decline in the most liquid cash in circulation continues over several months, it would be a terrible signal. Less money in circulation will inevitably bleed profits from companies that are already trending in the wrong direction, undermining their ability to sustain investment—which, in turn, sustains incomes and aggregate demand.
The takeaway, against the backdrop of the latest round of failed negotiations between Moscow and Kyiv, is that the foundations of the wartime economy are under unprecedented pressure. Every escalation in strikes on Ukrainian civilians and utilities infrastructure has come with a worsening economic outlook. They’re not necessarily correlated one-for-one. Those who’ve claimed that Putin is surely aware of how bad things are and is listening have reliably been proven wrong. But when the Ministry of Finance prepares to limit cash withdrawals from ATMs to 1 million rubles, that form of capital control should tell you things are going south.
The contradiction of Russia’s economic policy apparatus is that its competence is its incompetence. Where it succeeds—building better quality-control systems, creating digital platforms for agricultural-sector participants to share and access data transparently, responding to the demands of Main Street retailers struggling to stay afloat—it just as often creates more problems it cannot fix as it does «improve» things. That’s not to dismiss everything as an egregious failure. Rather, it is to challenge the notion that technocratic competence is holding the system together when there is never a real plan, and every measure taken without challenging fundamental economic or political structures in place makes escaping this mess more and more difficult.
