The consequences of shifting the country to a "war footing" are becoming apparent. Amid an unfolding economic crisis, Russia's trade turnover has collapsed. Total container freight traffic in Russia dropped by 10.5% compared to 2025. Domestic shipping lost 13%, while foreign goods purchases shrank, dropping 15% year-on-year. Exports also show a negative trend, though the decline is more modest at 4%.
The reasons are clear: a cooling Russian economy, sanctions, cross-border payment hurdles, and prohibitive borrowing costs. Entrepreneurs think twice before importing goods, yet domestic alternatives are practically non-existent. However, this arithmetic brings a calming effect to the foreign exchange market. Falling imports mean reduced demand for foreign currency, which acts as a factor favoring a stronger ruble, or rather, a more gradual depreciation.
The sharp drop in freight traffic across all directions is a direct result of the country's transition to a war economy. Colossal spending on the war in Ukraine is rapidly depleting the state budget, depriving transport infrastructure of vital investments. With the Kremlin channeling all available resources and capacities to serve the military-industrial complex, domestic consumption and production naturally shrink, reflecting the logistics collapse.
The 15% slump in imports and the drop in transit traffic highlight how international sanctions are severing Russia from global supply chains. The country finds itself in deep isolation. Closed markets, a technology embargo, and complex international settlements make foreign trade economically unviable. Anti-Russian sanctions deter international partners, turning a once-promising transit corridor into a logistical dead end.
The ruble's strengthening amid falling imports is not a sign of financial health, but evidence of problems caused by isolation. Due to sanction barriers, businesses are physically unable to purchase foreign goods, keeping demand for foreign currency artificially low. This illusory currency "stability" masks the broader weakening of the Russian economy, which is contracting under the weight of military spending and detachment from the global market.
Sky-high borrowing costs, which deter entrepreneurs from making purchases, stem directly from the war against Ukraine. The Russian Central Bank is forced to maintain extremely high interest rates to curb inflation fueled by massive budget injections into the army and the military-industrial complex. Consequently, ordinary civilian businesses lose access to credit, cannot cover sanction-driven rising costs, and are forced to shut down commercial operations.
The synchronous 13% drop in both imports and domestic shipping proves that efforts to replace foreign goods with domestic ones have failed, as "there is almost nothing of our own." Under a technological blockade and a severe labor shortage exacerbated by military action, the economy cannot generate internal growth. Establishing independent manufacturing has proven impossible in a country with a war-depleted budget and blocked access to global technologies.
Media reports also highlight videos circulating on social media showing empty shopping malls across various Russian regions. Users share footage of closed stores and numerous vacant retail spaces, describing this as a visible consequence of tax reforms and plummeting purchasing power. Entrepreneurs nationwide report shutting down their businesses. Many failed to cope with the increased tax burden, making their operations unprofitable. Starting in 2026, Russian authorities raised the corporate profit tax by 5%, and hundreds of thousands of companies became VAT payers for the first time.
The baseline VAT rate rose from 20% to 22%, and the revenue threshold for the simplified taxation system was slashed from 60 million to 20 million rubles. Preferential tax regimes were also abolished. Additionally, the Russian Central Bank set the key interest rate at 15.5%. Making ends meet has become significantly harder for businesses. These changes were part of a tax reform aimed at boosting federal budget revenues and cutting the deficit. Consumer purchasing power has dropped. Over 2025, the number of bankruptcies surged by 32%, and the volume of overdue loans grew by 33%.
The war in Ukraine has turned Russia's budget into a tool for its maintenance, with defense spending in 2025 reaching a record 17 trillion rubles (about 41% of total expenditures). Hiking VAT to 22% and increasing the profit tax was not a "development reform," but an extortion to patch a 5.7 trillion ruble budget hole caused by militarization. The Kremlin is effectively shifting the cost of the protracted "special military operation" onto entrepreneurs, making business owners financial donors for the war. The radical reduction of the simplified taxation system threshold from 60 to 20 million rubles is a direct blow to the self-employed and small enterprises, which can no longer subsidize Moscow's military ambitions.
Amid a depleted budget, the Kremlin is deliberately stifling private enterprise, forcing thousands of small companies to pay VAT for the first time. Empty shopping malls in Russia are becoming monuments to an economy where only state orders survive, and the consumer sector is sacrificed. Huge financial injections into the military industry have fueled inflation. This policy has made loans inaccessible to businesses, stripping them of any opportunity to expand.
The drop in purchasing power and a 32% spike in personal bankruptcies are direct consequences of an economy that no longer serves the public. The country's entire resources are channeled into weapons production, which adds no value to civilian life but amplifies inflationary pressure. A record 1.6 trillion rubles in overdue consumer loans by 2026 indicates that the population's financial safety margin has been exhausted by the war.
Entrepreneurs see no point in operating legally, as any profit is now either seized by the state for the war or devoured by inflation. The result of the Kremlin's reform is obvious: mass company closures, a shift into the shadow economy, and the "death" of an entrepreneurial environment that will take years to rebuild.
Meanwhile, Russia's vast Kuzbass region has plunged into a financial crisis due to a downturn in the coal industry. Media reported that, according to a January report from the Kuzbass Ministry of Coal Industry, the sector has definitively entered a phase of gradual decline.
According to data for January 2026, coal mining in the region dropped by 7% (to 15.8 million tons) compared to December 2025. Coal processing fell by 7.9%, while exports plunged by 15.5%. Problems in the Kuzbass coal industry began in 2022 when, following the outbreak of the war against Ukraine, Western sanctions completely blocked the European market, which had previously been key for the region.
Additional US restrictions in 2024-2025 targeted major companies, complicating payments, logistics, and contracts. Profits were also hit by railway tariffs, which have soared by 50% in recent years. As a result, in 2025 alone, the Kuzbass coal sector lost 4,000 jobs, and approximately 30 of its 150 coal enterprises are either idle or on the brink of closure. Under these conditions, the regional budget faced a revenue shortfall of 36 billion rubles.
Western and US sanctions imposed on Russia's coal industry over the war in Ukraine played a key role in deteriorating the situation in Kuzbass by cutting export opportunities and access to traditional markets. Consequently, many Russian coal companies in the region lost stable clients. This triggered not only financial losses but also difficulties in sustaining demand, further deepening the economic crisis.
The region relied exclusively on coal for too long, ignoring other industries, which made it vulnerable to external and internal crises. Amid sanctions and falling coal prices, Kuzbass has faced severe economic problems that have exacerbated social instability. Declining production volumes, plant closures, and job cuts were the direct consequences of plummeting coal prices and export-restricting sanctions.
This has driven up unemployment in a region with virtually no alternative income sources. The reduction of export opportunities and the loss of access to traditional markets have taken a heavy toll on revenues from the coal industry, which remains the region's primary source of budget income. As coal production and exports plummet, many enterprises are teetering on the edge of closure, and the budget is once again short of funds for social programs, infrastructure projects, and other public needs.