"Russia's financial system is reportedly coming under more strain as Moscow's war on Ukraine nears the end of its fourth full year. The White House is seeking to revive peace talks this weekend with Ukrainian President Volodymyr Zelensky due to meet President Donald Trump in Florida on Sunday. Russian forces stepped up their bombardment of Ukraine ahead of the meeting, but prolonged fighting presents risks for the economy."
"'A banking crisis is possible,' a Russian official told the Washington Post recently on condition of anonymity. 'A nonpayments crisis is possible. I don't want to think about a continuation of the war or an escalation.' Russia's economy was surprisingly resilient in the face of severe Western sanctions after President Vladimir Putin launched his invasion of Ukraine in early 2022. That's as China and India were eager to snap up cheap Russian oil, keeping the Kremlin's coffers full and providing revenue for its military."
"But more recently, energy prices have slumped while Europe and the U.S. have tightened sanctions. Oil and gas revenue has tumbled 22% in the first 11 months of the year, and Reuters estimated that December proceeds are on pace to sink nearly 50%. To cover the shortfall in energy revenue, Moscow has tapped its sovereign wealth fund. But that is running out now too, so the government has resorted to raising more revenue via tax hikes."
Russia faces mounting financial strain as the war on Ukraine approaches its fourth year, with intensified fighting adding economic risk. Energy prices have recently slumped while Western sanctions have tightened, causing oil and gas revenue to fall sharply and December proceeds to approach a nearly 50% decline. Moscow has drawn down its sovereign wealth fund and implemented tax increases to cover revenue shortfalls. High inflation and a tight labor market have kept interest rates elevated, squeezing companies and consumers. Unpaid wages surged, furloughs and shorter workweeks increased, and loan servicing difficulties are spreading, heightening systemic banking risks.
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