Trump’s Economic Team Pursues the Chimera of Collapsing the Russian Economy

Economic Chimera

I don’t know US Secretary of the Treasury, Mr. Scott Bessent, but I am told by people who worked with him on Wall Street that he is a really smart guy. But based on his most recent claim over the weekend that he believes a new round of sanctions — which includes shutting off the flow of Russian oil and natural gas to China and India — will collapse the Russian economy. Bessent’s statement tells me he understands nothing about the resilience of the Russian economy, nothing about the nature of Russia’s bilateral relations with India and China, and not a damn thing about Russia’s military industrial complex. In short, he may be really smart about trading bonds and securities on Wall Street, but he’s a dummy when it comes to Russia and its economy.

The belief in Washington policy circles that the Russian economy can be collapsed is not a new goal hatched by Bessent. That scenario figured prominently in the Rand Corporations’ April 2019 report, which was prepared for the US Department of Defense — Extending Russia: Competing from Advantageous Ground. The authors assessed the Russia economy in 2019 as follows:

The common charge that modern Russia is just a petrostate like Saudi Arabia is grossly overstated, but its economy and state budget are disproportionately dependent on energy exports, the value of which has collapsed.28 Russia possesses sizable manufacturing and service industries, but these are relatively uncompetitive on the world market, and the country exports few manufactured goods other than weapons. Recognizing the folly of Russia’s economic dependence on energy exports, the liberalizing technocrat Dmitry Medvedev pursued a policy of economic modernization during his presidency that sought to diversify Russia’s economy. . . .

Russia’s overall economic outlook is unfavorable for both the short and long terms. Between the collapse in energy prices and the international sanctions imposed after the Crimea and Ukraine invasions, Russian GDP fell and is now stagnant.31 The ruble lost half of its value against the dollar and euro in the aftermath of the crisis, but Russia has nevertheless developed a dependence on imports for both consumer and capital goods. Predictably, these conditions have resulted in a massive tax shortfall and the imposition of austerity measures. For the past two years, the Russian government has been making up the gap by spending down the hard currency reserves built up during the boom years, but these will be exhausted soon, necessitating politically fraught choices to slash social spending. The likelihood that oil prices will remain stagnant for the foreseeable future gives little hope that the Kremlin can make an easy escape from this conundrum. While much of Russian industry was de-privatized (renationalized) under Putin, the government is rumored to be planning a selloff of some of these assets to raise desperately needed cash.

Do I need to write it out for you? These brainiacs were and are wrong! Russia is now the 4th largest economy in the world in terms of GDP as measured by Purchasing Power Parity (i.e., PPP), notwithstanding more than three years of heavy Western sanctions. Russia has the lowest debt-to-GDP ratio of all of the top economies in the world… now estimated to be, at most, 19%. That means in the event of a major financial crisis, Russia has ample financial means to weather a major storm. But let’s look at the term, collapse.

To say that a country’s economy “collapses” means there is a widespread breakdown of normal commerce and market mechanisms, resulting in severe, prolonged economic distress that goes far beyond a typical recession or depression. An economic collapse is marked by:

• Massive failures in banks, businesses, and markets
• Very high unemployment
• Bankruptcies and widespread poverty
• Chaos in the currency, sometimes including hyperinflation or a currency crash
• Breakdown of law, public order, and often social unrest
• Failure of government economic interventions to restore stability in the short term

Unlike regular downturns or recessions, an economic collapse is not a normal part of the economic cycle; it often follows a crisis and can last for years or decades. Classic examples include the Great Depression in the US, or hyperinflation-era Weimar Germany. Social chaos and civil unrest often accompany a collapse, and recovery is slow and painful. The Russian economy collapsed in the 1990s, and that experience left an indelible scar on the soul of the Russian people. If you want to place your bets, I believe that the US will experience a collapse before Russia.

So how vulnerable is Russia to tough sanctions on oil and gas? Oil exports account for 15–20% of Russia’s GDP in recent years, including 2025. The oil and gas sector as a whole makes up roughly 15.2% (2020), 19.2% (2019), and up to 21.1% (2018) according to Russian government data, but the share for oil alone is typically at the lower end of this range, around 15–17%. Oil and petroleum products account for about 40–45% of Russia’s total exports as of 2025. This figure includes both crude oil and refined petroleum products, making them the largest export category for the country.

Where do China and India fit in? China and India together account for around 63% of Russia’s fossil fuel export revenues in 2025, with the EU and Turkey trailing behind but still significant players. Check out this table:

Let me take you to fantasy land. Let’s assume that China, India, Turkey and the European Union stop buying Russian oil and gas. That would be a 15% hit to Russia’s economy… painful, but not debilitating nor devastating. But that is not going to happen. China, which is the largest importer of Russian oil, just inked a deal with Russia to build a new pipeline to deliver more oil and gas to China. India also is unlikely to cave to US and European pressure because it needs inexpensive oil more than it needs trade with the NATO-block.

If Trump is counting on Bessent to give him leverage over Putin and the Russian economy, then he is making an ill-advised wager. The West’s failure to understand the simple fact that Russia, by virtue of its vast natural resources, does not need international trade to grow its economy. It is self-sufficient. But Russia is not sitting still… It has forged close econmic ties with its BRICS partners and, along with those partners, is building an alternative to a Western hegemonic economic and financial system. Donald Trump is no longer in a position to take Russia as an economic and financial hostage. Pax Americana is kaput.

I discussed some of this today with Nima and with Judge Napolitano: