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Could Russia's economy finally be feeling the heat because of sanctions over the war?

LEILA FADEL, HOST:

After more than a year of severe sanctions and other trade and financial restrictions, Russia's economy has held surprisingly strong. But that could be changing now as oil revenues decline and the invasion of Ukraine drags on. NPR's Stacey Vanek Smith reports.

STACEY VANEK SMITH, BYLINE: As the Russian invasion of Ukraine was ramping up, the country's economy was hunkering down. Sanctions closed in, cutting off Russia from most global banking and trade. But the economy proved surprisingly tough. Russians even developed a nickname for it.

ALEXANDRA PROKOPENKO: It's called Fortress Russia.

VANEK SMITH: Fortress Russia. Alexandra Prokopenko grew up in Russia. She studied economics and business and eventually took a job in Moscow at the Russian Central Bank. She says the sanctions from more than 40 countries were expected to hammer Russia's economy. Instead, it held pretty steady.

PROKOPENKO: They put a lot of effort in this resilience.

VANEK SMITH: A lot of Russia's resilience came from oil prices. The invasion of Ukraine caused a global panic that pushed the price of oil way up. Oleg Itskhoki is an economist at UCLA. He says Russia has been able to sell its oil to China and India, among others. And a lot of the sanctions against selling oil and gas to Europe didn't kick in until the end of last year, so Russia was raking in money for most of 2022.

OLEG ITSKHOKI: Russia was making about a billion dollars a day, which essentially financed the rest of the economy.

VANEK SMITH: But, Itskhoki says, this year has been very different. European sanctions have kicked in, so oil revenues are way down. And now the war is costing Russia hundreds of millions of dollars a day.

ITSKHOKI: That's exactly why 2023 is a year of difficult choices.

VANEK SMITH: A year of difficult choices. Itskhoki says right now, Russia needs money, and raising it is not going to be easy. President Vladimir Putin will either have to raise taxes or force people to buy war bonds, or both, and that could erode support for the war, which Putin desperately needs.

ITSKHOKI: The Kremlin obviously is paying attention to what's particularly unpopular among the population. They're trying to navigate what's the least unpopular.

VANEK SMITH: Fortress Russia is starting to feel the heat. And it's not just a lack of funds causing problems. Sanctions also mean Russia can't import goods from many countries, and manufacturers often can't get products or parts.

ITSKHOKI: For example, airbag technology is not available in Russia. And so basically the cars that are assembled are assembled without airbags.

VANEK SMITH: Or anti-lock brakes. Many of the trains, planes and other high-tech goods that are made in Russia are using technology from decades ago. Russia can import a lot of things from places like China, but that takes business away from Russian companies, and it risks creating an even greater economic dependence on China, which Putin does not want. But the biggest issue facing the Russian economy is not products or sanctions. It's people.

PROKOPENKO: We saw a massive brain drain.

VANEK SMITH: Alexandra Prokopenko says it's estimated nearly 1.5 million young Russians have left the workforce since the invasion began. Many have fled the country, especially educated, skilled workers. Prokopenko says without workers, many Russian companies and businesses are having to scale back or even shut down. In fact, Prokopenko herself is among the young workers who have left.

PROKOPENKO: I left Moscow shortly after the invasion.

VANEK SMITH: Prokopenko now works at the Council on Foreign Relations in Germany, but she says she misses Moscow every day. And she still dreams about her favorite places there, like Meschersky Park, a big foresty (ph) park where she loved to go running.

PROKOPENKO: There are lots of trails, and I always felt, myself, really great in there. And I'm missing Moscow a lot.

VANEK SMITH: But like hundreds of thousands of her peers, Prokopenko is making her future elsewhere. And that is a huge problem for Russia, not just right now, but also going forward. After all, while sanctions and restrictions on manufacturing could affect Russia's economy for years to come, losing a generation of its best and brightest could damage the country's economy for generations.

Stacey Vanek Smith, NPR News. Transcript provided by NPR, Copyright NPR.

Stacey Vanek Smith is the co-host of NPR's The Indicator from Planet Money. She's also a correspondent for Planet Money, where she covers business and economics. In this role, Smith has followed economic stories down the muddy back roads of Oklahoma to buy 100 barrels of oil; she's traveled to Pune, India, to track down the man who pitched the country's dramatic currency devaluation to the prime minister; and she's spoken with a North Korean woman who made a small fortune smuggling artificial sweetener in from China.