The Ruble’s Paradox: Is Russia Suffering from Dutch Disease?

Sunday 22 February 2026

In wartime economies currencies typically weaken. Capital flees. Imports become scarce. Confidence drains away. Yet over the past several years the Russian ruble has periodically displayed unexpected strength, supported not by diversified industrial growth but by the Kremlin’s determined focus upon hydrocarbon exports — oil and gas — as the principal means of sustaining state revenue and currency stability.

This paradox invites a deeper economic question: is Russia experiencing what economists call Dutch Disease?

To answer that, one must begin not with Moscow but with the Netherlands.

The Origins of the Term

The phrase ‘Dutch Disease’ was coined in 1977 by The Economist to describe the economic difficulties experienced by the Netherlands after the discovery of vast natural gas reserves in the Groningen field in 1959. The field, exploited principally by what is now Royal Dutch Shell in partnership with the Dutch state, generated substantial export revenues. Gas sales strengthened the Dutch guilder. On the surface this appeared to be an unqualified success.

Yet beneath that prosperity lay structural distortion.

As gas exports surged the currency appreciated. Dutch manufactured goods became more expensive abroad. Domestic labour and capital flowed toward the booming energy sector and away from industry. Manufacturing output stagnated; unemployment rose in non-energy sectors. What had begun as a resource windfall became a broader competitiveness crisis.

Dutch Disease therefore describes a macroeconomic condition in which a resource boom leads to currency appreciation, a decline in manufacturing or tradable sectors, and long-term structural weakness.

It is not a disease in the medical sense — but it is economically toxic.

Why Dutch Disease Is Toxic

Dutch Disease operates through three principal mechanisms.

First, currency appreciation. When a country earns large volumes of foreign currency from commodity exports, demand for its domestic currency rises. The exchange rate strengthens. Imports become cheaper. Exports outside the resource sector become less competitive.

Secondly, resource reallocation. Labour and capital migrate toward the booming sector — oil, gas, minerals — where wages are higher and returns appear more secure. Other sectors struggle to attract investment.

Thirdly, deindustrialisation. Over time the manufacturing base contracts. Innovation declines. Supply chains atrophy. When commodity prices fall — as they inevitably do — the country finds itself without alternative sources of growth.

The toxicity lies in dependence. A diversified economy becomes a mono-export structure. Fiscal stability becomes hostage to volatile commodity markets. Long-term productivity growth suffers.

The paradox is that resource wealth creates fragility.

Russia’s Wartime Currency Strategy

Since the full-scale invasion of Ukraine in 2022 Russia has faced unprecedented financial sanctions, asset freezes, trade restrictions and capital flight. In response, the Kremlin implemented strict capital controls, mandated that exporters convert foreign earnings into rubles, and demanded energy payments in rubles from certain foreign buyers. Simultaneously Russia redirected hydrocarbon exports toward Asia, particularly China and India.

The result has been episodic ruble strength, even amidst war.

At times the currency has traded far more robustly than observers predicted in early 2022. This has not reflected broad economic vitality. Rather it has reflected concentrated export earnings from crude oil and natural gas, together with administrative controls limiting capital outflows.

In effect Russia has used hydrocarbons as a currency anchor.

Yet such reliance invites comparison with Dutch Disease.

Does Russia Fit the Model?

Russia’s economy was already heavily dependent upon oil and gas exports before 2022. Hydrocarbons have accounted for roughly a third to a half of federal budget revenues in recent years. Manufacturing — outside the military-industrial complex — has long struggled with productivity constraints and technological dependence upon imported components.

The war has intensified this structure.

Sanctions have reduced access to advanced technology. Western firms have withdrawn. Imports of sophisticated machinery have become more circuitous and expensive. The state has channelled capital into defence production and energy logistics, while civilian sectors face contraction.

Meanwhile sustained oil exports — often discounted but high in volume — generate foreign exchange. When global energy prices are elevated, this strengthens the ruble.

A strong ruble however makes non-energy exports less competitive. For a country attempting wartime import substitution that is counterproductive. It encourages imports (where sanctions permit) and suppresses domestic diversification.

This dynamic resembles classic Dutch Disease — albeit under the peculiar conditions of sanctions and war.

The Difference: Managed Disease

There are however important distinctions.

In the Netherlands of the 1960s and 1970s currency appreciation was largely market-driven. In Russia today the exchange rate is heavily managed. Capital controls distort currency markets. The Central Bank intervenes. Exporters are legally compelled to convert earnings.

Thus Russia’s strong ruble is not solely the result of a free-flowing resource boom; it is partly an administrative artefact.

Moreover Russia’s defence industry has expanded significantly during wartime. Military manufacturing — although not internationally competitive in consumer markets — has absorbed labour and capital. This partially offsets the hollowing-out effect seen in classic Dutch Disease cases.

Yet military production is not the same as diversified civilian industry. It does not generate sustainable peacetime growth. It depends upon state expenditure and geopolitical confrontation.

The Fiscal Illusion

Dutch Disease often creates a fiscal illusion: abundant revenue today masks structural weakness tomorrow.

Russia’s hydrocarbon earnings have enabled continued military spending, social transfers and macroeconomic stabilisation. But energy markets are volatile. Price caps, transport constraints and long-term European diversification away from Russian gas reduce structural demand. Infrastructure reorientation toward Asia is expensive and incomplete.

If energy prices fall sharply, or if export volumes decline due to geopolitical shifts, Russia may find herself with a strong currency but a weakened industrial base.

That combination is dangerous.

Long-Term Consequences

The most serious damage from Dutch Disease is not immediate recession but the erosion of productive complexity.

An economy overly concentrated in resource extraction tends to invest less in education, innovation and advanced manufacturing. Skilled workers migrate abroad. Small and medium enterprises struggle. Over time, economic dynamism declines.

For Russia the war compounds these risks. Brain drain has accelerated. Sanctions limit technological access. Financial isolation reduces foreign direct investment.

Hydrocarbon exports may sustain the rouble today. But they do not automatically generate future-oriented growth sectors.

The deeper danger is stagnation disguised as stability.

Is the Ruble’s Strength a Symptom?

A strong currency during wartime might appear counterintuitive. Yet in a resource-exporting state it can be symptomatic of narrow dependency rather than broad resilience.

If Russia’s currency value rests disproportionately upon oil and gas receipts then her macroeconomic posture resembles the very pathology identified in the Netherlands half a century ago.

Dutch Disease is economically toxic because it trades structural diversity for short-term revenue. It amplifies vulnerability to commodity cycles. It undermines competitiveness. It narrows opportunity.

Whether Russia ultimately suffers the full consequences will depend upon post-war policy choices — diversification, technological reintegration, institutional reform. Without such measures the ruble’s strength may prove to be less a sign of vitality than an emblem of constrained possibility.

In wartime hydrocarbons can finance survival. They cannot, by themselves, finance renewal.

And that is the essence of Dutch Disease.