The worst thing for Russia's economy isn't Western sanctions. It's Putin.

• Vladimir Putin has crippled Russia's economy to fund the war in Ukraine, experts tell Insider.
• Experts say the official data from Moscow suggests it's faring far better than it actually is.

The West has imposed sweeping sanctions on Moscow since it launched its war on Ukraine last February, but much of Russia's economic troubles can be chalked up to suspect and counterproductive leadership by Vladimir Putin.

Before the "special military operation" began, Russia was the 11th largest economy in the world, accounting for almost 40% of Europe Union's natural gas imports and a quarter of its crude oil. A year and a half later, Putin's turned Moscow into a pariah state, isolated from the global financial system, barred from its most lucrative trade routes, and in the midst of a worker brain drain. Experts say the damage has been largely self-inflicted.

Speaking with Insider on Monday, Yale researchers Jeffrey Sonnenfeld and Steven Tian said that Putin has lost the economic battle to a profound degree, and now he's scrambling to maintain a status quo that's quickly dissolving beneath his feet.

"He's devouring core bedrock industries," Sonnenfeld said. "The lion's share of the economy is controlled by the state, the energy and financial sectors, and Putin is taking from the seed capital of those businesses to use as a cookie jar for his war chest."

Trade will never be the same

Russia is barely breaking even on its energy trade, and most of its other top commodities like wheat, lumber, and metals sell cheaper today than before the invasion. The lack of trade income pushed Putin to levy draconian windfall taxes on businesses and individuals, which the Yale academics see as part of his "cannibalization" of the economy.

"Laying on onerous taxes is doing nothing for the economic health of the country, but they allow him to pay bills," Sonnenfeld said.

Putin's policy missteps became inevitable after he made the initial call to invade Ukraine, Tian said, adding that Russia's trade status may never be the same. It's become increasingly clear that other countries can get by just fine without Russia as a trading partner.

"He's destroying the historical underpinnings of the Russian economy," Tian said. "Its main exports have always been commodities, but now nobody needs to buy Russian commodities anymore."

Yale data shared with Insider showed that Russia's natural gas market in particular has been permanently lost.

The initial supply shock in February 2022 has quickly been overcome, with nearly 100 billion cubic metres of natural gas going online since then thanks to regasification projects commissioned across Europe. Germany has led nations including France, Netherlands, and Italy to develop new floating storage units that have come online in record time.

While China and India have stepped in as big buyers of cheap Russian crude since last year, steep discounts and lengthy shipping routes prevent those sales from propping up the Russian economy in a meaningful way.

"If Putin were on the call with us today, he couldn't point to a single policy or economic positive for himself, the Russian people, or the economy," Sonnenfeld said.

Potential for Soviet-style collapse

Volodymyr Lugovskyy, an economics professor at Indiana University, told me he expects to see a dramatic economic change within the next three or four months.

"Many people still don't realize how bad the situation in Russia might be," he said.

Official government data point to an economy that's been able to withstand the costs of war, but under-the-hood numbers like retail sales, flight purchases, and business activity suggest otherwise.

"Things are much worse than the reported 2% drop in GDP," Lugovskyy said. "Sales of new cars, sales of new computers, those dropped by 40% to 60%. And if you remove military activity from the data, production looks far worse [than reported]."

The country's currency in particular looks vulnerable. After the Wagner Group's attempted mutiny in June, the ruble crashed to a 15-month low. On Monday, it hovered just above 90 per dollar, but that could weaken to 149 per dollar, in Lugovskyy's view.

A change in power, civil war, or another attempt at mutiny, the professor maintained, could drag on the exchange rate and ultimately lead to the collapse of the economy.

"Russia might collapse into multiple pieces, like the Soviet Union, and that might not be a bad thing for the world," Lugovskyy said. "It's resembling an empire right now, with a central power. Extreme events are highly possible."