It might become a case of who blinks first: Russia because of its need for hard currency or Europe because of its need for energy.

FALLOUT: Russia Privately Warns of Deep and Prolonged Economic Damage.

The document, the result of months of work by officials and experts trying to assess the true impact of Russia’s economic isolation due to President Vladimir Putin’s invasion of Ukraine, paints a far more dire picture than officials usually do in their upbeat public pronouncements. Bloomberg viewed a copy of the report, drafted for a closed-door meeting of top officials on Aug. 30. People familiar with the deliberations confirmed its authenticity.

Two of the three scenarios in the report show the contraction accelerating next year, with the economy returning to the prewar level only at the end of the decade or later. The “inertial” one sees the economy bottoming out next year 8.3% below the 2021 level, while the “stress” scenario puts the low in 2024 at 11.9% under last year’s level.

All the scenarios see the pressure of sanctions intensifying, with more countries likely to join them. Europe’s sharp turn away from Russian oil and gas may also hit the Kremlin’s ability to supply its own market, the report said.

But: Russian ambassador insists it is a reliable supplier of energy as it cuts off gas to Europe, plunging the continent into economic crisis.

h/t Stephen Green