Saturday | 20th December 2025
The Russian economy has been grappling with mounting headwinds throughout the year, including persistently high inflation, a widening budget deficit fueled in large part by massive military spending, and declining revenues from oil and natural gas exports. Economic growth, which initially surged as the Kremlin ramped up wartime production, has slowed sharply as those gains begin to fade.
Yet despite these growing pressures, analysts say the gathering economic storm is unlikely to push President Vladimir Putin toward negotiations to end the war in Ukraine anytime soon. Most experts believe that, at the current pace of fighting and under existing Western sanctions, the Kremlin can continue financing the war for several more years.
“If you look at the economy itself, it’s not going to be that ultimate straw that breaks the camel’s back,” said Maria Snegovaya, a senior fellow for Russia and Eurasia at the Center for Strategic and International Studies (CSIS). “It’s not catastrophic. It’s manageable.”
Snegovaya estimates that Russia could sustain its war effort for another three to five years, cautioning that it becomes increasingly difficult to make reliable forecasts beyond that timeframe. A group of exiled, anti-Putin Russian economists takes an even more pessimistic view, arguing that the Kremlin’s ability to wage a prolonged war of attrition remains largely “unimpeded by any economic constraints.”
Western sanctions, they say, have failed to impose enough pain on Russia’s energy-dependent economy to fundamentally alter Moscow’s calculations. Richard Connolly, a senior fellow in international security at the UK-based Royal United Services Institute (RUSI), told CNN that as long as Russia continues pumping oil and selling it at reasonably stable prices, the state can keep funding the war.
“As long as Russia’s pumping oil and they’re selling it at a fairly reasonable price, they have enough money to just muddle along,” Connolly said. “I’m not saying it’s a really rosy picture for them, but they’ve got enough for the economy not to be a factor in Putin’s calculus when he’s thinking about the war.”
History suggests that Russia is more likely to accept an unfavorable peace settlement during periods of acute economic distress, such as at the end of World War I or during the collapse of the Soviet Union following the war in Afghanistan. But the current situation, Snegovaya said, is “nowhere near there yet.”
“It will take much more serious pressure on the Russian economy—and much longer—for it to get there,” she added.
That reality poses a significant challenge for Ukraine and for the Trump administration, which has held multiple rounds of talks in an effort to broker an end to the conflict.
Tax hikes, inflation, and shifting burdens
What has changed, however, is that the initial economic boost driven by surging military expenditures has largely run its course. The Kremlin now faces the task of “pushing the burden of the war onto Russian society,” according to Snegovaya.
That burden has materialized through sharp increases in corporate and personal income taxes, along with higher value-added tax (VAT) rates to help fund record defense spending. Russian consumers are also feeling the strain from rising prices, particularly for imported goods that have become more expensive due to sanctions and supply chain disruptions.
Even so, high inflation has not triggered widespread social unrest. Snegovaya argues that inflation in Russia does not provoke the same level of public anger as in Western countries, due in part to years of state propaganda, political repression, and a population accustomed to economic volatility.
Connolly echoed that view, noting that inflation has been a persistent feature of post-Soviet Russia. The International Monetary Fund forecasts that year-over-year inflation will average 7.6% this year, down from 9.5% in 2024.
Russia is now devoting close to 40% of its national budget to military-related spending, according to NATO Secretary General Mark Rutte, though estimates vary. A report by the Stockholm International Peace Research Institute found that Russia’s military expenditures jumped 38% last year compared with 2023.
This surge in spending has created a new class of wartime economic “winners,” particularly defense contractors and blue-collar workers employed in weapons manufacturing and logistics. As a result, economic inequality has declined—reducing pressure on Putin from certain segments of society.
As Russia has sought to replace Western imports, domestic manufacturing of textiles, footwear, and basic electronics has expanded. Ekaterina Kurbangaleeva, a visiting scholar at George Washington University, said her research shows wages for some categories of workers tripled—and in some cases increased fivefold—between 2021 and 2024.
“It was like a shot of adrenaline,” Kurbangaleeva said, while noting that the boost has since faded as growth slows.
Rural and economically depressed regions have also seen an influx of money since the war began, driven largely by generous salaries and bonuses paid to soldiers and their families. These payments have become a key recruitment tool, allowing the Kremlin to rely on volunteers rather than impose unpopular mass conscription.
“Russian soldiers today are paid more than any Russian soldier in the history of Russian soldiers,” Connolly said. Many earn far more than they ever could have in civilian jobs in their home regions.
The government has also distributed large compensation payments to families of soldiers killed or wounded in the war. By pouring money into military households, the Kremlin has managed to limit public anger even as Russian casualties approach one million, including an estimated 250,000 dead, according to a CSIS estimate published in June.
Unlike during the wars in Chechnya or Afghanistan, there have been no sustained mass protests by soldiers’ families demanding an end to the conflict.
“The fact that you’re not seeing large-scale public protest relieves pressure on Putin when he’s making decisions about what to do next,” Connolly said.
Some experts believe the Kremlin may also fear the consequences of ending the war: a large population of veterans returning to civilian life, many unemployed and in need of costly medical care.
“From a domestic standpoint, it’s in Putin’s best interest to keep this war going,” said Kimberly Donovan, director of the Economic Statecraft Initiative at the Atlantic Council.
Sanctions evasion and long-term risks
While Russia’s economic challenges remain manageable in the short term, the long-term outlook is more uncertain. The Kremlin has drawn heavily on its sovereign wealth fund, eroding a financial buffer that once shielded the public from the costs of war.
An Atlantic Council report warns that the depletion of these reserves is creating difficult trade-offs. Data from the Kyiv School of Economics Institute show that liquid assets in Russia’s National Welfare Fund have fallen by 57% since the war began.
As that cushion shrinks, sustaining current levels of defense spending may eventually require deep and visible cuts to social programs—a move that could provoke broader public discontent.
Meanwhile, recent US and UK sanctions on major oil producers such as Lukoil and Rosneft have raised the cost of doing business. To evade restrictions, Russian exporters are rerouting shipments through smaller firms and complex logistical networks, driving up expenses.
“All of that costs money,” Donovan said. “The more pressure we apply through sanctions and enforcement—and the more difficult we make evasion—the more expensive it becomes for Russia to keep this system running.”
If that pressure is combined with stronger efforts to curb oil purchases by countries such as India and China, experts say the Kremlin’s calculus could eventually change. But for now, Russia’s economy remains resilient enough to keep the war going—despite the growing strain beneath the surface.