>To sustain its war against Ukraine, Russia militarized its economy. Although—contrary to popular belief abroad—the Russian economy is not on a full wartime footing, the Kremlin has both splurged on weapons factories and begun trading more with China to evade Western sanctions. Over the past three years, the Russian economy has outperformed most forecasts thanks to extravagant government spending, high prices for commodities that Russia exports, and skilled economic management.
>There are now two views of Russia’s economy. One, touted by Russian President Vladimir Putin, is that the Russian economy has proved surprisingly resilient and is strong enough to sustain his grandiose goals, which include not only maintaining Russia’s war in Ukraine but also expanding and upgrading its military so that it could one day take on NATO. Since U.S. President Donald Trump returned to the White House in January, Putin has ramped up his tests of the alliance’s resolve. In September, Russian drones violated Poland’s airspace and Russian fighter jets intruded into Estonia’s. Putin has faith in his own resources: since 2022, Russia has expanded its weapons output even in the face of severe sanctions.
>The other view of Russia’s economy is that it is bound to one day collapse. But neither is entirely correct. Russia’s ability to build a strong-enough military to truly challenge NATO over the long run is constrained by mounting fiscal pressures, an overstretched labor market, sanctions that block access to critical technologies, and a defense industry already working at full capacity. According to defense experts, it will probably take Russia between seven and ten years to reconstitute its military forces—that is, replenish depleted weapons stockpiles, replace heavy equipment losses, and rebuild troop strength and combat readiness. Yet in the meantime, Russia can harass NATO members on the cheap with cyberattacks and sabotage, and it may decide on an outright attack even sooner, given that European countries are rushing to upgrade their defenses.
>After three and a half years of full-scale conflict, the contours of Russia’s political economy reveal the boundaries of what the Kremlin can achieve. To defeat Putin’s grand goals, the United States and European countries must get a better grasp on the specific long-term vulnerabilities of the Russian economy and start exploiting them now.
>Despite sanctions and isolation, Russia has managed to keep its war machine running. In 2021, the Kremlin spent around 22 percent of the federal budget on the military. Today, it spends nearly 40 percent, or about eight percent of GDP (including spending on domestic security). The government has expanded its drone and ammunition manufacturing, refurbished stockpiles of Soviet-era equipment, and offered generous financial incentives to encourage men to join the army. Moscow was able to sustain the invasion without putting the entire economy on a full wartime footing by declaring a partial mobilization and encouraging existing defense factories to run around the clock. Parallel imports—goods sold to Russia by a third party without the manufacturer’s permission—and Chinese suppliers have covered gaps in critical components caused by sanctions. In the short term, this patchwork approach has been enough to replenish frontline forces and keep Russia in the war.
>But these achievements are less impressive than they appear. As the military analyst Dara Massicot has noted, Russia’s defense-industrial capacity had largely plateaued by 2024, apart from drone production. Most of the equipment it is now delivering to the Ukrainian front is refurbished, not new, and is often inferior to NATO systems. Corruption and inefficiency in the military and defense sectors remain endemic, and although marginal gains in efficiency are possible, they cannot generate the scale of resources required for rapid force expansion.
>Russia has demonstrated resilience and adaptability by tapping into its so-called industry mobilization reserve (standby production capacity that can be rapidly activated during wartime), as well as by expanding its infrastructure somewhat, such as by building ammunition factories. But the country has exhausted its reserves of manufacturing capacity and manpower. To produce substantially more equipment or recruit and train far more soldiers, Moscow would have to shift to a more comprehensive war footing by directing all available resources toward military needs, as it did during World War II, or commandeering civilian production lines for military purposes. Car factories, for example, could be made to produce only military vehicles. But the government has resisted doing so because it feared social unrest and shortages of consumer goods.
FLASHING RED
>Russia’s war economy works, but only up to a point. The Kremlin is limited not only by short-term production bottlenecks but also by fiscal strain, an overstretched labor market, technological isolation, and a fragmented defense-industrial base. In effect, defense spending functions like a disposable-goods economy: factories operate at full capacity, workers earn wages, and demand for inputs surges, but the output is designed to vanish almost immediately. Tanks, drones, and shells are produced to be destroyed on the battlefield, and the state pays out lifetime pensions to injured soldiers and death benefits to the families of those killed. This cycle sustains employment and industrial activity in the short term but generates no lasting assets—such as highways, power plants, or schools—or productivity gains, leaving the economy busier yet poorer with each passing year of war.
>Russia’s fiscal indicators are flashing red. Oil and gas revenues are declining because of lower prices, rising logistical costs, volatile exchange rates, and the threat of expanded sanctions. In the first half of 2025, federal revenues contracted by 16.9 percent. The Finance Ministry designed its 2026 budget around an assumed oil price of $59 per barrel, down from $67 in the previous draft budget, and will likely revise the estimated price even lower.
Worth-Jicama3936 on
War economies can run for a LONG time with cracks before they collapse. Just look at Nazi germany from mid 1944 onward. Economic collapse is not going to save Ukraine, only public opinion of the average Russian changing so much that they were willing to stand up to the government and say no more, and so far the opposite appears to be happening.
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>To sustain its war against Ukraine, Russia militarized its economy. Although—contrary to popular belief abroad—the Russian economy is not on a full wartime footing, the Kremlin has both splurged on weapons factories and begun trading more with China to evade Western sanctions. Over the past three years, the Russian economy has outperformed most forecasts thanks to extravagant government spending, high prices for commodities that Russia exports, and skilled economic management.
>There are now two views of Russia’s economy. One, touted by Russian President Vladimir Putin, is that the Russian economy has proved surprisingly resilient and is strong enough to sustain his grandiose goals, which include not only maintaining Russia’s war in Ukraine but also expanding and upgrading its military so that it could one day take on NATO. Since U.S. President Donald Trump returned to the White House in January, Putin has ramped up his tests of the alliance’s resolve. In September, Russian drones violated Poland’s airspace and Russian fighter jets intruded into Estonia’s. Putin has faith in his own resources: since 2022, Russia has expanded its weapons output even in the face of severe sanctions.
>The other view of Russia’s economy is that it is bound to one day collapse. But neither is entirely correct. Russia’s ability to build a strong-enough military to truly challenge NATO over the long run is constrained by mounting fiscal pressures, an overstretched labor market, sanctions that block access to critical technologies, and a defense industry already working at full capacity. According to defense experts, it will probably take Russia between seven and ten years to reconstitute its military forces—that is, replenish depleted weapons stockpiles, replace heavy equipment losses, and rebuild troop strength and combat readiness. Yet in the meantime, Russia can harass NATO members on the cheap with cyberattacks and sabotage, and it may decide on an outright attack even sooner, given that European countries are rushing to upgrade their defenses.
>After three and a half years of full-scale conflict, the contours of Russia’s political economy reveal the boundaries of what the Kremlin can achieve. To defeat Putin’s grand goals, the United States and European countries must get a better grasp on the specific long-term vulnerabilities of the Russian economy and start exploiting them now.
>Despite sanctions and isolation, Russia has managed to keep its war machine running. In 2021, the Kremlin spent around 22 percent of the federal budget on the military. Today, it spends nearly 40 percent, or about eight percent of GDP (including spending on domestic security). The government has expanded its drone and ammunition manufacturing, refurbished stockpiles of Soviet-era equipment, and offered generous financial incentives to encourage men to join the army. Moscow was able to sustain the invasion without putting the entire economy on a full wartime footing by declaring a partial mobilization and encouraging existing defense factories to run around the clock. Parallel imports—goods sold to Russia by a third party without the manufacturer’s permission—and Chinese suppliers have covered gaps in critical components caused by sanctions. In the short term, this patchwork approach has been enough to replenish frontline forces and keep Russia in the war.
>But these achievements are less impressive than they appear. As the military analyst Dara Massicot has noted, Russia’s defense-industrial capacity had largely plateaued by 2024, apart from drone production. Most of the equipment it is now delivering to the Ukrainian front is refurbished, not new, and is often inferior to NATO systems. Corruption and inefficiency in the military and defense sectors remain endemic, and although marginal gains in efficiency are possible, they cannot generate the scale of resources required for rapid force expansion.
>Russia has demonstrated resilience and adaptability by tapping into its so-called industry mobilization reserve (standby production capacity that can be rapidly activated during wartime), as well as by expanding its infrastructure somewhat, such as by building ammunition factories. But the country has exhausted its reserves of manufacturing capacity and manpower. To produce substantially more equipment or recruit and train far more soldiers, Moscow would have to shift to a more comprehensive war footing by directing all available resources toward military needs, as it did during World War II, or commandeering civilian production lines for military purposes. Car factories, for example, could be made to produce only military vehicles. But the government has resisted doing so because it feared social unrest and shortages of consumer goods.
FLASHING RED
>Russia’s war economy works, but only up to a point. The Kremlin is limited not only by short-term production bottlenecks but also by fiscal strain, an overstretched labor market, technological isolation, and a fragmented defense-industrial base. In effect, defense spending functions like a disposable-goods economy: factories operate at full capacity, workers earn wages, and demand for inputs surges, but the output is designed to vanish almost immediately. Tanks, drones, and shells are produced to be destroyed on the battlefield, and the state pays out lifetime pensions to injured soldiers and death benefits to the families of those killed. This cycle sustains employment and industrial activity in the short term but generates no lasting assets—such as highways, power plants, or schools—or productivity gains, leaving the economy busier yet poorer with each passing year of war.
>Russia’s fiscal indicators are flashing red. Oil and gas revenues are declining because of lower prices, rising logistical costs, volatile exchange rates, and the threat of expanded sanctions. In the first half of 2025, federal revenues contracted by 16.9 percent. The Finance Ministry designed its 2026 budget around an assumed oil price of $59 per barrel, down from $67 in the previous draft budget, and will likely revise the estimated price even lower.
War economies can run for a LONG time with cracks before they collapse. Just look at Nazi germany from mid 1944 onward. Economic collapse is not going to save Ukraine, only public opinion of the average Russian changing so much that they were willing to stand up to the government and say no more, and so far the opposite appears to be happening.