Russia’s Economic Strains: The Hidden Costs of a Long War
TL:DR:
Years into the war, Russia faces rising inflation, labour shortages, a deepening budget deficit, and depleted reserves — factors that could force the Kremlin to the negotiating table sooner than expected.
Full Article (~550 words)
When Russian President Vladimir Putin launched the full-scale invasion of Ukraine, few expected Russia’s economy to hold up as long as it has. But three years on, the façade of resilience is cracking — and the pressure on the Kremlin is becoming increasingly hard to mask.
Independent Russian economists — including Dr. Sergei Alexashenko, formerly of the Russian Central Bank — warn that inflation is now running “well above what official figures acknowledge,” driven by military spending and supply shortages. Alexashenko told the Moscow-based Journal of Economic Studies that “Russia can hide numbers, but it cannot hide prices. Households feel the truth every day.”
The budget deficit is ballooning. Russia’s 2024 military spending rose to levels not seen since the Cold War, and the 2025 budget allocates even more to defence. According to UK Foreign Secretary David Lammy, speaking at a G7 briefing in January, “Russia is now spending more on war than on health and education combined.” This imbalance is unsustainable, especially as sanctions restrict Russia’s ability to borrow internationally.
Another major pressure point is labour. Millions of Russians have either been mobilised, fled the country, or withdrawn from the formal labour market. The Russian Academy of Sciences published a report in December describing the labour situation as “structurally catastrophic,” particularly in manufacturing and technology. This is already undermining Russia’s long-term economic prospects.
There is also the matter of frozen Russian assets — a political and economic lever that Europe and the UK are increasingly willing to use. In a joint statement in February, UK Chancellor Rachel Reeves and French Finance Minister Bruno Le Maire confirmed they were working to “convert frozen Russian sovereign assets into financial support for Ukraine.” If enacted, this would effectively divert Russian wealth into Ukrainian reconstruction.
Energy, long Russia’s financial lifeline, is also under pressure. While India and China continue to buy discounted Russian oil, price caps and logistical hurdles mean revenue is far below pre-war levels. Energy analyst Natalia Zubareva, of the Kyiv School of Economics, argues that “Russia is surviving off volume, not value — a precarious model for a petrostate.”
For the global economy, Russia’s internal strain may eventually reduce its ability to sustain the conflict. If budget pressures force the Kremlin toward negotiations, energy markets could finally stabilise. That would be welcome news for Europe — particularly the UK — where elevated gas prices have contributed to the cost-of-living crisis.
The cracks are widening. Russia’s economy may not collapse overnight, but the trend is unmistakable: the longer the war continues, the more costly it becomes for Moscow — financially, structurally, and politically.
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