Mounting Pressure: How Russia’s Economy Is Buckling Under War Strain

Today, we will discuss the ever-worsening economic strain of Russia, the growing pressure from it on the country’s defense industrial base, and what measures are being taken to ease the situation.

For months, the Russian government has boasted about their country’s supposed economic resilience, claiming that the GDP is growing and that the economy has adapted to Western sanctions. However, behind the rhetoric, there are clear signs of distress. Inflation is climbing month after month, interest rates have soared, and labor shortages are becoming a critical issue. As the war drags on, the economic strain is mounting, putting Russia’s defense industrial base under immense pressure and raising serious questions about its ability to sustain the war effort beyond 2025.

Despite Russia’s claims of a 4% economic growth rate, the country is edging closer to stagflation, a dangerous mix of high inflation and economic stagnation. The Russian Central Bank has been forced to raise interest rates to 21%, with discussions of increasing them further to 23%. These measures are meant to restrain inflation but also make borrowing more expensive, slowing economic activity and causing a drop in cash savings to historic lows. With the ruble steadily weakening and consumer goods prices rising much faster than official statistics admit, the Russian people come increasingly closer to economic downfall.

To manage the financial strain, Russia introduced steep tax hikes, raised corporate profit taxes, and implemented a progressive income tax. While these measures generate some revenue, they fail to compensate for the general economic downturn. Meanwhile, Russia’s last liquid reserves in its National Wealth Fund are expected to run out by late 2025, making large-scale state bailouts increasingly unlikely.

The tightening economic conditions are having a direct impact on Russia’s ability to sustain its war machine. The high interest rates and economic uncertainty have made it more difficult for defense manufacturers to secure loans and ramp up production. While still managing to produce many weapons, they are falling far short of the numbers needed to replace the shocking battlefield losses.

According to open-source intelligence, Russia is losing around 320 artillery cannon barrels per month due to combat attrition, but can only produce 20 per month. Similarly, Russian forces have lost more than 8000 armored fighting vehicles since 2022, an average of more than 200 per month, while domestic production can only replace 17 of them. 

Beyond sheer production numbers, Russia is also struggling with technological shortages due to Western sanctions. With limited access to critical components, such as advanced microchips, Russia has forced its defense industry to rely on smuggling networks and outdated Soviet-era stockpiles. However, even they are depleting, and technological degradation is becoming more apparent on the battlefield, where Russian equipment is increasingly becoming outmatched by Ukrainian forces.

Russia is pushing for greater economic mobilization, redirecting industries toward war production despite severe labor shortages caused by mobilization, low birth rates, and skilled workers fleeing conscription. The artificially low unemployment rate masks a shrinking workforce, leaving non-defense sectors struggling. Prioritizing weapons manufacturing further strains the civilian economy, reducing goods and services for ordinary Russians, the price of which has increased by 22.1% in one year, risking Soviet-era solutions like price controls and rationing.

As Russia slides deeper into stagflation, political and economic anxieties are mounting. With the 2026 State Duma elections approaching, uncertainty over the war’s continuation complicates the Kremlin’s strategy. Putin has yet to decide whether to campaign on a prolonged war footing or shift toward peace, and the ruling United Russia party is divided on whether to emphasize military themes or economic recovery. Meanwhile, frustration is growing among business and political elites. Powerful figures from the defense and energy sectors warn that high interest rates could bankrupt companies, while loosening monetary policy risks worsening inflation. 

Overall, Russia’s economy is under severe stress, and the lack of clear direction underscores the deep uncertainty of its ability to sustain the war effort beyond 2025 is increasingly in doubt. Attempts to project economic strength are contradicted by rising inflation, labor shortages, and a defense industry struggling to replace battlefield losses. With financial reserves dwindling and business leaders growing restless, the Russian government faces difficult choices in the coming months.

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