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Editor | L.Y.

Preliminary

In the autumn of 2025, the Russians really tasted the suffering of the war ¨C before every day people heard that ¡°the war can be fought more wealthy¡±, now see, it is a bubble that is broken one-stop. this war with Ukraine has been fought for three and a half years, and the West layer up sanctions, the previously blown economic myth, already in this double strike crushed and torn.

The Kremlin has not shied away from the fiscal pressures behind the policies. Putin admitted frankly at the government work conference on September 27th that continuous military operations and Western sanctions have double squeezed the national finance, and tax increase is "a necessary choice to ensure national security and social stability".

This statement is in sharp contrast to the ¡°economic resilience theory¡± promoted by the Russian government in 2023, when Russia¡¯s GDP climbed to the fourth place in the world according to the purchasing power parity, and the data on the rebound of energy export revenues once supported the ¡°war dividends¡±.

Financial accounting

According to data from the Ministry of Finance of Russia, the federal budget deficit in the first half of 2025 has reached $182 billion, up to 6.8 percent of GDP, the highest level since the 2008 financial crisis. The main driver of the deficit expansion is the sharp rise in military spending, with the defense budget finally set at $15 billion in 2025 representing 6.3 percent of GDP, doubling the pre-war $48 billion growth in 2021 and swallowing 40 percent of national fiscal revenue.

The Russian Ministry of Economic Development estimated that $150 billion worth of military expenditure corresponded to $1070 worth of ¡°war taxes¡± for each citizen, while the budget for education, healthcare and other livelihoods in the same period was reduced by 12 percent, and pensions increased by only 4.2 percent, far below the inflation rate of 8-10 percent. To fill the gap, the government has previously mobilized the National Wealth Fund, with a total annual withdrawal of $720 billion in 2024, and by the end of the third quarter of 2025 the balance of the fund has dropped from pre-war $199 billion to $850 billion, and sustainability is under severe test.

The cumulative effect of Western sanctions has exacerbated fiscal difficulties. As of September 2025, Western countries have imposed a total of 18 rounds of sanctions on Russia, freezing US$300 billion in its overseas assets, and cutting off international settlement channels for most banks. This has made it difficult for Russia to finance through sovereign debt and can only rely on the central bank to print money. In 2024, the broad money supply will increase by 19%, further pushing up price pressures and plunging fiscal regulation into a vicious cycle of "increased spending-inflation-further increased spending".

Under the framework of prosperity.

Energy exports, once regarded as the "ballast stone" of the economy, will show signs of fatigue in 2025. Although Russia has successfully shifted the focus of energy exports to Asia, with crude oil exports to China reaching 110 million tons, accounting for 40% in the first half of 2025, and exports to India accounting for 38%, far exceeding the 6% to the EU, revenue has not increased simultaneously. The Russian Federation customs data shows that oil and gas export revenue in 2024 will be US$113.6 billion, a decrease of 30% from the US$160 billion in 2021 before the war, and revenue in the first eight months of 2025 will drop another 8% year-on-year.

Price fluctuations and rising costs are the main reasons. In 2025, international oil prices will remain in the range of 70-75 US dollars/barrel, which is about 20% lower than the average price in 2022. In order to compete for the Asian market, Russia's crude oil exports to China and India have a long-term discount of 5-8 US dollars to Brent crude oil./barrel.

At the same time, energy transportation costs have increased significantly. Although ice-breaking LNG transportation in the Arctic waterway can shorten the voyage by 30%, the maintenance cost of the 50 icebreaker fleet requires an additional US$4.5 billion per year. The newly built "Siberia of Power" Phase II pipeline also takes up US$19 billion in investment funds, making it difficult to produce benefits in the short term.

The technological blockade brought about by the sanctions further weakened the long-term competitiveness of the energy industry. After supply cuts from Western equipment suppliers, the efficiency of Russian oil fields declined, the daily output of some old oil fields in Siberia dropped from 500,000 barrels in 2023 to 42,000 barrels in 2025, and quality indicators such as sulphur content fluctuated. Internal reports from the Ministry of Energy showed that if new drilling equipment and refining technology were not available, the output of crude oil could decline by 12% by 2027, and the revenue support role of energy exports would further weaken.

The economic structure

The claim of ¡°growing more wealth¡± is largely attributed to the short-term growth of the military industry expansion. Russia¡¯s industrial output reached $668 billion in 2024 and ranked fifth in the world, with the military industry contributing to the major growth, with its share in GDP rising from 4% to 6% before the war.

The imbalance in the labor market is the most prominent. In order to attract workers, military enterprises offer a monthly salary of 250,000 rubles (about 2,300 US dollars), which is 2.5 times the average salary of the civilian industry, resulting in serious labor shortages in machinery manufacturing, automobiles and other fields. According to data from the Russian Statistics Service, in the second quarter of 2025, the number of employees in the manufacturing industry decreased by 18% compared with before the war, and automobile production was only 45% of that in 2021. A large number of civilian factories reduced or stopped production due to lack of personnel.

Although agriculture remains stable, it is difficult to compensate for the industrial shortage. Russia¡¯s food output is expected to reach 1.35 billion tons in 2025, wheat output is expected to reach 85 million tons, self-sufficiency rate exceeds 110%, and exports through the Central European ranks and the Caspian corridors will return to 42.9 million tons. But food exports are mainly raw materials, value added is very low, and agricultural export revenues in the first half of 2025 are only $50 billion, and face the risk of international market price fluctuations, and it is difficult to support a huge economic system.

From myth to reality.

The introduction of the tax increase order has made ordinary people really feel the economic pressure brought by the war. In supermarket chains in Moscow, the price of 5-liter sunflower oil has risen from 80 rubles in 2021 to 210 rubles in 2025, an increase of 162%; Rents in St. Petersburg have risen by 35% in a year, and many families are forced to cut down on food and entertainment expenses.

A September poll conducted by the Russian Social Opinion Foundation showed that 62% of respondents believed that "living standards had dropped significantly compared with pre-war", and their support for "continuing the war" had dropped from 58% in 2023 to 27%, and 66% of the people called for the start of armistice negotiations.

conclusion

Ivan Petrov, who operates a furniture factory in Kazan, calculated a bill: the cost of importing raw materials increased by 40% due to the depreciation of the ruble, the actual tax burden after the corporate profit tax was increased from 20% to 21.5%, and the weakness of domestic demand caused an order reduction of 30% and can still expect government subsidies before, now we hear that the subsidy funds are given priority to military and industrial enterprises.

Putin's approval rating has also fallen with the economic situation, with polls showing it falling by 26 percentage points in six months. In order to stabilize people's hearts, the government launched a targeted subsidy policy and issued a monthly food subsidy of 5000 rubles to low-income households. However, the effect was minimal in the context of high inflation. After the tax increase order was announced, small-scale protests took place in many cities. People held slogans saying "Cut taxes first, cease fire", reflecting the transmission of economic pressure to the social field.

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