Russia Signals Economic Fatigue Amid Grinding War of Attrition
For the first time since launching its full-scale invasion of Ukraine in 2022, Russia is slashing its military budget—a stark signal that the Kremlin’s war economy has hit a wall. According to a draft budget submitted to Parliament on September 30, 2025, defense spending will drop from over $163 billion in 2025 to roughly $156 billion in 2026 .
Why the Cut Matters
The reduction—even more pronounced when adjusted for inflation (projected at up to 7%)—marks a turning point in Russia’s war strategy. Rather than escalate, Moscow appears locked into a grinding war of attrition, relying heavily on mercenaries and conscripts paid high wages to sustain frontline operations .
Russia’s Military Spending: By the Numbers
| Year | Defense Budget (USD) | Notes |
|---|---|---|
| 2021 | ~$40 billion | Pre-invasion baseline |
| 2024 | $163+ billion | Post-Soviet high |
| 2025 (Projected) | $156 billion | First decline since 2022 |
| Ukraine 2025 Budget | ~$55 billion | Still faces $20B shortfall |
How Russia Is Financing the War—and the People Paying the Price
- VAT Hike: Value-added tax rises from 20% to 22% in 2026
- New Levies: Taxes on gambling, small businesses, and luxury goods increased
- Oil Revenue Drop: Expected to fall from $135B (2024) to $100B (2025) due to sanctions and lower crude prices
- Occupied Territories: Funding for “development” in annexed Ukrainian regions slashed
Economic Consequences at Home
Russia’s economy grew over 4% in 2023–2024 thanks to wartime industrial spending—but at a cost. Inflation remains high, and the central bank’s interest rate sits at 17%, freezing consumer activity. Analysts warn the new tax hikes will further suppress demand and slow growth to just 1% in 2026 .
“The government has been forced to look for ways to stabilize the treasury,” said Sergei Suverov, a Moscow-based economic analyst. “It had to raise taxes and cut some expenditures, even on defense.”
Still, Russia retains internal borrowing capacity and could ramp up war spending again—if it’s willing to inflict more pain on its citizens.
[INTERNAL_LINK:Russia-Ukraine War Economic Impact]
