The Ukrainian campaign to logistically isolate Crimea and place local residents and authorities in an untenable position is forcing the Kremlin to confront renewed mobilization. Sustained attacks on the peninsula’s major logistics routes—particularly rail and shipping—as well as on electricity infrastructure and fuel supplies go well beyond embarrassment. They require a visible response that reassures both Crimean residents and the broader Russian public that the regime can stabilize the situation. The disruptions now extend beyond business closures and falling property prices in Crimea to the Don-Azov Canal, which provides access for grain bulk carriers to the Sea of Azov and carries a significant share of Russia’s grain exports. As of a week ago, 70% of tourist bookings in Crimea had been canceled. Regional officials are preparing a package of support measures for local businesses, but any meaningful relief will require substantial federal spending.
The worsening image of Crimea as an increasingly unlivable region raises the prospect of further military mobilization intended to marshal enough resources to force Kyiv into a peace favorable to Russia—or at least to blunt Ukraine’s current long-range strike campaign. For mobilization to have a tangible effect on this year’s fighting before winter arrives, it must begin as soon as possible. Leaving aside whether the regime is prepared to absorb the domestic backlash ahead of the September elections, the central question remains: what can the economy realistically sustain under either full or rolling mobilization?
Labor markets are already under considerable strain from the steady loss of working-age men to death or serious injury at the front. Bashkortostan, for example, is reportedly the first region to officially record more than 10,000 deaths and roughly 4,500 personnel returned from military service. The combined total of 14,500 represents about 0.75% of the region’s working-age population. Broader CSIS estimates of approximately 450,000 Russian deaths and another 950,000 wounded or missing paint an even starker picture. Although these figures should be treated with caution, the loss of roughly 0.6% of the 2022 labor force to death and an additional 1.3% to wounding or other casualties is consistent with the macroeconomic trends now visible across the economy. Russia’s official labor force fell by about 760,000 people between 2022 and 2025, while the military expanded by roughly 400,000−450,000 men over the same period. Overall economic output grew only marginally in 2025 after earlier increases in 2023−2024; given current trends, it now appears more likely to stall or contract this year. Military production, by contrast, has risen sharply, as shown by industrial output indices tied to defense orders.
Claims of large increases in real incomes among Russians since 2022 have long been questionable. They are driven mainly by necessity: labor is scarce. Russia is undoubtedly producing far greater volumes of military goods, and a wave of new businesses emerged to meet consumer demand in 2023−2024. However, there is little evidence of broad productivity gains in most sectors, especially in services such as hospitality, tourism, and intermediary activities like garages and mechanics that absorbed much of the apparent wage growth. Only factories producing military goods and similar items have clearly improved their processes through on-the-job learning.
The main driver of higher physical output has been the ability to work people harder and for longer hours, made possible by large nominal wage increases in earlier years. Without those wage gains, the scale of military production growth would not have been feasible. Labor productivity in Russia grew only marginally more slowly between 2010 and 2025 than in high-income economies with much larger service sectors. The longer capital investment in infrastructure and public goods continues without meaningful steps to increase competition, the harder it will become to reverse slowing productivity growth through new technologies or other reforms.
Assume the regime adopts a form of “rolling” mobilization designed to spread the disruption over time. The economy has reached an inflection point at which additional military spending is now actively reducing public welfare, because few pockets of underutilized labor or idle assets remain. Any increase in deployed troops will require a corresponding rise in ammunition, supplies, logistics, drones, and other support. Further gains in military output will therefore be possible only through either a broad productivity breakthrough or—far more likely—the direct reallocation of labor and resources into the military sector.
Rolling mobilization would also intensify the inflationary pressures already complicating efforts to lower interest rates, by accelerating the outflow of working-age men from the labor market. Fuel shortages are already appearing in national price statistics, and food prices are likely to rise later this year because of weaker global wheat harvests. Despite a sharp slowdown in money-supply growth—M2 expansion is now at its lowest level since the 2022 sanctions shock—household demand for cash and cash equivalents is rising quickly. Although the state now has greater capacity to monitor people attempting to leave the country ahead of a new mobilization wave, the rush for cash creates significant upside inflation risk. People are likely to spend cash wherever possible to avoid or evade service, especially while Ukrainian long-range strikes and periodic internet disruptions encourage holding more cash on hand. These conditions reduce the effectiveness of high interest rates in limiting money circulation throughout the economy.
Mobilization will therefore force policymakers to keep interest rates higher for longer, undermining the investments needed to support future productivity gains. At the same time, Russia’s current institutional arrangements are not designed for sustained, economy-wide mobilization. Large-scale administrative interventions now appear unavoidable—on a scale unprecedented under the present regime. The difficulty is that manual control is poorly suited to systematic policy. It remains too dependent on individual personalities and ongoing bureaucratic power struggles.
If, for instance, the regime tries to lower interest rates by administrative decree, the politically simplest route would be to centralize control over prices and declare victory over inflation. That step would likely require further nationalizations and direct state direction of labor. As mobilization becomes more probable out of desperation in response to events in Crimea, the regime will have to construct and reconstruct economic institutions while retreating from the market mechanisms it has previously used to mask the political costs of wartime decisions.
