In Russia, a host of problems have accumulated for the new «fall/winter economic season,» which, depending on the ideological stance of analysts, are described in terms ranging from «slowdown» to «catastrophe.» Debates about the scale of these problems have been ongoing for some time, but today we will focus specifically on their causes. The most commonly cited reasons include the massive diversion of financial, material, and human resources towards the aggression against Ukraine, the reduction of budget funds for civilian sectors of the economy, the consequences of sanctions and other external restrictions (including falling export revenues), and the destabilization of the financial sector, manifested in rising prices and increasing interest rates to curb them. Each of these factors indeed inflicts significant damage on the Russian economy. However, in this article, we will turn our attention to other, less discussed but perhaps more significant aspects.
The problem of resource shortages—financial, material, and human—is considered the main limiting factor, and there’s no point in disputing this: we see how Elvira Nabiullina has long been drawing attention to the labor shortage, how sharply the budget deficit has grown, and how difficult it is for industry to adapt (or sometimes its complete inability to adapt) to the lack of imported components or equipment wear. All these points are quantitatively confirmed: military spending has increased more than fourfold, from 3.1 in 2021 to 13.5 trillion rubles in 2025; unemployment among the working-age population has dropped from 4.3% at the end of 2021 to 2.2% in May 2025; the budget surplus of 524 billion rubles in 2021 has turned into a deficit of 4−5 trillion rubles in 2025. However, these deficits should primarily be seen as relative: yes, oil and gas budget revenues have declined, while expenditures remain high—but the authorities have ample opportunities to increase borrowing, and household deposits in banks have doubled during the full-scale war (of course, these cannot simply be confiscated, as the risks of such a decision are obvious), and attracting them at higher interest rates is not difficult. In recent months, the inflow of contract soldiers into the army has sharply declined, but increasing payments could easily reverse this trend. People in Russia are unlikely to protest even with a significant decline in their real incomes (we went through a similar period in 2014−2020), so cutting social spending and keeping wage growth below inflation do not appear to be significant risk factors in the current situation. Economic factors alone will not lead to an end to the war.
Discussions about Russia’s «war economy» (or «military Keynesianism») overlook a key fact: in 2025, its foundations are fundamentally different from those in 2022. In the first months of the full-scale war, the authorities bet on liberalization and deregulation. After decades of formalizing intellectual property rights and «fighting for consumer rights,» patent rights for numerous products and technologies were abolished in a matter of days, digital piracy was permitted, and «parallel imports» of goods whose manufacturers announced their withdrawal from the Russian market were legalized—that is, the import of products that may lack proper certification or warranty service. Financial oversight bodies, such as the Bank of Russia, allowed credit institutions to disregard (and in some cases, not disclose) liquidity ratios, even fixing, for example, the «pre-war» valuations of assets that depreciated in the early months of sanctions. Numerous decisions on loan repayment holidays were adopted; a moratorium on corporate bankruptcies was introduced; inspections and oversight of small and medium-sized businesses were reduced, and the rights and opportunities for the self-employed were expanded (resulting in their numbers growing from 3.5 to over 13 million people in just three years). The labor market, despite the shock of mobilization and emigration in 2022, remained dynamic, fueled by the influx of migrant workers due to rising wages and the strengthening of the ruble in 2022−2023. It was precisely the market-driven and private nature of the Russian economy that allowed it to withstand the first years of the war: business initiatives enabled the restructuring of supply logistics, the use of new import channels, and even the creation of a «shadow fleet» for oil exports.
A situation emerged in which the restoration of Soviet geopolitical constructs was carried out using the most market-oriented methods. This was vividly demonstrated in the contrast between the unpopular mobilization and the successful commercial recruitment into the army, where authorities in various regions competed with each other to lure citizens to the slaughter by increasing contract-signing bonuses. Despite some shortcomings, this system proved effective: nearly all experts acknowledged that the resilience of the Russian economy in 2022−2023 exceeded their expectations.
Three and a half years after the start of the full-scale aggression, we observe a completely different picture. Instead of liberalization in intellectual property, there is a rigid imposition of «Russian software,» social networks, and data transmission tools. Instead of easing imports, there is forced import substitution to support inefficient domestic production (for example, the requirement to use Russian cars in taxis). Instead of alleviating debt burdens, there is a spike in interest rates, the widespread imposition of floating-rate loans, and the curtailment of preferential lending programs. Promises of stable tax policies have given way to tax increases: first targeted at large export-oriented companies, then more broadly (an increase in personal income tax, and from 2026, likely most taxes on small and medium-sized businesses). Tariff restrictions have been replaced by their accelerated increases, although authorities increasingly discuss introducing fixed prices for «socially significant» goods. The abolition of certain regulations and the reduction of inspections have been forgotten—it’s now the time of fiscal terror (relevant agencies have been tasked with collecting nearly 600 billion rubles in fines alone in the coming years). Amid a universally acknowledged labor shortage, not only have restrictions on migrant inflows been introduced (initially launched in response to the Crocus City Hall terrorist attack), but also «targeted» bans on their employment in the most «sensitive» service sectors: commercial transportation, catering, and even courier services. The ban on using Western messaging apps under the pretext of combating phone fraud will significantly increase business communication costs, redistributing financial flows to benefit interested monopolists. Reports of new bans are accompanied by security agencies’ announcements about the confiscation of certain enterprises in favor of the state.
In this situation, it feels as though Soviet geopolitics is now being implemented on the basis of a rapidly «Sovietizing» economy. Neither external conditions, sanctions, nor the inability of Russian firms to innovate inflict damage on the domestic economy comparable to that caused by the actions of the Kremlin and its security services. The authorities themselves are destroying the foundation that underpinned the successes of 2022−2023: no amount of budget spending can ensure economic growth if its recipients are not competing private enterprises, and businesses lack confidence in their freedom, property rights guarantees, or the stability of announced laws and regulations. The initiatives that many see as tools to save the economy, fill the budget, and ensure final victory are, in reality, guarantees of an approaching crisis, growing deficits, and steps toward military defeat.
The «Sovietization» of the economy is also evident in the «discoordination» of governance. In February-April 2022, economic agencies—from the Bank of Russia to the Ministry of Finance and the tax service—acted cohesively, coordinating decisions much faster than bureaucratic norms allowed and adjusting them promptly when needed. However, over the past year, clashes of interests and outright contradictions, or even complete misalignment of actions among ministries and agencies, have become increasingly common. A striking example is the ruble’s collapse last fall, when the Ministry of Finance demanded accelerated currency purchases for reserves, while the Bank of Russia insisted that the exchange rate should be determined by market forces. The result was panic, halted by a simple announcement from the Central Bank about ceasing currency purchases on the domestic market. In 2025, the discord in officials’ statements reached its peak at the St. Petersburg Economic Forum.
This state of affairs is unlikely to change—primarily because no one can (or wants to) answer obvious questions: will the Kremlin pursue an end to the war and at least a temporary ceasefire, or will the war only intensify; is the policy of «tightening the screws» the only prospect, or not; will there be an attempt to improve the efficiency of the Ministry of Defense, or is the only measure of success in the new conditions the volume of «utilized» budget funds without regard for results, as was typical in Soviet times?
Therefore, the answer to the question about the state of the Russian economy should be sought not in the dynamics of military spending or the scale of Western sanctions, but in the Kremlin’s economic policy. This policy is driven not by «objective circumstances» but by the subjective delusions and incompetence of Russia’s current elite. Their simplistic views of history are focused on the geopolitical and military achievements of the Soviet Union, which translate into a belief in the clear and obvious advantages of the Soviet economic model. However, the USSR’s successes were largely achieved not because of, but despite, the country’s economic model, which failed to fully utilize human and resource potential and led to its wasteful squandering for the sake of ideological goals.
In Soviet history, there were two periods somewhat comparable to the last three decades of Russian history: 1921−1928 and 1955-early 1960s. As a result of reevaluating certain previous steps, the economy during these periods was allowed (albeit with significant caveats) to develop according to its own laws—and the result was high growth rates, improved living standards, and even the foundations for technological progress. In both cases, Soviet authorities abandoned a sensible course not due to changing external circumstances but solely because of the logic of internal political struggles and the need to ensure regime stability. Similarly, the war in Ukraine and the recent changes in economic policy are not a response to external circumstances but a consequence of the «security» elite’s desire to preserve power at the expense of the economy’s needs.
