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Russia's War Economy: How Long Can It Actually Last

RAGE Global · Intelligence Analysis · Updated 2026-08-28 · 12 min read

RAGE X ANALYSIS — Expert assessment authored and reviewed by Carlos Kfoury. This is analysis, not reportage. Factual claims carry source attribution; judgements carry confidence labels.

In the first quarter of 2026, Russia spent about 65% of federal revenues on defence. The January–April deficit exceeded the entire 2025 deficit. Neither of those numbers describes a collapse — and neither describes something that continues indefinitely.

Executive Assessment

The question "how long can Russia sustain this" has been asked since March 2022 and answered wrongly in both directions ever since. The economy did not collapse in 2022. It is not thriving in 2026. The honest analysis is narrower than either prediction and considerably more useful.

First, the spending share is now extraordinary by any historical standard. In Q1 2026 Russia spent $76.2 billion on defence — about 65% of federal revenues for the period and 30% more than the same quarter of 2025. Total defence and security spending in the 2026 budget amounts to roughly 16.8 trillion roubles, approximately 38% of all federal spending. (Confidence: Confirmed as reported)

Second, the deficit has broken through its own plan. The Finance Ministry designed the 2026 budget to reduce the deficit from 2025's level, raising VAT for the second time in eight years and launching tax reform for small businesses. The January–April 2026 deficit reached $79.3 billion — more than the entire 2025 deficit. (Confidence: Confirmed)

Third, the official growth forecast has been cut twice and is approaching zero. The Ministry of Economic Development reduced its 2026 GDP growth forecast from 1.2% to 0.4%, predicting an investment decline for the second consecutive year. The Central Bank lowered its 2026 range to 0.0–1.0%. (Confidence: Confirmed)

Fourth, the published military budget understates actual spending, and Russian officials have said so. In December, Defence Minister Andrei Belousov stated defence spending amounted to 7.3% of GDP in 2025 — a full percentage point above the budget plan, roughly RUB 2.1 trillion (~$26 billion) more. Reuters analysis found 84% of defence spending is classified. (Confidence: Confirmed)

Fifth — and this is the judgement that matters — affordability is not the binding constraint. SIPRI notes real-terms military spending growth moderated sharply from 38% in 2024 to 6.1% in 2025, and planned 2026 expenditure was reduced to 14.9 trillion roubles (6.3% of GDP). The New Eurasian Strategies Centre's assessment is that sustaining the war at 6.3–6.5% of GDP allows the Kremlin to prolong the conflict without additional budgetary burden. Russia has stabilised the war at a cost it can carry — by sacrificing everything else. (Confidence: Analysis, high)

The Numbers

Spending

Metric Figure
Federal war and military spending, 2025 ~16 trillion roubles — 7.5% of GDP (SIPRI)
Belousov's stated actual MoD spending, 2025 7.3% of GDP — 1pp above plan, ~RUB 2.1tn extra
Implied total defence spending, 2025 15.86 trillion roubles ($198.3bn)
Planned military expenditure, 2026 14.9 trillion roubles — 6.3% of GDP (reduced)
Total defence and security, 2026 budget ~16.8 trillion roubles — ~38% of all federal spending
Share of defence spending classified 84% (Reuters)
Q1 2026 defence outlay $76.2 billion — ~65% of federal revenues
Real-terms military spending growth 38% (2024) → 6.1% (2025)

A note on why these figures conflict. Russia does not disclose full military expenditure, publishing only planned figures with the majority classified. Official statements occasionally exceed published budgets — Belousov's December disclosure being the clearest case. Every number above is stated with its source and basis. Anyone quoting a single confident total for Russian defence spending is quoting an estimate.

The fiscal position

Metric Figure
2025 end-of-year deficit 2.6% of GDP (SIPRI); consolidated deficit near 4% of GDP (Russianomics)
2026 planned deficit $59.1 billion
Jan–April 2026 actual deficit $79.3 billion — exceeding all of 2025
2026 GDP forecast, MinEc Cut 1.2% → 0.4%
2026 GDP forecast, Central Bank 0.0–1.0%
Oil and gas share of federal revenue ~30–35% in 2025, down from 40%+ pre-war
Deficit financing Domestic OFZ bond issuance and National Wealth Fund drawdowns

The structural constraints

The New Eurasian Strategies Centre identifies three, and they are more informative than the deficit.

Resource reallocation. Military spending accounts for roughly a third of the budget, limiting scope for civilian industrial development. In H1 2025 only two sectors — agriculture and manufacturing — showed sustained growth.

Defence industry deceleration. Weapons and ammunition output grew 20–30% annually in 2023–24. Growth in 2026 is projected at 5–7%. The expansion phase is over.

High interest rates constraining lending and investment, the direct cost of the monetary tightening used to control inflation.

What the Economy Actually Did

The trajectory divides into four phases, and conflating them produces most of the bad analysis on this subject.

2022 — Shock and reorientation. Sanctions imposed, economy forced into rapid wartime reorientation. Contraction, contained.

2023–24 — The sugar rush. GDP expansion above 4% for two years, driven by military spending, defence-sector wage inflation and a rebound from the 2022 shock. This is the period most often cited by those arguing sanctions failed.

2025 — Managed cooling. Growth slowed to around 1% or lower as temporary drivers exhausted. Authorities deliberately sacrificed growth to curb inflation — a rational choice, and an expensive one.

2026 — Stagnation. Growth forecasts approaching zero. The Moscow Times assessment: Russia is likely to slide from managed cooling into outright stagnation, with meaningful recovery unlikely before 2027.

RAGE INTEL judgement: the 2023–24 growth was not evidence that the war economy works. It was the accounting effect of shifting national resources into a sector whose output is consumed and destroyed rather than reinvested. Building shells that are fired counts toward GDP and produces nothing that generates future output. The 2026 stagnation is the delayed cost of the 2023–24 expansion, not a separate problem. (Confidence: Analysis, high)

What Is Squeezing Revenue

Oil and gas. Down from over 40% of federal revenue pre-war to roughly 30–35% in 2025, as Western market closure and price volatility bite.

Ukrainian deep strikes on refineries. Damage to Russian refining capacity has contributed to domestic fuel shortages and ruble weakness — a direct link between battlefield action and fiscal position that did not exist earlier in the war.

Tax measures that have limits. VAT raised for the second time in eight years; radical small-business tax reform launched. Both are one-directional instruments with diminishing returns and political cost.

Reserve drawdown. Deficits financed by domestic bond issuance and National Wealth Fund withdrawals. Bonds transfer the problem forward; the fund depletes.

The Question That Actually Matters

The debate is usually framed as "can Russia afford the war." That is the wrong question and it produces the wrong answer.

Russia can afford the war at its current intensity. The evidence is that planned 2026 military spending was reduced rather than increased, that real-terms growth moderated to 6.1% in 2025, and that the Ministry of Defence has adopted more stringent financial management and made savings on armament purchases. NESC's assessment is that a significant increase in military spending is not only impossible — the economy is already at full capacity — but unnecessary, because the intensity of hostilities and associated requirements remain stable.

The right questions are narrower:

Can Russia afford to escalate? The answer appears to be no, on the same evidence. An economy at full capacity cannot surge.

Can Russia afford the reconstruction of everything it has deferred? Civilian industry, infrastructure and investment have absorbed the cost. That bill does not disappear.

What happens to demand when the war ends? A defence sector at a third of the budget with 5–7% output growth is a structural dependency. Demobilising it is an economic problem as large as the war.

RAGE INTEL judgement: Russia has not solved the war economy problem. It has deferred it. The Kremlin has stabilised military expenditure at a level it can sustain indefinitely by accepting stagnation, deferred investment and a hollowed civilian sector. That is a viable strategy for continuing a war and a catastrophic one for the decade after it. (Confidence: Analysis, high)

The Contested Question

Have sanctions worked?

Both positions are held by serious analysts and both are partly right.

The failure case: Russia grew above 4% for two years under the most comprehensive sanctions regime ever imposed on a major economy. It continues to fund the war, recruit, and produce munitions. Energy still finds buyers. The shadow fleet moves oil. Sanctions imposed cost without changing behaviour.

The success case: the counterfactual is not "Russia unaffected" but "Russia with 40%+ oil and gas revenue share, unrestricted technology access, and no fiscal pressure." Growth forecasts near zero, a deficit exceeding plan by April, a Central Bank and Finance Ministry warning the President, and defence spending consuming two-thirds of quarterly revenue are all sanctions effects operating with a lag.

The honest synthesis: sanctions did not stop the war and did constrain the shape of it. Whether that constitutes success depends entirely on what was expected of them — and expectations in 2022 were set considerably higher than "impose gradual structural cost."

Key Judgements

# Judgement Confidence
1 Q1 2026 defence spending of $76.2bn equalled ~65% of federal revenues, up 30% year-on-year Confirmed
2 The Jan–April 2026 deficit of $79.3bn exceeded the entire 2025 deficit Confirmed
3 GDP growth forecasts were cut to 0.4% (MinEc) and 0.0–1.0% (Central Bank) Confirmed
4 84% of defence spending is classified; published figures understate actual outlays Confirmed
5 Belousov's stated 7.3% of GDP for 2025 exceeded the budget plan by ~RUB 2.1tn Confirmed
6 Planned 2026 military spending was reduced, not increased — real-terms growth moderated from 38% to 6.1% Confirmed
7 Russia can sustain the war at current intensity at 6.3–6.5% of GDP; escalation is a different matter Analysis — high
8 The economy is at full capacity; a significant spending increase is assessed as impossible Confirmed as published assessment
9 Defence output growth is decelerating from 20–30% to 5–7% Confirmed as projection
10 2023–24 growth was resource reallocation into consumed output, not productive expansion Analysis — high
11 The war economy problem has been deferred, not solved Analysis — high
12 Whether sanctions "worked" depends on expectations set in 2022, not on the observable effects Analysis — high

Indicators to Watch

  1. Full-year 2026 deficit against the $59.1bn plan. The April overrun is the strongest single signal on this file.
  2. National Wealth Fund liquid balance — the depletion clock.
  3. Any further VAT or broad tax increase, which would indicate revenue measures are exhausted.
  4. Oil and gas share of federal revenue below 30%.
  5. Defence output growth against the 5–7% projection.
  6. Whether 2027 budget planning increases or holds military spending — the clearest statement of Kremlin intent about war duration.
  7. Refinery damage and domestic fuel supply, the direct battlefield-to-fiscal link.
  8. Central Bank key rate movement, and whether inflation reaches the 4% target by mid-2026 as hoped.
  9. Any mobilisation decision, which would carry both a fiscal and a labour-market cost the current model avoids.

Sourcing and Methodology

Tier 1 to Tier 3: SIPRI, the Jamestown Foundation, the New Eurasian Strategies Centre, The Moscow Times, Reuters analysis, and Russian government forecasts and ministerial statements.

Russian fiscal data requires specific handling. The state does not publish full military expenditure; 84% is classified, and official statements have exceeded published plans. Figures here are stated with their source and basis, and conflicts between published budgets and ministerial disclosures are shown rather than reconciled. Dollar conversions of rouble figures vary with exchange rate assumptions and dates.

Russian government statements about the Russian economy are treated as claims by an interested party. Ukrainian and Western assessments of Russian capacity are likewise treated as interested. Where they converge, that convergence is noted.

This assessment describes published macroeconomic and budgetary data. It contains no sanctions-evasion detail and no operational content.

Principal references

Corrections policy — errors are corrected promptly with a notice appended. No silent edits, ever. Corrections to: intel@ragex.co

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