Russia’s Economy Shows Resilience Despite War, Western Sanctions

Russia’s economy is facing mounting headwinds in 2025, from stubborn inflation and a widening budget deficit to declining revenues from oil and natural gas. 

Yet despite these pressures, analysts say the economic strain is unlikely to force President Vladimir Putin to the negotiating table over the war in Ukraine anytime soon.

Economic growth has slowed sharply since the start of the year, weighed down by rising prices and heavy state spending driven largely by the war effort. Military expenditures have ballooned, contributing significantly to the budget shortfall, while lower energy revenues have reduced one of the Kremlin’s traditional financial cushions. Still, the broader economic picture suggests endurance rather than imminent collapse.

According to analysts, Western sanctions have not inflicted sufficient damage on Russia’s energy-dependent economy to alter Moscow’s strategic calculations. Richard Connolly, a senior fellow in international security at a leading UK-based research institute, argues that as long as Russia can continue producing and selling oil at acceptable prices, the state retains enough financial flexibility to sustain the war.

“The situation is far from ideal for Russia,” Connolly notes, “but it is stable enough to prevent economic factors from becoming decisive in Putin’s thinking about the conflict.”

That assessment is echoed by a group of exiled Russian economists who oppose the Kremlin. They suggest the war of attrition could continue even longer than many in the West anticipate, as Russia’s leadership faces few binding economic constraints on its ability to finance military operations.

Some experts caution against drawing premature historical comparisons. Maria Snegovaya, a Russia specialist, points out that past precedents show Moscow accepting unfavorable peace settlements only after deep and prolonged economic crises, such as at the end of World War I or during the final years of the Soviet war in Afghanistan.

“The current situation is still very far from that point,” she argues, adding that reaching such a stage would require far greater economic pressure sustained over a much longer period.

What has changed, however, is the fading impact of the initial economic stimulus generated by surging military spending. As that boost dissipates, the Kremlin increasingly shifts the financial burden of the war onto Russian society through inflation and reduced civilian investment.

Inflation remains one of the most visible challenges. Yet economists note that Russian consumers have long been accustomed to rising prices since the collapse of the Soviet Union, reducing the political shock of higher inflation compared with other economies.

The International Monetary Fund projects average annual inflation in Russia at 7.6% this year, down from 9.5% in 2024, still elevated, but no longer accelerating at last year’s pace. The central bank has responded cautiously, trimming interest rates as price pressures show signs of easing.

NATO Secretary General Mark Rutte said earlier this month that Russia is spending around 40% of its state budget on what he described as aggression, one of several estimates highlighting the scale of military expenditure. Supporting that view, a report released in April by the Stockholm International Peace Research Institute found that Russian military spending rose 38% last year compared with 2023.