Economic Strain in Russia Amid Ongoing Ukraine Conflict

The ongoing war in Ukraine, initiated by President Vladimir Putin in February 2022, is increasingly affecting the Russian economy. Regions in central and southern Russia are experiencing direct impacts from military actions, including drone and missile strikes on energy sites and residential areas. As air raid sirens become a nightly occurrence, the economic toll is becoming evident across the country, including in Moscow. Households are cutting back on spending, and key industries such as steel, mining, and energy are showing signs of distress.

Despite a reported inflation rate of approximately 6.8% in early November, this figure is largely attributed to declining consumer demand rather than economic recovery. The average weekly grocery bill has more than doubled in recent years, forcing families to reduce their purchases of essential items. For instance, sales of staple goods like milk and rice have dropped by 8-10% in recent months. The retail sector is undergoing significant changes, with fashion retailers accounting for 45% of store closures in the third quarter of 2025. Additionally, the electronics market is experiencing its steepest decline in demand in three decades.

The steel industry is particularly hard-hit, with consumption down 14% this year. The machinery sector has seen a 32% decline in demand, while coal mining faces its worst crisis in a decade. The banking sector is also struggling, with troubled corporate debt rising to 10.4% in the second quarter of 2025. Overall, economic growth slowed to 0.6% in the third quarter, and the budget deficit is projected to reach 2.6% of GDP by year-end.

In response to these economic challenges, the Russian government is increasing debt through domestic sales and plans to introduce new taxes, including a value-added tax and a technology levy. Analysts suggest that without a de-escalation of military operations, the economy will continue to deteriorate. Oleg Buklemishev from the Center for Economic Policy Research stated, “If Russian authorities want the economy to keep functioning normally, special military operations must be wound down.”

Critics argue that the Russian government has not fully acknowledged the need for a strategic shift away from military engagement. Alexander Gabuev from the Carnegie Russia Eurasia Center noted that while it may be in Russia's best interest to end the war, the leadership does not yet perceive the economic brink they are approaching.

• “Based on the overall economic indicators, it would be in Russia’s best interest to stop the war now,” — Alexander Gabuev, Director, Carnegie Russia Eurasia Center

• “The average bill for weekly grocery purchases has more than doubled in recent years,” — Denis, Manager, Tambov

• “A systemic crisis may not occur in 2026, but a steady deterioration in economic conditions will continue.” — Oleg Buklemishev, Head, Center for Economic Policy Research, Lomonosov Moscow State University

The situation remains precarious, with the potential for further economic decline unless significant changes are made in both military and economic strategies.