With Donald Trump's return to the US presidency, understanding the true state of Russia's war economy is paramount. Trump's advisors advocate for a negotiated peace in Ukraine, prioritising an end to the conflict. This implies a belief in Russia's capacity to prolong the war indefinitely. However, a closer examination reveals a different picture: Russia's apparent economic resilience is masking significant vulnerabilities.
The Russian economy has defied many predictions, continuing to export substantial quantities of oil, gas, and other commodities despite Western sanctions. This resilience is partly due to sanctions evasion and loopholes, deliberately built into the sanctions regime by Western policymakers, and shrewd macroeconomic management, particularly under Central Bank Governor Elvira Nabiullina. Superficially, the economic indicators are impressive. GDP growth of 3.6% in 2023 is projected to reach 3.9% in 2024. Unemployment has plummeted from approximately 4.4% pre-war to 2.4% in September. Furthermore, Russia has significantly expanded its armed forces and defence production, adding over 500,000 workers to the defence industry, approximately 180,000 to the armed forces, and thousands more to paramilitary and private military organisations. Artillery shell production has reportedly tripled to 3 million per year, and the manufacture of glide bombs and drones is scaling up.
Despite these achievements, Russia's war economy is nearing a critical impasse. Beneath the surface of seemingly strong official data, severe economic strains are becoming increasingly evident. Despite workforce expansion, Russia cannot replace weapons lost on the battlefield at the current rate. Already, approximately half of Russia's artillery shells used in Ukraine are sourced from North Korea. By the latter half of 2025, severe weapons shortages are projected across multiple categories.
A key bottleneck lies in the replacement of large-calibre cannons. Open-source intelligence suggests monthly losses of over 100 tanks and 220 artillery pieces. Producing these requires specialist rotary forges, with Russia possessing only two, each capable of producing around 10 barrels per month. This represents a stark deficit against the monthly losses of approximately 320 barrels. Furthermore, Russia lacks the capacity to build additional forges, and neither North Korea nor Iran possess sufficient stockpiles of suitable replacements. Only significant Chinese assistance could alleviate this critical shortage.
To compensate, Russia has depleted its inherited Soviet-era stockpiles. Combining battlefield losses, stockpile depletion, and current production rates, Russia is projected to run out of cannon barrels sometime in 2025. Similar trends are observed with other weaponry; for example, the monthly loss of around 155 infantry fighting vehicles far exceeds the estimated monthly production rate of 17. Even the increased artillery shell production of 3 million per year falls short of consumption estimates.
Russia's ability to wage war is further constrained by a near-full employment economy, creating fierce competition for workers between the defence industry and the armed forces. The military is offering substantial signing bonuses and increased pay, forcing defence producers to increase wages dramatically, contributing to inflation, which reached 8.68% in October.
This situation creates a paradox: the factors limiting Russia's war effort also hinder its ability to achieve peace. The seemingly robust economy is fuelled by unsustainable military Keynesianism, with most new jobs tied to the military sector and offering little benefit to the civilian economy, which struggles to attract workers.
Defence spending has officially surged to 7% of GDP, projected to consume over 41% of the state budget next year. The true figure is significantly higher when accounting for internal security forces and private military companies. Reducing defence spending would inevitably trigger a recession, potentially threatening the regime. Maintaining high levels of spending risks economic asphyxiation.
A third option, historically employed by states like Napoleonic France and Saddam Husseinâs Iraq, is the use of military force to acquire economic resources. Russia could exploit its military to extract resources from neighbouring states, such as the substantial offshore gas reserves in Ukraine and Georgia's EEZs, or renew aggression to control Ukraine's resources. Coercion through threats could also be employed to pressure sanctions relief or the reopening of energy pipelines.
In conclusion, Russia's war economy is unsustainable in its current form. While its military is not invincible, Western resolve and support for Ukraine are crucial to ensure its defeat. However, the cessation of hostilities will not eliminate Western challenges with Russia; its over-sized military sector incentivizes aggressive resource extraction. Therefore, far-sighted policymakers must address these future threats alongside the immediate challenges of the ongoing conflict.