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Russia's War Plans Face a Harsh Economic Reality

As the war in Ukraine stretches into another year, military analysts warn that Russia may be preparing for a major summer offensive to solidify its territorial grip in the south and east of Ukraine. However, behind the scenes, Russia’s war-driven economy is beginning to buckle under the strain — and it could be this financial fatigue, rather than diplomacy, that finally compels Moscow to come to the negotiating table.

Mounting Military Pressures

Despite signaling no real appetite for peace, Russia has engaged in what experts call “performative ceasefires,” likely designed to deflect international scrutiny. But insiders suggest President Vladimir Putin is still betting on a decisive military advantage to bolster Russia’s bargaining power in any future negotiations.

According to Jack Watling, Senior Research Fellow in Land Warfare at the UK’s Royal United Services Institute (RUSI), Russia’s Soviet-era weapons stockpiles — including tanks and artillery — are projected to be exhausted by mid-autumn 2025. This means the country will have to rely entirely on fresh production, a costly and time-consuming endeavor.

“Russia can sustain its recruitment model for maybe two more campaign seasons,” Watling explained, “but pushing offensives beyond 2026 will demand mass mobilization, a move fraught with economic and political risks.”

Economic Warning Signs Flashing Red

The signs of economic fatigue are becoming increasingly visible. Russia’s central bank has kept interest rates at a punishing 21% to fight inflation, which still stood at 10.2% in April 2025. The bank predicts inflation won’t return to its 4% target until 2026, requiring a prolonged period of restrictive monetary policy.

Meanwhile, GDP growth has nosedived. After growing 4.5% year-on-year in Q4 2024, Russia’s GDP slowed to just 1.4% in Q1 2025. “This sharp drop suggests the economy may be heading toward a harder landing than expected,” said Liam Peach, Senior Emerging Markets Economist at Capital Economics. He warned of a possible technical recession in the first half of 2025.

Even the Russian Economic Development Ministry has revised its 2025 growth forecast downward, from 4.3% to 2.5%.

Defense Sector Keeps the Lights On

The only sectors still showing strength are those directly tied to war production. Manufacturing, particularly in defense and military-adjacent industries, is being propped up by massive state spending. However, this artificial growth isn’t sustainable.

“Russia’s economy isn’t demobilizing — it’s simply losing steam,” said Alexander Kolyandr, Senior Fellow at the Center for European Policy Analysis (CEPA). He pointed to declining consumer spending, industrial output, and reduced borrowing as further evidence of systemic slowdown. “A downturn could easily become a free fall if policymakers mishandle inflation or if global energy prices continue to fall.”

Sanctions Bite Harder, Oil Revenues Shrink

Russia’s financial woes are being compounded by declining oil prices and enhanced enforcement of sanctions against its “shadow fleet” — vessels used to secretly ship oil and dodge international restrictions.

As of mid-May 2025, Brent crude futures for July delivery were at $64.94 per barrel, and U.S. West Texas Intermediate (WTI) stood at $61.65. Russia’s Urals crude dropped to $59.97 — a sharp fall from $70.04 at the start of the year.

In April, Russia’s Finance Ministry slashed its oil price forecast for the year from $69.70 to $56 per barrel and predicted oil and gas revenues would be 24% lower than initially estimated. It also raised the expected 2025 budget deficit to 1.7% of GDP from 0.5%.

“These declining revenues will severely limit Russia’s capacity to offer lucrative bonuses to military recruits or fund new weapon production,” said RUSI’s Watling. “With Ukraine targeting Russian infrastructure in deep-strike campaigns and the West clamping down on illicit oil trade, Moscow’s war chest is steadily drying up.”

Is a Diplomatic Shift on the Horizon?

So far, Russia’s resistance to peace talks has appeared unwavering. But Watling believes that if Ukraine can continue to hold key defensive positions — particularly in Donetsk — through the end of 2025, and if Western allies maintain economic pressure, then the cost of war may finally outweigh the benefits for Moscow.

“Under those conditions, Russia might transition from symbolic negotiations to genuine diplomatic engagement,” he concluded.

Final Thoughts

While battlefield dynamics still play a key role in shaping the future of the Russia-Ukraine conflict, the quiet but powerful force of economic deterioration could ultimately become the deciding factor. With inflation running hot, oil revenues dropping, and defense spending stretched thin, the Kremlin may soon find itself forced to choose between economic collapse or meaningful negotiation.