Russia is grappling with significant economic challenges as inflation escalates and fuel shortages emerge, impacting daily life for many citizens. In recent weeks, gasoline prices in Moscow surged by over 30 percent, climbing from 45 rubles to 60 rubles per liter. This increase has left many, including Said, a taxi driver and Tajik migrant, struggling to make ends meet. He reports that his daily earnings now cover only three-quarters of his previous income, making it difficult to pay rent and fuel costs.
Concerns about a potential fuel crisis are mounting in Russia. A prominent Moscow tabloid warned last month that the country is on the brink of a full-scale fuel shortage, with several regions reporting similar price hikes and shortages. The root cause has been linked to Ukraine’s targeted drone strikes, which have reportedly knocked out about 17 percent of Russia’s refining capacity.
As the economy faces these pressures, the central bank is working to control soaring inflation, which has reached nearly 10 percent. The current situation marks a stark contrast to the years of rapid growth fueled by government spending on the war in Ukraine. According to economist Igor Lipsits, the ongoing crisis is intensifying, and it is becoming increasingly difficult for the government to conceal the economic downturn from the public.
Despite the troubling signs, some economists view the slowdown as expected rather than alarming. Laura Solanko, an economist at the Bank of Finland’s Institute for Emerging Economies, describes the current economic situation as a “soft landing” rather than an acute crisis. Yet, the reality remains that Russia’s economy has been under strain, characterized by high defense spending and a distortion of labor markets due to increased wages and benefits aimed at recruiting soldiers.
The Kremlin’s defense and security expenditures reached a staggering 41 percent of total spending in 2025, the highest level since the Cold War. This surge in military-related spending has had a cascading effect on the economy, pushing inflation higher and prompting the central bank to raise interest rates to cool down the economy. As a result, Russia’s GDP contracted by 0.6 percent in the first quarter of this year compared to the previous quarter, marking the first downturn since 2022.
Warnings of a slowdown have come from various officials, including Finance Minister Anton Siluanov, who projected a meager 1.5 percent growth for the economy. Maksim Reshetnikov, the Economics Minister, cautioned that the economy is “cooling down faster than expected.” German Gref, head of Sberbank, has expressed concerns about possible stagnation, underscoring the urgency of the situation.
While President Vladimir Putin has attempted to reassure the public, stating, “I’m certain that in the end we’ll succeed in resolving the issues,” the reality of potential stagnation looms large. Economic commentator Bogdan Bakaleyko predicted that stagnation could lead to a recession and rising unemployment, which may compel more individuals to enlist in the military for the benefits offered by the Defense Ministry.
The Russian government faces mounting pressure on its budget, with a deficit projected to reach 5 billion rubles (approximately $62 billion) in 2025. Despite this financial strain, there are no indications that the Kremlin intends to reduce military spending. Reports from Reuters suggest that tax increases may be unavoidable to sustain wartime expenditures.
According to the Peterson Institute for International Economics, Russia’s ability to maintain its wartime economy hinges on oil prices and the impact of sanctions. Should the country experience setbacks on the battlefield while facing resource constraints, there may be a need for adjustments in military strategy or a willingness to engage in negotiations.
Economist Vladislav Zhukovsky forecasts a potential increase in the value-added tax, which would further burden the population and likely lead to a significant rise in prices, potentially by 10-15 percent. Such a move would undermine the purchasing power of Russian citizens, exacerbating the already challenging economic conditions.
As Russia navigates this complex economic landscape, the implications for both the domestic population and the ongoing conflict in Ukraine remain profound. The government’s emphasis on military spending amid economic challenges may shape the country’s trajectory in the months to come.
