2nd June 2026
Vladimir Putin has been able to afford the war because Russia entered it with several advantages.
Russia had large oil and gas revenues, significant financial reserves, low government debt, a state-controlled banking system, and the ability to redirect much of the economy toward military production.
However, analysts increasingly argue that Russia is now paying a much higher economic price than it was in the first years of the war.
How Russia has financed the war
Energy exports
The single biggest factor remains oil and gas.
Even under sanctions, Russia has continued selling large amounts of energy, particularly to:
China
India
Turkey
Russia often sells at a discount, but the volumes remain substantial. These revenues have continued to fund the state budget and military spending.
Sovereign wealth and reserves
Russia accumulated large reserves during years of high oil prices before the war.
Some of these reserves were frozen by Western sanctions, but Moscow still had access to parts of its sovereign wealth funds and domestic financial resources. Analysts describe this as a major reason the Russian economy did not collapse in 2022–24.
Turning the economy into a war economy
A huge amount of government spending has been redirected into:
Weapons production.
Ammunition.
Military wages.
Defence industries.
This has actually boosted measured GDP because factories are producing more military goods. Some economists describe this as a form of "military Keynesianism" where war spending itself supports economic activity.
Why analysts think the strain is growing
The important point is that Russia's economy has not collapsed, but many analysts argue it is becoming increasingly distorted.
1. Huge portions of the budget now go to war
Recent estimates suggest defence and security spending account for around 40–45% of Russian federal spending, far higher than before the invasion.
That means less money is available for:
Infrastructure.
Education.
Healthcare.
Civilian investment.
Analysts increasingly describe Russia as prioritising war over long-term development.
2. Labour shortages
One of the biggest problems is workers.
Russia faces shortages because of:
Military mobilisation.
Casualties.
Emigration.
Demographic decline.
Unemployment is extremely low, which sounds positive, but economists warn it means factories cannot easily find additional workers. Labour shortages are now viewed as one of the main constraints on growth.
3. High inflation
Russia has struggled with persistent inflation.
To control prices, the Russian central bank pushed interest rates to extremely high levels, reaching 21% before later cuts. Even after reductions, rates remain very high by international standards.
High rates help fight inflation but create new problems:
More expensive borrowing.
Lower business investment.
Pressure on mortgages and loans.
4. Budget deficits are increasing
Russia is now spending more than originally planned on the war.
Recent reports indicate large budget overruns and growing deficits, forcing the government to consider spending cuts elsewhere and higher taxes.
5. Sanctions are causing long-term damage
Sanctions did not produce the rapid collapse some predicted.
Instead, analysts increasingly describe them as causing a slow erosion of Russia's economic capacity.
Problems include:
Reduced access to advanced technology.
More expensive imports.
Difficulty obtaining industrial components.
Reduced foreign investment.
Higher costs throughout the economy.
Why Russia has survived longer than many expected
Many Western forecasts in 2022 assumed sanctions alone would cripple the Russian economy.
That did not happen because Russia:
Redirected trade toward Asia.
Increased commerce with China.
Developed alternative payment systems.
Expanded domestic military production.
Benefited from periods of high energy prices.
The result is an economy that remains functional but is increasingly dependent on state spending and war-related activity.
What analysts worry about most now
The concern is less about sudden collapse and more about long-term exhaustion.
Recent forecasts show Russian growth slowing sharply, with some official projections now close to stagnation.
Many economists argue Russia faces a combination of:
Slowing growth.
Labour shortages.
Persistent inflation.
High interest rates.
Falling civilian investment.
Rising military costs.
For now, Russia can still finance the war. The bigger question analysts are asking is whether it can continue doing so for years without causing deeper damage to living standards, infrastructure, industry and future economic growth. Increasingly, the view is that Russia is not running out of money immediately, but it is consuming more and more of its economic future to sustain the war effort.