Economic Pressure on Russia
The pressure of the war in Ukraine is beginning to take its toll on Russian President Vladimir Putin and his political decision-makers in the Kremlin. The budget design for 2026 is expected to be presented to the parliament on September 29, with only minor changes likely after that point. Putin has agreed to the main details by then.
Budget Deficit and Tax Increases
On Wednesday, September 25, the government announced plans to increase the value-added tax by 20% in order to contain the deficit. This move goes against Putin’s previous promise not to increase taxes before 2030. The budget deficit in Russia has grown to around 4.2 trillion rubles, approximately 50 billion US dollars, which is around 1.9% of the country’s gross domestic product (GDP). This is almost four times the original goal of 0.5% for 2025. The Ministry of Finance expects the deficit to reach 5.7 trillion rubles by the end of the year.
Impact on Non-Security Expenses
Non-security expenses, including some social expenses, are expected to be cut to make up for the revenue shortfall. Elina Ribakova, an expert in the Russian economy, expects Moscow to continue its established pattern of maintaining high military spending by making cuts elsewhere. "The consequences are the same as we have seen since 2014," she said. "That means: everything else is shortened, the military spending."
Economic Difficulties and Fuel Crisis
Russia’s economy has been flashing red for a while, with a continued decline in oil and gas revenue. The rising oil prices and new buyers in China and India meant that Russian energy revenue rose in 2022 and remained strong in 2023, despite western sanctions and EU dependency. However, a falling oil price, a stronger ruble, attacks on refineries, and the persistent effects of sanctions have broken off the most important source of income in the Kremlin. State oil and gas revenues will fall by around 23% in September compared to the previous year, indicating a dark economic outlook.
Defense Expenses and Budget Cuts
Defense expenses have been more than quadrupled since 2021 and total around 16 trillion rubles in June 2025. Chris Weafer, a financial analyst, says that the budget is "not sustainable" and that if it is not significantly withdrawn in the next few years, including military spending, "this whole narrative is threatening how stable Russia is and how the economy is okay and everything is not affected and everything is great." He believes that Putin and the Kremlin are increasingly open to the idea that a peace agreement will soon be reached due to growing economic pressure.
Secondary Sanctions
In view of the tribulations of the Russian economy, the pressure on the EU and the United States is growing to significantly strengthen the existing sanctions in pursuit of successful peace negotiations. The United States has thought to place secondary sanctions on countries such as India and China that buy large amounts of Russian oil. Such a step could seriously increase the economic challenges of Moscow. Ribakova believes that the time is now to increase the pressure on Moscow with more sanctions, as it is clear that the economy is as vulnerable as it has been in the long term. However, she points out that strongly sanctioned regimes in Venezuela, North Korea, and Iran, despite economic misfortune, remain in power.
Potential Impact of Sanctions
Weafer believes that secondary sanctions, in particular, could quickly force Moscow to the table. If the United States set secondary sanctions for the buyers of Russian oil, it would be very important, he argues. "For example, if you were taking another 20-30% of the income from oil exports, the budget would be in a non-sustainable area and force massive changes to the domestic dynamics."
