Russia faces Economic Strain as War costs Mount,Forcing Tax Hikes
Moscow - The Russian economy,previously buoyed by wartime spending,is showing significant signs of strain. For the first time in four years, the Kremlin is being compelled to modestly decrease its defence budget, though military and security investments will still consume a significant 8% of the nation’s Gross Domestic Product (GDP).
The war in Ukraine has already cost Russia an estimated €228 billion between 2022 and 2024,according to official data,and remains a central priority for the government. However,maintaining this level of expenditure is now forcing arduous economic choices.
Growth is slowing dramatically, projected to fall from 4.3% in 2024 to just 1% in 2025. Coupled with declining revenues, this slowdown is widening the budget deficit and prompting a reversal of previous promises. President Vladimir Putin is now authorizing a tax increase, raising the Value Added Tax (VAT) on numerous goods from 20% to 22%.
Adding to the economic pressure is a decline in oil revenues. While export volumes have remained relatively stable due to efforts to circumvent Western sanctions, revenues are down 19% year-on-year for the first seven months of 2025. This situation is expected to worsen following the announcement on october 22nd of new U.S. sanctions targeting two major Russian oil companies: state-owned Rosneft and privately-held Lukoil. These two companies collectively account for nearly half of russia’s total oil exports.
The combination of increased military spending,slowing growth,and diminishing oil income paints a challenging economic picture for Russia as the conflict in Ukraine continues.
