WP: Trillions spent on war push Russia’s economy toward collapse

Russia’s war-driven economy, swollen by trillions of rubles in defence spending and payments to soldiers recruited for the front lines, is approaching a critical breaking point, according to officials and business figures cited by The Washington Post (WP).

Financial officials within the Russian government have warned President Vladimir Putin that the country could face an economic crisis within the next few months. A source in direct contact with those officials told the publication that the warnings are growing increasingly urgent, with some predicting the crisis could begin as early as this summer.

According to the officials, without further tax increases, Russia’s budget deficit will continue to widen as oil and gas revenues decline. At the same time, the banking system is under mounting strain due to high interest rates and a massive volume of loans issued to finance the war effort.

One Moscow businessman told WP that only “three to four months” remain before the crisis fully unfolds. He said inflation appears to be far higher than the officially reported 6 per cent, despite the Russian central bank maintaining its key interest rate at a record-high 16 per cent. The businessman also pointed to forced layoffs affecting thousands of workers and a surge in restaurant and bar closures across Moscow — the highest since the pandemic — as further warning signs.

After two years of rapid wartime growth, during which Russia’s gross domestic product expanded by more than 4 per cent annually, the economy has sharply slowed. Last year, growth fell to just 1 per cent. Of the country’s 28 civilian industrial sectors, 20 have entered decline. Businesses across the economy, from small firms to major corporations, are increasingly struggling to service debt.

Data from Russia’s central bank show that more than 10 trillion rubles in loans held by banks have become problematic. In February, experts at the Centre for Macroeconomic Analysis and Short-Term Forecasting warned that the country is already experiencing a hidden banking crisis.

Budget pressures are also intensifying. Despite two rounds of tax increases, Russia could face a massive budget deficit of around 10 trillion rubles this year, driven by reduced oil purchases by India and heavy price discounts of nearly $30 per barrel, according to internal government estimates referenced by WP. Covering the shortfall using the National Wealth Fund would require spending almost all of its available reserves — approximately 4.1 trillion rubles.

Additional risks may come from new European Union measures targeting Russia’s so-called shadow fleet, a source close to Russian diplomats told the newspaper. In January, 14 EU countries signed an agreement to coordinate actions against tankers operating under false flags, a move that could effectively restrict Russia’s access to the Baltic Sea — its main route for oil exports.

The European Union is also considering, as part of its 20th sanctions package, a complete ban on maritime shipments of Russian oil and related services. According to WP, such measures could threaten up to half of Russia’s oil exports.

“This is not only an economic threat, but also a political one — raising the question of how Russia can allow this without losing political credibility,” the diplomatic source said.

The source added that US President Donald Trump could introduce new energy sanctions if he believes that Russia is “sabotaging the peace process.”

By Tamilla Hasanova