How Russia Put Its Future at Risk by Remaking Its Economy for War

About half of the country’s federal budget goes toward the fight in Ukraine, money that does little to support its long-term development.Russian troops during a rehearsal of the Victory Day military parade in Moscow, last year.Credit...Kirill Kudryavtsev/Agence France-Presse — Getty ImagesFeb. 24, 2026, 12:01 a.m. ETFor four years, President Vladimir V. Putin of Russia has made the war against Ukraine the lodestar of his every move.The single-minded approach has helped Mr. Putin salvage what began as a disastrous invasion, get his troops back on the front foot and dictate demands in peace talks mediated by Washington.But his stubborn pursuit of the war has come at a huge cost. It has killed or wounded as many as 1.2 million Russians, by some estimates, while reordering Russia’s economy and society in ways that many economists believe jeopardize the nation’s future.“You have lots of money spent on tanks, shells, bombs, military benefits and other things — no long-lasting value, nothing that works on what we call development,” said Alexandra Prokopenko, a former Russian central bank official who is now a fellow at the Carnegie Russia Eurasia Center in Berlin.Even before the war, talk of economic stagnation clouded Russia’s long-term prospects. Its economy, dominated by natural resource extraction, had been slow to diversify. A post-Soviet collapse in birthrates had led to a shrinking population. Freedoms were disappearing under growing authoritarianism.Moscow’s all-out invasion of Ukraine, which began on Feb. 24, 2022, has amplified all of these challenges and added new ones, as the Kremlin redirects vast state resources into the war effort and pursues a broader militarization of society.Nearly 40 percent of Russia’s federal budget is now devoted to the military and security. Another 9 percent goes to interest payments on the deficit that Mr. Putin has decided to run to finance the war, a departure from years of tight fiscal discipline.Russia is quickly burning through its National Wealth Fund, a rainy-day financial cushion that Mr. Putin had built up using oil and gas revenues. The fund’s liquid reserves were worth about $55 billion this month, down from $113 billion before the war.ImagePresident Vladimir V. Putin during a wreath-laying ceremony at the Tomb of the Unknown Soldier in Moscow on Monday. His pursuit of the war in Ukraine has come at a huge cost for Russia’s economy.Credit...Pool photo by Maxim ShipenkovWhile China and the United States invest heavily in artificial intelligence and other cutting-edge technologies, Russia has focused on weapons. On global lists of innovation in A.I., Russia is a laggard.“The war is really eating up a lot of resources,” said Janis Kluge, a Russia expert at the German Institute for International and Security Affairs in Berlin. “If it hadn’t started, they would have had so much money to spend, simply.”In addition to being a money pit, the war has shattered Russia’s remaining ties with the West and made it less attractive for investors. Foreign direct investment has cratered. Domestic investment has been crimped by high interest rates aimed at taming inflation, in an economy pumped up by heavy military spending.The war has also exacerbated Russia’s demographic crisis. As many as 325,000 troops have died on the battlefield, according to a recent report by the Center for Strategic and International Studies in Washington. Some studies predict that the Russian population could, in pessimistic scenarios, drop below 100 million by 2100, down from a prewar population of roughly 145 million.The country has suffered a brain drain, with hundreds of thousands of Russians fleeing abroad as the Kremlin uses wartime legal powers to crack down on dissent. Since the start of the war, at least 4,029 people have been targeted in politically motivated criminal cases in Russia and the occupied territories of Ukraine, according to Political Prisoners Memorial, a Russian human rights group. The war has weighed in particular on younger Russians. In a survey last fall, Chronicles, an independent Russian polling start-up, found that 59 percent of Russians aged 18 to 29 would support a decision to withdraw from Ukraine without achieving Mr. Putin’s stated goals, compared to 42 percent of all Russians who were surveyed. Nearly half of the young Russians polled saw recent moves to curb the Telegram messaging app as a restriction on their freedom of speech.ImageMoscow’s Red Square last week. Russia’s economy is facing strains as it descends from a boom that was fueled by increased military spending.Credit...Hector Retamal/Agence France-Presse — Getty ImagesStefan Meister, a Russia expert at the German Council on Foreign Relations in Berlin, said that Mr. Putin had not set forth a vision for Russia’s long-term prosperity in an era of vast technological change.Instead, Mr. Meister said, Mr. Putin has focused on war objectives that involve reinstating Russia’s power over lands that it once controlled.“He has no vision for the future but only a vision for the past,” Mr. Meister said. “This war is exactly what that represents, and it is very costly for the country.”Russia’s huge military spending in the first three years of the war led to an economic boom that defied Western expectations of a collapse in the face of international sanctions.Now, the economy is beginning to descend from that high as it faces state spending cutbacks and big strains in the labor market. Russia’s oil and gas revenues dropped by almost a quarter last year, as global prices fell and sanctions imposed discounts on Russian crude.While the downturn is not yet severe enough to force Mr. Putin to end the war, Moscow has raised taxes and taken other measures to shore up its finances.Russia’s economic future depends largely on what terms Moscow can negotiate in any peace deal and how effectively it can reintegrate the nation into the global economy.As security costs and debt payments consume half of Russia’s federal budget, much of the rest is spent on vast state social obligations, including pensions, health care and education. Ms. Prokopenko, the former Russian central bank official, said that effectively “all expenditures which are not related to the military or supporting social life are on hold.”ImageA sign promoting contract military service in the Russian army’s unmanned systems units, in St. Petersburg, last week. Businesses related to the military have boomed, but other parts of the economy are struggling. Credit...Dmitri Lovetsky/Associated PressShe said that a great deal of Russia’s resources, reserves and entrepreneurial talent could have been used for future development but were focused instead on maintaining an illusion that it was “business as usual.” One example is apps that were developed to allow Russians to transfer money and spend it in cryptocurrency after the country was cut off from the international banking system.“Lots of innovations, what we see now in Russian IT, are devoted to how to circumvent sanctions or how to bring our consumption of stuff or our services back to the habit of prewar levels,” Ms. Prokopenko said. “Instead of thinking about something new, they spend time and resources on how to replace what has already been done but is not available now.”The war has also divided Russia’s economy. Businesses related to the military or that profited from the departure of foreign companies have boomed. The rest of Russia is mostly struggling, as the gas, car and coal industries collapse, manufacturing activity drops and small businesses try to cope with higher taxes and costly loans.Russians collecting pensions or working in struggling sectors are feeling pinched by rising prices and utility bills.Mr. Putin has presented the war as an ultimate defense of Russian sovereignty, but he has now found himself more dependent than ever on China as a buyer of oil and a supplier of technology. He is also looking to the United States to broker a peace deal that he can sell at home as a victory.Those dependencies, combined with Russia’s distraction with the war, have contributed to an erosion of Russian influence around the globe, from Central Asia and the Caucasus to the Middle East and Latin America.Talks between Russian officials and the Trump administration have made clear that Moscow sees a renewed relationship with the United States and the lifting of American sanctions as a road to economic revival. Much of that could focus on Russia’s natural resources production, which has lagged throughout the war.It is unclear whether Western businesses will return to Russia if the war ends. Moscow has seized the Russian operations of a number of Western companies during the conflict, spooking many in the business community.Even if Russia manages to secure broad sanctions relief in peace negotiations, unwinding the war economy that Moscow has built will be a delicate task.“This is a structural change of the Russian economy, of the design of the Russian economy, which is not easy to turn back,” Ms. Prokopenko said. “It is not impossible, but not easy.”ImageFlags fly over graves, including those of soldiers killed in Ukraine, at a cemetery in the Moscow region, on Monday. As many as 325,000 Russian troops have died on the battlefield, according to some estimates.Credit...Ramil Sitdikov/ReutersAlina Lobzina and Oleg Matsnev contributed reporting.Paul Sonne is an international correspondent, focusing on Russia and the varied impacts of President Vladimir V. Putin’s domestic and foreign policies, with a focus on the war against Ukraine.SKIP