By Sultan Musayev | 2025-11-19

Russia's wartime spending spree is finally hitting a wall. After years of pouring record sums into the invasion of Ukraine, the Kremlin is confronting a budget so overstretched that even defense -- once untouchable -- is slated for cuts.

Unlike budgets in previous years, the draft federal budget for 2026 does not increase spending on "national defense." Before the invasion of Ukraine, about 3 trillion to 3.6 trillion RUB ($37-45 billion) a year, or roughly 15% of the budget, went to the Russian military. Amid the war, those figures have quadrupled, according to iStories, an independent Russian publication.

This year, the Kremlin allocated 13.5 trillion RUB (about $167 billion) for the war, accounting for 32% of all federal spending. In 2026, however, funding for the military and the defense industry is set to fall by 4.4%. Adjusted for inflation, that amounts to a real cut of about 10%.

Analysts say Russia's war economy has reached its ceiling and can no longer sustain further increases in funding for the conflict in Ukraine.

The catastrophe

Almas Chukin, an economist and managing partner at Visor Kazakhstan, called Russia's economic situation a "catastrophe." He told Kontur the war has drained the economy and noted that the federal budget deficit already exceeds 4 trillion RUB (about $49 billion) and may widen.

Analysts say Russia absorbed a major shock in 2025 when oil prices fell and the ruble strengthened, eroding oil and gas revenues. The Finance Ministry revised the budget in April after the drop in hydrocarbon income but raised spending instead of cutting it.

At the Eastern Economic Forum in September, President Vladimir Putin defended higher expenditures, saying Russia needs more money for infrastructure, education, health care -- and the "special military operation," according to Interfax.

iStories reported in October that Putin has been spending "like crazy" on the war. The outlet said the 2026 draft budget shows that the government's wartime spending surge is ending and that officials "can no longer throw money around like it did in 2022–2025."

Shrinking reserves in the National Welfare Fund add to the strain. The Finance Ministry said the fund held 8.4 trillion RUB (about $103 billion) in liquid assets at the start of 2022, but Russia has spent about two-thirds of that on the war.

The downturn is hitting households. According to an October Gallup survey, 31% of Russians in 2025 said they lacked enough money for food, up from 13% in 2014. Another 39% said the country's economic situation had worsened.

Tightening belts

Russians face more belt-tightening as the government moves to fix its budget shortfall by shifting costs onto consumers. The Kremlin plans to raise the value-added tax from 20% to 22%, a move expected to bring in at least 1.2 trillion RUB (about $15 billion), or nearly 40% of state revenues. As iStories reported, "Russians will have to chip in for the war, paying the state an increased share of every purchase."

The government also plans to increase gambling taxes and vehicle recycling fees. Analysts expect faster hikes in excise taxes on "harmful" goods and a new anti-smuggling tax on imported products. Smaller firms that were previously exempt from VAT will have to pay it after the income threshold for small businesses is cut by five-sixths.

Even as taxes rise, the 2026 draft budget slashes spending across key sectors. Allocations drop 33% for aviation, 24% to 30% for agriculture, 27% for the "Long and Active Life" national project, 50% for clinic modernization, 25% for emergency care and 66% for patient rehabilitation.

Funding also falls 10% for regional and local roads and 50% for export support. The government plans to cut the "Domestic Solutions" IT initiative by 66%, reduce the state energy program by 22% and trim unemployment programs by 20%.

Western sanctions continue to squeeze the economy.

After repeated efforts by US President Donald Trump to reach a settlement with Vladimir Putin, the US Treasury in October imposed sanctions on Rosneft, Lukoil and 34 subsidiaries. Later that month, Reuters reported that major Chinese state-owned companies halted purchases of Russian oil, and India sharply reduced its imports.

The pressure is expected to deepen. Ukrainian President Volodymyr Zelenskyy said on October 31 that Russian analysts forecast a 2026 budget deficit of $100 billion to $130 billion - up to 10.5 trillion RUB ($129.4 billion).

Arman Shuraev, a civic leader and former head of Kazakhstan's Khabar and KTK TV channels, told Kontur the war itself is steadily eroding Russia's economic base.

He pointed to repeated Ukrainian drone strikes on oil refineries deep inside Russia, which he says undermine production capacity, cut export revenues and create fuel shortages.

"The war economy in Putin's Russia won't last long," Shuraev said.