Russian economy stalled by war and Western sanctions

The third quarter of 2025 revealed a worrying picture for the Russian economy, with almost zero growth, according to the state statistics agency Rosstat. Military spending, initially a supportive factor, began to weigh on the country's finances, while inflation continued to rise, severely straining the civilian sector.

This context has led to the growth of the gross domestic product (GDP) to stop, with an increase of only 0,6% compared to the same period of the previous year.

The consequences of military spending

Initially, the massive increase in military spending following the invasion of Ukraine provided some support to the Russian economy. However, this approach led to high inflation, currently around 8%, which made loans more expensive and hindered economic growth. Russian companies have complained about high financing costs, saying these costs stifle expansion and innovation.

The problem of tax pressure

In response to the economic situation, the Russian government is trying to fill a budget deficit of approximately $50 billion. To address this crisis, the Ministry of Finance has suggested increasing thevalue added tax (VAT) from 20% to 22%, a move that could further burden citizens and businesses. This attempt to rebalance the budget is not without risks, as it could worsen the overall economic situation.

Impact of Western sanctions

Sanctions imposed by Western countries, particularly in the energy sector, have created further difficulties for the Russian economy. Recently, the United States adopted tough measures against major Russian oil producers, Rosneft and Lukoil. These sanctions are aimed at reducing Russia's access to global energy markets and putting pressure on Moscow to end the conflict in Ukraine.

The repercussions on the energy sector

Falling oil prices have posed a significant challenge, as energy exports account for nearly a fifth of Russia's public revenues. The energy sector, essential to the Russian economy, is facing unprecedented challenges due to Ukrainian attacks on oil infrastructure. In 2025 alone, approximately 160 extraction and refining facilities were affected, drastically reducing Russia's export capacity.

The future of the Russian economy

With the economy stalled and inflation still high, Russia's future appears uncertain. Businesses continue to struggle with high borrowing costs, while the government struggles to maintain economic stability amid growing internal and external pressure. The situation is further complicated by the ongoing need for funding to support the war effort in Ukraine.

In conclusion, as the Russian government attempts to navigate a period of severe crisis, the combination of high military spending, inflation, and Western sanctions is creating a challenging environment for economic growth. Russia's long-term strategy will be crucial in determining whether it can recover or remain in a spiral of economic decline.