Putin has run out of moves
The broad consensus among Russia-watchers is that the country is facing a prolonged bout of stagflation. Growth this year is unlikely to exceed 1%, and inflation is still stuck at 6% (or more). Moreover, the most promising option for reviving the economy is the least likely to be pursued, because it requires President Vladimir Putin's willingness to end the war in Ukraine. The downside risks are…
Russian President Vladimir Putin appears to have exhausted his strategic options, according to analysts and observers. The country is grappling with prolonged stagflation, with limited growth and persistently high inflation. The most viable way to stimulate the economy—ending the war in Ukraine—remains unlikely, as President Putin has shown little inclination to do so.
Russia's military advancement in Ukraine has been minimal, and the nation cannot afford further military spending without risking financial instability. Additionally, Ukraine's drone attacks are causing significant damage to Russian infrastructure, including oil and gas facilities and e-commerce warehouses, which has led to public discontent over the war.
One of Putin's most pressing vulnerabilities is the extent of public spending. The 2026 budget allocated $183 billion to national security and defense, similar to the previous year. However, Putin's willingness to increase expenditures for a decisive victory remains uncertain. In 2025, Russia's budget deficit rose to 2.8% of GDP, surpassing initial plans, and it is unlikely that the government can continue to offset this imbalance through tax hikes.
Russia's financial situation is precarious, with limited sources of government financing and a central bank interest rate of 14%, making it challenging to service the country's public debt. The government has resorted to issuing bonds to state-owned banks and borrowing from them, a tactic that could contribute to the discrepancy between official inflation rates and the public's expectations. The Kremlin's current fiscal policy is likely to result in higher inflation, a potential financial crisis, or a combination of both.
Despite these challenges, Putin seems determined to continue his current fiscal policy. Russia is set to hold parliamentary elections in September, and while the opposition is likely to be weak, speculation persists that Putin may order a military mobilization shortly after. This decision could prove disastrous for the economy, as Russia already faces a shortage of skilled workers. A mobilization would further exacerbate the labor shortage, leading to significant economic repercussions.
Putin's predicament is further complicated by the high number of war casualties, with an estimated 500,000 Russian soldiers killed in Ukraine, compared to the 15,000 who died in the Soviet-era war in Afghanistan. The number of war veterans suffering from post-traumatic stress disorder is expected to be significantly higher. This cohort of veterans is likely to be one of Putin's greatest concerns, and the risk of unrest they pose makes him unlikely to negotiate peace.
However, ending the conflict is not an option either, as Russia lacks the technological edge to defeat Ukraine. Ukraine's freer economy has allowed it to deploy advanced technologies like drones, while Russia's arms industry remains under the control of a state-owned company led by Sergei Chemezov. The middle class in Russia is facing increasing economic hardships due to rising prices and shortages of essential commodities, such as fuel.
Written by urgent.news from Kyiv Independent's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
