Russia’s strong economic growth, primarily tied to the war effort, now appears to be a thing of the past. For the first time in four years, the Kremlin was forced to slightly reduce its defense spending the portion devoted to this, including security investment, is still at 8% of gross domestic product (GDP), and this figure is still very large. Therefore, the war, which according to available official data, will cost 228 billion euros between 2022 and 2024, remains a priority, but at the cost of painful sacrifices. In the context of a sharp growth slowdown, down from 4.3% in 2024 to an estimated 1% in 2025, and falling revenues, the budget deficit is dangerously widening, forcing Vladimir Putin to renege on his promise not to raise taxes – VAT on many products will increase from 20% to 22%.
Room for maneuver is getting narrower due to reduced oil revenues. If export volumes remained stable thanks to the circumvention of Western sanctions, oil revenues fell by 19% year-on-year during the first seven months of 2025. The situation was not expected to improve when the United States announced, on October 22, sanctions against two Russian oil companies: the state group Rosneft and the private company Lukoil, which represents almost half of Russia’s oil exports.
