Economic Attrition
The war of budgets, sanctions, energy strikes and the shadow fleet — how each side tries to outlast the other economically.
Economic Attrition — by category
GDP & Growth
📉 0.6–1.0% declining GDP growth collapsed from 4.3% (2024) to ~0.6% (2025). IMF forecasts 1.0% for 2026. The wartime stimulus from defense spending is exhausted. Non-military sectors are stagnating. The Russian Academy of Sciences projects 0.7% for 2025 and 1.4% for 2026, with no return to pre-war growth rates before 2028.
Defense Spending
🛡️ 7.3% of GDP critical Actual defense spending reached 7.3% of GDP in 2025 ($198B), far above the official 13.5T ruble budget. Defense + security = 38% of all federal spending. Even the defense industry is slowing: weapons production growth declining from 20-30% annually to 5-7% in 2026 due to labor shortages and component sanctions.
Oil & Gas Revenue
🛢️ 22% of budget declining Oil/gas now just 22% of federal revenue, down from 35%+ pre-war. Urals crude trading at $14+ discount to Brent; late-2025 sanctions pushed it below $40/barrel. Shadow fleet under pressure — drone struck tanker Elbus off Turkey. Refinery strikes forced ~40% of capacity offline at peak. Revenue shortfall of ~$46B in 2025.
Inflation & Interest Rates
💸 16% key rate critical Central Bank key rate at 16%, among highest globally. Inflation running above 8% annualized. VAT increased from 20% to 22% in Jan 2026. Corporate income tax raised from 20% to 25%. Sberbank CEO said investment won’t revive until rates drop below 12%. High rates strangle civilian lending and housing.
Budget Deficit
📊 ~2% of GDP worsening Projected 1.6% of GDP for 2026, but actual deficits have consistently exceeded plans since 2022. 7 consecutive years of deficits around 2%+ of GDP. National Wealth Fund largely depleted — liquid assets already used for 2024-25 gaps. Debt servicing costs doubled from 0.9% of GDP (2021) to ~2% (2026). Cut off from international borrowing by sanctions.
Labor Market
👷 Critical shortage critical Russia faces severe labor shortages, especially in technical fields. ~1.2M military casualties have removed working-age men from the economy. Defense sector absorbing skilled workers from civilian industries. Immigration from Central Asia declining. Education system being reformed to fill defense vacancies, causing public concern over quality.
Technology & Sanctions
🚫 Accelerating decline declining Sanctions are accelerating technological aging of capital goods. No globally competitive technology firms remain. Dependence on Chinese imports for semiconductors and machine tools growing. Western export restrictions make direct imports impossible — raising costs via intermediaries. Russia experiencing ‘reverse industrialization’: high-tech giving way to labor-intensive, low-productivity sectors.
Sovereign Wealth Fund
🏦 Largely depleted critical National Wealth Fund was 10% of GDP in 2021 (small by petro-state standards — Norway’s is 400% of GDP). Most liquid assets already used to cover 2024-25 deficits. Assets primarily invested in domestic corporates and banks. China has refused to provide loans or open yuan-denominated bond markets to Russia. No external lender of last resort.
Timeline
Full-scale invasion; the Kyiv gambit fails
Russia attacks on multiple axes toward Kyiv, Kharkiv and the south, betting on a decapitation in days. The airborne assault on Hostomel is contained and the Kyiv thrust stalls in the suburbs — the war's opening bet on a quick collapse is lost in a week.
Kyiv repulse; Bucha exposed
Russia abandons the northern front; Ukrainian forces recover Bucha and Irpin and document mass killings of civilians. The war's character — and its diplomatic ceiling — is set: it shifts decisively to the Donbas and the south.
Moskva sunk
Ukraine strikes and sinks the Black Sea Fleet flagship Moskva with domestically built Neptune missiles — the largest warship lost in combat since WWII and the start of Russia's gradual eviction from the western Black Sea.
Mariupol falls; Azovstal surrenders
After a months-long siege that flattens the city, the last defenders in the Azovstal steelworks surrender. Russia secures a land corridor to Crimea — its most durable strategic gain of the war.
Kharkiv breakthrough
A rapid Ukrainian offensive collapses thinly held Russian lines east of Kharkiv, retaking thousands of square kilometers in days and triggering Moscow's 'partial mobilization' and sham annexations.
Kherson liberated
Russia withdraws from the only regional capital it had captured, ceding the west bank of the Dnipro. The front then hardens along the river and across the south for the winter.
The Bakhmut meat grinder
The longest and bloodiest battle of the war: Wagner-led assaults take a ruined Bakhmut by May 2023 at catastrophic cost, with roughly 20,000 Wagner fighters reported killed for a town of marginal operational value.
The Prigozhin mutiny
Wagner's armed march toward Moscow halts in a brokered deal; Prigozhin dies in an August plane crash widely read as retribution. The Russian command structure is shaken but, tellingly, does not break.
The counteroffensive that didn't break through
Ukraine's much-anticipated southern push fails to penetrate the dense Surovikin minefields and defensive belts. The front largely freezes, and the war's center of gravity shifts back to attrition and Western aid politics.
Avdiivka falls; Ukraine takes Kursk
Russia captures Avdiivka in February after a costly envelopment; in August Ukraine mounts a surprise cross-border incursion into Russia's Kursk region, seizing ground and a bargaining chip it holds into 2025.
The deep-strike and shadow-fleet war
Long-range Ukrainian drones systematically degrade Russian refining and export capacity, while Western sanctions and Russia's sanctions-evading 'shadow fleet' make the economic rear a primary front in its own right.
Pokrovsk contested
Russia claims the Donbas logistics hub of Pokrovsk after months of grinding assaults; Ukraine disputes full control. The gain is measured in a single town for a season of casualties.
Fifth year: attrition without resolution
A roughly 1,000-km front shifts meter by meter as cheap drones dominate the battlefield and both economies strain. Combined casualties are estimated to approach two million, with no negotiated settlement and no decisive military path in view.