As Vladimir Putin’s war in Ukraine enters its fourth winter, Russians are increasingly feeling the economic consequences across various aspects of daily life. Regions in central and southern Russia now experience the proximity of conflict, with drones and occasionally missiles striking energy facilities and residential buildings. Air raid sirens sound almost nightly, serving as a constant reminder of how the war is drawing closer to home.
Beyond the front lines, economic pressures are spreading across the country, including in Moscow. Households are cutting back on food spending, while key industrial sectors such as steel, mining, and energy face mounting difficulties. The national economy, once buoyed by large-scale fiscal stimulus and high energy revenues, is now showing multiple signs of strain.
While the hardship faced by Russians does not compare to the devastation in Ukraine, and is unlikely to force Putin to end the war, it underscores the growing cost of his decision to launch a full-scale invasion in February 2022.
The U.S. is intensifying efforts to limit oil and gas revenues flowing to Moscow, part of a broader push under President Donald Trump’s administration to achieve a ceasefire. Momentum is building toward a potential agreement, with negotiations reportedly moving to Moscow and behind-the-scenes talks aiming to offer the Kremlin sanctions relief in exchange for concessions.
Alexander Gabuev, director of the Carnegie Russia and Eurasia Center in Berlin, stated: “Based on overall economic indicators, it would be better for Russia to stop the war now. But even if they wanted to, they must first see the edge of the cliff. Russia hasn’t reached that point yet.”
Without such realization, conditions for ordinary Russians are likely to worsen before any improvement can be expected. A 27-year-old events company manager from the Moscow region, who requested anonymity, noted that “prices are rising faster than wages.” She has adjusted her spending habits, buying fewer clothes and opting for local brands as imported goods have become prohibitively expensive.
This marks a sharp contrast to earlier phases of the war, when GDP growth was driven by military-related investments that boosted wages by nearly 20% in 2024, fueling consumer demand but also feeding inflation.
The Central Bank of Russia raised interest rates to a record 21% in October of the previous year to curb inflation and slow down an overheating economy. Even as borrowing costs have begun to ease, the delayed effects of tight monetary policy are becoming more apparent, revealing deeper structural imbalances in an economy reoriented toward wartime production while still supporting civilian sectors.
Inflation has dropped to around 6.8% by early November, but this is largely due to weakened consumer demand, according to a recent report by the Center for Macroeconomic Analysis and Short-Term Forecasting, led by the brother of Russia’s defense minister. Data from Sberbank’s real-time economic tracking platform, SberIndex, shows Russians are reducing food expenditures.
Denis, a 40-year-old manager from Tambov in central Russia, said the average weekly grocery bill has more than doubled in recent years. His family now buys less fruit and vegetables, reflecting broader trends in household budgeting.
Retail sector performance reveals deeper troubles. Milk, pork, buckwheat, and rice sales fell between 8% and 10% in September and October, according to Kommersant. X5 Group, Russia’s largest grocery chain, reported revenue growth in Q3, but this was primarily inflation-driven, while net income dropped nearly 20%, signaling weak demand and rising costs.
The retail landscape is undergoing radical transformation. Fashion retailers accounted for 45% of store closures in Q3, with nearly two-thirds of outlets shutting down, according to local media. State-owned Rossiyskaya Gazeta reported that electronics demand is at its lowest in 30 years, as consumers delay major purchases.
Car sales declined by about 25% in the first nine months of the year, affected by higher borrowing costs and increased government recycling fees that raised prices—especially for imported and electric vehicles—as authorities seek to boost budget revenues and support domestic automakers.
Ukrainian military actions have also had direct economic impacts. Ukrainian drones are increasingly targeting oil refineries and ports from the Black Sea to the Baltic, sometimes penetrating up to 2,000 miles into Russian territory, including Siberian sites, with limited ability to intercept them.
These attacks have exacerbated domestic fuel market instability, causing price spikes since late August. Although gasoline prices have slightly eased in November, they remain high, and some regions still face supply shortages.
Many analysts still project modest growth for this year and next, but the Moscow-based Strategic Research Center concluded on November 18 that “there is almost no chance left to avoid recession,” as output has declined in more than half of Russia’s economic sectors.
The steel industry is in crisis, with total consumption down 14% this year, according to Severstal PJSC, the country’s largest steel producer. Demand in construction fell 10%, while machinery and equipment demand dropped 32%. The coal mining sector faces its worst situation in a decade, with major companies cutting production.
The banking sector is not faring better. The share of non-performing corporate loans rose to 10.4% in Q2, amounting to 9.1 trillion rubles ($112 billion), while individual loan defaults reached 12%, according to the Central Bank of Russia’s September report.
Economic growth slowed to 0.6% in Q3, below expectations. The budget deficit reached 1.9% of GDP in October, and the Finance Ministry expects it to rise to 2.6% by year-end.
Oil and gas revenues, a critical income source, fell by more than 20% from January to October compared to the same period last year, totaling 7.5 trillion rubles, according to Bloomberg calculations based on Finance Ministry data. Lower oil prices, sanctions, and a strong ruble have reduced returns for domestic producers.
This decline preceded the U.S. decision in October to impose sanctions on Russia’s two largest oil companies, Rosneft and Lukoil, after growing frustration with Putin’s refusal to engage in peace efforts.
While such pressures are unlikely to alter Putin’s war objectives, he is actively working to prevent further U.S. economic pressure. In October, as Trump considered sending long-range Tomahawk missiles to Ukraine and publicly expressed frustration with the Russian leader, Putin initiated contact, offering to resume peace talks. Notably, Trump was encouraged to take this call by his special envoy, Steve Witkoff.
In the absence of a deal, Russian fuel shipments in the first half of November hit their lowest levels since the start of the invasion. Meanwhile, even Russia’s trade boom with China has stalled.
Oleg Buklemishev, head of the Economic Policy Research Center at Moscow’s Lomonosov State University, stated: “The immunity of the Russian economy has been severely weakened.” He added that while a systemic crisis may not occur in 2026, ongoing deterioration in economic conditions will persist.
With widening deficits, the government is increasing borrowing through costly domestic bond sales. VAT rates are set to rise next year and apply to a broader base, impacting small businesses and ultimately consumers. This is expected to add 1.2 trillion rubles to state revenues. Additionally, a new technology tax on electronic components and devices has been introduced, along with further increases in existing levies.
— news from \”asharqbusiness.com\”