Abstract
Putin has placed Russia’s economy on war mode, spending about 40% of the GDP on military related goods. Naturally, as all factors of production are focused on winning the war in Ukraine, there is less to spend on civilian goods. While there is more money in circulation due to increased government spending, inflation is climbing steadily, up to 20%. The effect is increased societal inequalities as government prioritize military goods over civilian goods. The scenario in Russia makes a few people big gainers and millions of people big losers. This is recipe for unrest and internal conflict, but Russians are famous for learned inertia. As 2035 approaches, will Putin be able to continue to beat multitude of economically marginalized Russians into line with the crack of whip? Will the technological gains of the war outstrip the losses and propel Russia to its Soviet era glory days?
Key words: Russia, Putin, war mode, civilian goods, military goods.
Introduction:
After the turbulent years of the 1917 Revolution, Vladimir Lenin (1917 – 1924), steadied the ship of the Russian state and sowed the communist seeds that would spread to the ends of the earth. However, Russia remained largely an agrarian society until his successor, Josef Stalin (1924 – 1953), began his socialist/communist – induced industrial revolution at great human cost (BBC, 2003). It was Stalin who molded the Soviet Union into a super power to rival the U.S. However, long before Stalin, in the days of the Romanov czars, Catherine II the Great (1762 – 1796), who considered herself an enlightenment thinker, made attempt to modernize Russia and rival Western European societies (Oldenbourg – Idalie, 2026). Yet, due to immobility of technology at the time, her efforts failed.
Nikita Khrushchev (1953 – 1964), continued to improve on Stalin’s achievements militarily but he gave a humane face to his policies and in the process raised the standard of living of the masses. Khrushchev’s effort to achieve a détente with the West and his criticism of Stalin’s brutal measures placed him at odds with hardliners within the Politburo until he was forced to step aside (Khrushchev, 1959).
When Leonid Brezhnev (1964 – 1982) mounted the saddle and decided to reverse Khrushchev’s benign policies, he reversed also the economic fortunes of the Soviet Union. Moscow’s slide to economic obscurity began during Brezhnev’s time.
His successors, Yuri Andropov (1982 – 1984), and Konstantin Chernenko (1984 – 1985), were too feeble and spent too little time in office to save a tottering giant with clay foot. It then fell upon Mikhail Gorbachev to attempt to heal the country, his reforms, “perestroika,” and “glasnost,” brought radical changes which caused the demise of the Soviet Union (Brown, 2017). Weaned of its 14 republics and communism, Russia stood alone, occupying three-quarter of the territory of defunct Soviet and fortified with nuclear stockpile (Clark, 2026). Bereaved of its federating republics and satellite states, Moscow staggered economically for about a decade but soon found new friends in the West and prospered.
Russia’s Economy under Boris Yeltsin and the Rise of Oligarchs
Boris Yeltsin (1991 – 1999) was Russia’s first President and benefactor of Vladimir Putin. Convinced that Russia could not continue with communism, Yeltsin appointed then 35-yr-old Russian capitalist experts Yegor Gaidar and Anatoly Chubais to implement free market reforms. Though cautioned by the specialists to employ a gradual approach to the transition from communism, Yeltsin felt there was no time to waste as hardliners were breathing down his neck.
In his calculation, the situation called for drastic measures irrespective of the consequence. His ensuing economic reforms leading to open market economy caused spiraling inflation up to 2000% within the first year, and loss of financial security for many Russians who relied on federal pensions for sustenance (Rosalsky, 2022). The suspension of state-regulated price controls in 1992 resulted in “shock therapy.”
Nearly half the population, about 75 million Russians fell into poverty as the gap between real wage and prices of civilian goods soared. Russia’s GDP contracted by about 40% from 1991 to 1998, from about $518 billion to $270.96 billion. The Asian economic crisis of 1997 further deepened Moscow’s woes as the price of oil, Russia’s main source of crucial foreign exchange, fell from about $17 per barrel in 1997 to about $10 in 1998 (Mabro, 2009). The result was economic collapse with the following catastrophic consequences: (1) the government failed to fulfil payment of its $40 billion short term bonds; (2) Russia’s currency, the ruble was devalued; (3) A moratorium was placed on repayments to external lenders; (4) the economic collapse, coupled with his failing health, forced Yeltsin to step aside (Berls, 2021).
Although suicide increased by about 60% during this period, it was not all gloom. While majority of Russians fell into poverty under Yeltsin, a few smart, and well connected individuals took advantage of the state’s ill-equipped and corrupt privatization exercise to acquire choice state assets for pittance.
The policies came under different heading at different times: (1) Voucher Privatization (1992 – 1994), allowed individuals with insider information to buy cheap government vouchers in exchange for shares in state–owned companies in lucrative sectors, such as oil and gas and solid minerals; and (2) Loans for shares (1995 – 1996), this was a scheme initiated by Yeltsin to raise fund for his reelection campaign in 1997, the policy allowed the government to borrow money from banks with shares in state-owned companies serving as collateral,
when government defaulted in payment, the shares became the properties of the individual bankers who brokered the deals. Approximately 70% of Russia’s economy was privatized in this manner and with it about 15000 state-owned businesses transferred to private entities (Rosalsky, 2022). This was how Boris Berezovsky, Vladimir Potanin, Mikhail Fridman, Mikhail Khodorkovsky, Vladimir Gusinsky, Roman Abramovich (former owner of Chelsea) and others made their fortunes at the expense of the state. Together, they are called Russian oligarchs and they have served Putin well. A few of them have also paid dearly for falling on the wrong side of Moscow’s maximum ruler.
Russia’s Economy Under Putin 1999 – 2008 – the Golden Decade
Putin inherited a failed economy from Yeltsin and to his credit, he proceeded to give Russians the best 10 years of their lives. Upon resumption, Putin took the following steps: (1) He renationalized state-owned companies that had been sold to the oligarchs in a buy-back deal; (2) the media was closely regulated; (3) the independence of the parliament was suspended and the institution subordinated to the president; (4) ascension into the office of regional governors was now by appointment by the president instead of election; (5) clamped down on the oligarchs, and in the process appointed his own men, relatives and associates from the military, into boards of renationalized state-owned companies, example is the appointment of Alexei Miller as head of Gazprom in 2001 and Mikhail Putin as deputy head in 2018; (6) simplified the tax system, imposing a flat 13% income tax with strict enforcement; and (7) Putin established a reserve fund to protect the economy from swings in the price of oil and gas, Russia’s major export.
An upward swing in the price of oil from $10 in 1999 to $150 in 2008 and prudent management by the finance minister Aleksey Kudrin ensured that there was enough fund to kick start the economy. Direct foreign investments (FDI) from the West poured in through oil and gas and manufacturing. Example is the Production Sharing Agreements between Russia and French oil company Total and American ExxonMobil. A steady FDI increase from the West amounted to about $74.8 billion per annum and in 2008, the total value of FDI from the West stood at about $491 billion. Moscow’s GDP grew by about 94% within the same period. This period witnessed a rise in the standard of living of Russians as real income climbed by 250%, real wages was tripled, poverty sliced by more than half and the middle class increased from about 15% in 1999 to 40% in 2008 (Ballard, 2018).
Throughout this period of prosperity, the unwritten pact between Putin and Russian citizens was carefully observed, the people stayed out of politics while Putin looked after the state and the interest of the citizens. The 2008 global financial crisis and its effects on Russia’s economy caused great strain and reversed some of the gains made in the golden decade,
Russians were economically exposed and vulnerable. Also, 2008 marked the end of Putin’s constitutionally allowed term limit. In a well-orchestrated move, Putin stepped back into the office of Prime Minister while Dmitry Medvedev was elected president, but Putin remained the power behind the Kremlin.
Dmitry Medvedev 2008 – 2012 – Economic Impacts on Russia
Medvedev came into office facing the headwinds of the 2008 global financial crisis and he took the following steps to steady the ship of the Russian state economically: (1) Russian government offered unsecured loans and other supports to big businesses, however, many smaller commercial ventures did not receive support and closed down; (2) the reserve fund was activated to support social services; (3) stronger fiscal measures were activated to prevent leakage; and (4) diversification from oil-dependent economy.
One of the hallmarks of Medvedev’s four-year rule was the Skolkovo Innovation Center, a technological hub fashioned after America’s Silicon Valley. However, it failed to meet the much vaunted “Russian Silicon Valley” target because of the following reasons: (1) brain drain as the best Russians hands left the country for opportunities in the West; (2) systemic corruption; (3) weak property right laws and enforcement (Vanteeva, 2016); (4) general absence of rule of law in corporate governance; and (5) high threshold for ease of doing business (Berls, 2021).
In spite of these short comings, Medvedev’s tenure is credited with the following positive economic impacts: (1) preparation for the groundwork for Russia’s ascension as member of the World Trade Organization in 2012; (2) prioritization, investment and modernization of the Global Navigation Satellite System (GLONASS), a Soviet-era project, however the mishaps with the project endangered the environment; and (3) stimulation of healthcare and pharmaceutical products.
Russia’s Economy under Putin: 2012 – 2024
By design which saw Medvedev rework the constitution, Putin returned as President in 2012 after a hotly disputed victory at the polls. From the widespread protests, it was obvious that this second coming did not receive the approval of majority of Russians and the economic effects that followed were even less favorable. The unwritten pact between Putin and the Russian public was severed, civil liberties withdrawn, ultranationalist ideology renewed, and hostility with the West unearthed. All these impacted negatively on Russia’s economy. Growth rate dropped to less than 2%, FDI began to shrink, up to 92% in 2015 after the annexation of Crimea, capital flight from Russia per annum amounted to about 4% of GDP, approximately $320 billion. In spite of half-hearted measure at diversification, Russia’s economy is still largely dependent on oil, and fall in oil prices coupled with sanctions further deepened economic challenges. The invasion of Ukraine in 2022 brought some new perspectives to Russia’s economic woes.
Russia’s Economy after Invasion of Ukraine
Putin has placed Russia’s economy on war mode, prioritizing military expenditure over spending on civilian goods. In 2025, Russia spent about $133.63 billion on the war in Ukraine representing about 82% of Russia’s defense budget and 40% of total government spending. Wages for the military have increased to twice the national average salary, about $2,407 for entry level soldiers compared to $837 for civilian equivalent (Kliszcz, 2025; Gabuev, 2025). Western sanctions have compelled Russia to sell its oil at discounted price.
For example, in 2025, Russia’s Brent oil was sold for $23 per barrel instead of the international market price of $36 per barrel. Buyers of Russia’s crude oil are also shrinking due to threat of secondary sanction by the West. India had to renegotiate its way out of additional 25% tariff imposed by Trump administration for buying Russia’s oil. Russia’s shadow fleet have also come under attack, further closing the net on Moscow’s finances.
A report by JP Morgan in the last quarter of 2025, stated that more than half of Russia’s oil, around 1.4 million barrel per day are unsold due Western sanctions on Rosneft and Lukoil, two Russian companies responsible for producing and distributing about half of Moscow’s export (Maltsev, 2025). Attempts to evade sanctions have also led to higher cost for procuring Western-made goods obtained through third party agents. Yet, Putin is condemned to prosecute the war to its logical conclusion as the outcome will define his legacy.
Projections for Russia’s Economy in 2035
Except Putin and Trump consummate their union and manage to cast the EU aside, a very unlikely scenario given the nearly century-old and intricate layers of interconnectedness between the transatlantic partners, Russia’s economic struggle will deepen.
Already several oil companies in Russia such as First Oil, Yangpur, Astrakhan Oil Company and NK Gorny have gone under due to insolvency (Barabaltchouk, 2025). This trend will continue. Russia has refused to implement progressive tax because Putin needs the support of his oligarchs to shore up his power base.
Faced with an aging workforce and low birth rate, the effects of the number of casualties in the Ukraine war will exert more economic strain. In less than five years, between 2015 and 2019, the population of persons within working age in Russia dropped by more than 4 million, from 85.4 million to 81.3 million. Add the nearly one million Russian casualties from the Ukraine war and number further diminishes. This trend will continue as 2035 approaches and Russia is increasingly unattractive to migrant workers.
However, the war economy presents some opportunity for Russia, as it focuses on developing a cutting edge military technology, especially fiber-optic drones (Kirichenko, 2025). This presents opportunities for new industries. Also, Russia is deepening regional networks as sanctions bite; between now and 2035, Moscow will consolidate its policies of selective engagement and open resistance (Savic, 2026). Russia also continue to deepen the cost of war for both for Ukraine and its Western allies by making Kyiv inhabitable and targeting Western assets. In 2025, 11 Western countries including the U.S. accused Russia of carrying out cyberattacks on different sectors of their economy (Clark, 2025). This trend will increase as 2035 approaches.
Conclusion
Russia’s hostility towards the West will increase in the coming years. Every economic blow against the West will be trumpeted in Moscow by Putin and his propaganda machine. Cyber-attacks, sabotage, and election inference will increase. Moscow’s success in its war against the West will depend on the effectiveness of Western response as a unit.
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