Russia came out of its parliamentary election with Putin stronger on paper and the country considerably harder to read. United Russia now controls 349 of the State Duma’s 450 seats, its largest majority ever, and some 50 Ukraine war veterans are entering parliament. There is the anticipated analysis of documented election manipulation, and indeed, the Kremlin was under pressure to think outside the box amid public war fatigue. But Putin is not losing control, and Moscow is not desperate. The election showed how impossible it has become to challenge the Kremlin through the Russian political system. But economically, it’s a different story.
Moscow expects growth of only around 0.6% this year; capital investment is falling, and interest rates remain at 14%. The federal deficit reached 5.8 trillion rubles through August, and oil and gas revenues were down 16.7%. More than half of senior Russian business executives surveyed by RBC expect conditions to deteriorate through year-end.
The war against Ukraine may be the coffer that breaks the Kremlin’s back, but not just yet. Unemployment remains extremely low, real wages are rising, and high oil prices could add as much as 1 trillion rubles to the liquid portion of the National Wealth Fund this year. Moscow has the money to keep fighting, in other words, and its new budget makes clear that it intends to. Military spending rises 27% next year to 17.1 trillion rubles, paid for with higher taxes, more borrowing and cuts elsewhere.
And…
Russia came out of its parliamentary election with Putin stronger on paper and the country considerably harder to read. United Russia now controls 349 of the State Duma’s 450 seats, its largest majority ever, and some 50 Ukraine war veterans are entering parliament. There is the anticipated analysis of documented election manipulation, and indeed, the Kremlin was under pressure to think outside the box amid public war fatigue. But Putin is not losing control, and Moscow is not desperate. The election showed how impossible it has become to challenge the Kremlin through the Russian political system. But economically, it’s a different story.
Moscow expects growth of only around 0.6% this year; capital investment is falling, and interest rates remain at 14%. The federal deficit reached 5.8 trillion rubles through August, and oil and gas revenues were down 16.7%. More than half of senior Russian business executives surveyed by RBC expect conditions to deteriorate through year-end.
The war against Ukraine may be the coffer that breaks the Kremlin’s back, but not just yet. Unemployment remains extremely low, real wages are rising, and high oil prices could add as much as 1 trillion rubles to the liquid portion of the National Wealth Fund this year. Moscow has the money to keep fighting, in other words, and its new budget makes clear that it intends to. Military spending rises 27% next year to 17.1 trillion rubles, paid for with higher taxes, more borrowing and cuts elsewhere.
And Moscow is putting a tighter squeeze on foreign assets and data, as well. Putin seized Nestlé and Auchan (French retail group) during the election and Germany’s Metro wholesaler days later. On September 28, he restricted access to Russian oil production, refining and transportation data after Ukrainian strikes hit refineries around Moscow, Samara and Bashkortostan. The attacks have contributed to domestic fuel shortages, and Moscow has extended restrictions on diesel exports to keep more supply at home. Restricting the data now also makes it considerably harder to determine how much damage Ukraine is actually doing to Russia’s energy system.
But it can’t last forever. The pressure on Russia is considerably more serious than slow GDP growth. The economy is expected to expand just 0.5% this year, investment has now fallen for five consecutive quarters, and corporate profits dropped 13.3% in the first half, with one in three Russian companies operating at a loss. Only 9% of major businesses surveyed by the Russian Union of Industrialists and Entrepreneurs said they had the resources to participate in Putin’s proposed new investment cycle, while 52% expect the economy to deteriorate through year-end. Even VTB chief Andrei Kostin warned that the government’s seizure of some 7.6 trillion rubles in assets since 2022 is making Russian businesses afraid to invest.
And the war is becoming more expensive. Moscow has roughly doubled its expected 2026 budget deficit to more than 3% of GDP, and Ukrainian strikes have added a physical cost that Moscow can’t always shield consumers from. Shutting the Moscow refinery this month, contributing to domestic fuel shortages and forcing the government to extend its diesel export ban.
The pressure is also reaching NATO’s eastern border. On Wednesday, Russia threatened to use “the entire arsenal of forces and capabilities at its disposal, including nuclear weapons” if NATO tried to isolate Kaliningrad, Russia’s heavily militarized Baltic exclave wedged between NATO members Poland and Lithuania. A Russian drone had struck less than two kilometers from the Polish border days earlier, prompting Warsaw to loosen its rules for shooting down approaching aircraft. Estonia has separately accused Russian intelligence of ordering an arson attack against a defense company supplying Ukraine.
Unlike the war in Ukraine or actually going to war with NATO, making nuclear threats is free. NATO sees no sign of an imminent Russian attack, and Moscow has shown no indication that it wants to open another conventional front. Nuclear threats, drones near NATO territory and alleged sabotage give Russia considerably cheaper ways to increase the pressure.
Washington is harder to read. Trump signed sweeping new Russia sanctions legislation on September 18 that gives him considerably more power to go after Russian energy revenues and the countries still buying Russian oil. But he has also complained that Ukrainian refinery strikes are pushing up diesel prices, while Putin envoy Kirill Dmitriev was in Washington this week meeting Treasury and Energy officials about possible U.S.-Russia energy projects after the war. There are even reported discussions over sanctions relief in exchange for Moscow releasing political prisoners. Former U.S. sanctions coordinator Daniel Fried says Trump now has the tools to squeeze Russian oil revenues but is sending mixed messages about whether he intends to use them. For Putin, that leaves Washington looking considerably less hostile than Europe: Trump can tighten the screws on Russian oil tomorrow, but he is still talking business with Moscow today.