Russia’s war machine facing significant funding squeeze

Russia is likely experiencing a recession, with a national economy 1.5% smaller today than it was in February 2022, finds a new report from LSE IDEAS, London School of Economics and Political Science.

The paper, produced in collaboration with Ukrainian Industry Expertise for the PeaceRep programme, will be published on 2nd December and offers a comprehensive survey of the Russian economy’s current health.

While conventional wisdom sees Russia as holding the stronger position as talks aimed at ending the war progress, these findings show that Russia lacks sources of government deficit financing that are non-inflationary, and its economy is facing steep inflationary pressures.

The authors estimate that inflation is likely running at approximately double official estimates over the course of the full-scale invasion, leading to a significant downgrade in reported GDP growth.

Russia has run down reserves in its sovereign wealth fund to finance the war, and the latest oil sanctions significantly impact the economy’s capacity to generate external revenues. The war has also driven a wedge in living standards, dramatically improving incomes for 20% of Russians at the expense of the large majority.

The authors argue that Russia should not be treated as a “metaphysical entity” that is uniquely capable of overcoming the hardnosed realities of its economic position, no matter the circumstances.

Dr Volodymyr Vlasiuk, Director of Ukrainian Industry Expertise and one of the report’s authors, says:

“It is highly likely that the Russian economy is smaller today than it was in February 2022. Our research shows why the official rate of inflation looks suspect. Our alternative estimate of inflation means that Russian GDP should be downgraded, exposing the significant costs that the war has imposed on the Russian economy and the limits of its use of military Keynesianism.”

Dr Luke Cooper, Associate Professorial Research Fellow in International Relations and Director of PeaceRep’s Ukraine Programme, also a report author, says:

“Sanctions are having a cumulative and escalating impact on Russia’s ability to finance the war. Russia is in effect having to choose between the wellbeing of the large majority of its population that are seeing no benefit from fighting this war of aggression and the regime’s imperialist ambitions in Ukraine.

“The Kremlin now appears to be walking back some of its goals, like insisting on a Ukrainian withdrawal from Kherson and Zaporizhzhia oblasts, despite its momentum on the battlefield. This may be revealing of these economic challenges. It might be a sign that the regime is cognisant of the costs and risks of the war and believes that its ties to the Trump administration can ensure any deal is structured to favour its interests.”

A copy of the full report, Against the Clock: Why Russia’s war economy is running out of time, is accessible via this link:https://peacerep.org/wp-content/uploads/2025/11/Against-the-...

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For more information, or to speak with the report authors, contact Jamie Hose at BlueSky Education on jamie@bluesky-pr.com, or call +44 (0)1582 790 706.