In this pool photo distributed by Russian state agency Sputnik, Russian President Vladimir Putin meets with the Moscow establishment leadership of the Russian-controlled region of Zaporizhzhya region at the Kremlin in Moscow on July 20, 2026.
Alexander Kazakov AFP | Getty Images
After four and a half years of all-out war with Ukraine, Russia has become a two-tier economy.
“If you’re lucky and you’re employed by a tank manufacturer, everything’s fine. If you’re not, you’re probably in trouble,” Alex Colliandre, European director at consulting firm Eurasia Group, told CNBC.
Russia’s wartime economy has come into further focus in recent weeks with long-range drone attacks by Ukraine on refineries and distribution warehouses.
Recent data shows growth is even slower than expected, but analysts say this masks problems such as the Kremlin’s reliance on military spending, higher taxes and subsidized bank loans.
But they question whether this will prompt Russia to abandon the war. Indeed, Kolyandr warned that the economic downturn could prompt President Vladimir Putin to escalate the conflict.
“If I were President Putin, which is not acceptable, I would decide that it is in my interest to escalate now and end the war on my terms, rather than wait until the future when I run out of money,” Kolyandr said.
The Russian Embassy in London and the Russian Foreign Ministry did not immediately respond to CNBC’s requests for comment.
Kolyandr said the Kremlin could use “bookkeeping acrobatics” to make ends meet, but economic problems “have not gone away and are still deepening.”
He added: “It’s already starting to happen through inflation, a slowdown in the non-military economy, rising interest rates, etc.”
Two prominent indicators of the Russian economy
Russia’s economy returned to growth in the April-June period for the first time since 2023. Official data released this week showed the country’s gross domestic product (GDP) rose 1.3% in the second quarter from a year earlier, with GDP expanding by 0.6% in the first half of the year. The second quarter figures exceeded government and central bank expectations.
Data suggests that government spending on the industrial-military complex and recent increases in oil and gas prices are helping to prop up Russia’s economy during the war.
But Charles Litchfield, director of economic forecasting and analysis at the Atlantic Council Geoeconomics Center, said the best indicators to understand what’s going on are budget deficits and inflation.
The logo of Alfa Bank, a private Russian financial institution, is seen on a building behind the Revolutionary Militia, part of a huge monument to Soviet founder Vladimir Lenin in Moscow, June 5, 2026.
Alexander Nemenov | AFP | Getty Images
“We are on track to double our deficit in 2025, which was already double that in 2024,” Lichfield said, highlighting the country’s declining energy revenues despite a rise in fossil fuel prices in recent months.
Oil and gas revenue in the first half of 2026 was 64% of the same period two years ago. Sustained Ukrainian drone attacks hit Russian oil refineries, and tougher Western sanctions, including lower European Union oil price caps and measures targeting enablers of Russia’s shadow fleet, are beginning to have an impact.
“In terms of inflation, at the end of last year we were able to bring inflation down essentially to our target of 4%, which was a significant achievement given the inflationary pressures at home and abroad, but it doesn’t look like it will last for long,” Litchfield said.
What Russians’ cookie purchases tell us about the economy
The country’s largest retailer said earlier this year that people were increasingly switching to lower-priced store-brand foods.
“We recently noticed that cookie consumption has increased by almost 2.5 times,” X5 Group President Ekaterina Lovacheva told RBC News in April, according to a translation by the Moscow Times. “It’s sweet and a bit of a luxury, but it’s cheaper than chocolate and other sweets.”
Asked what steps the Kremlin could take to alleviate the situation, Litchfield said the Russian government could tax oil and gas companies more than current tax laws allow, seek to borrow money internationally or mobilize half of the central bank reserves remaining beyond Western sanctions.
In addition to the approximately $300 billion frozen since the start of the war, the Russian Central Bank is estimated to hold approximately $300 billion in reserves within Russia or in non-sanctioned jurisdictions. Litchfield said while the money could technically be used to fill fiscal gaps, it could undermine confidence in the central bank’s efforts to fight inflation.
Litchfield said that despite the pressures Russia is facing, he does not expect Russia to end the war for economic reasons.
Russia’s economy is unlikely to decide the Ukraine war
Elina Rybakova, a senior fellow at the Peterson Institute for International Economics, also said it was unlikely that the Russian economy would be forced to end the war, given the boost it receives from rising oil prices.
“The situation is bound to get even more dire,” Rybakova told CNBC in a phone interview. “If we were told oil prices would be $35 or $40 next year, that might be the case. But at this point, that’s unlikely, especially given the war between Israel, the US and Iran.”
People line up to refuel their cars at a Lukoil gas station in Moscow on June 30, 2026.
Igor Ivanko | AFP | Getty Images
Rybakova said the sharp drop in oil prices in January and February and the fact that the Russian government was talking about a review of the 2026 budget even though the year had just started was a different story, suggesting serious problems.
She added that Putin had “staken so much money” in the war that he “feels like we have to keep it going.”
