Russia’s War Economy in November 2025: Mobilised, Muddling Through, and Becoming More Costly

Russia enters November 2025 with an economy that is unmistakably on a war footing: re-directed towards armaments, propped up by energy revenues routed through a sprawling maritime workaround, and held together by tight monetary policy and administrative controls. The model has not collapsed; nor is it healthy. It is an economy that can finance and equip a long war—just not cheaply, and at growing cost to the civilian sector and to future growth.

The fiscal-military state

Independent estimates of the 2025 federal budget point to military expenditure in the order of 15.5 trillion roubles—roughly 7.2 per cent of GDP—alongside a further rise in the adjacent “national security and law-enforcement” line, which covers the domestic architecture of repression and militarised policing. Together, these categories absorb close to two-fifths of all federal spending, a level unseen since the late Soviet period.

The corollary is structural red ink. Through the first three quarters the federal budget swung into deficit despite windfall taxes and higher VAT. From January to August 2025, the budget deficit reached 4.2 trillion roubles, or about 1.9 per cent of GDP. Analysts warn that full-year borrowing needs could be materially larger if energy receipts disappoint. The Bank of Russia has leaned harder on domestic bond markets while continuing to run down liquid portions of the National Wealth Fund. 

Growth has down-shifted; overheating has cooled — but not vanished

After two years of war-stimulated output, headline growth is fading. According to recent data, Russia’s GDP grew just 1.1 per cent year-on-year in Q2 2025. The IMF in October trimmed its full-year 2025 real-GDP forecast to around 0.6 per cent. 

Inflation remains elevated by pre-war standards. As of late October, the central bank indicated year-end CPI (consumer price index - a measure of inflation for consumer goods) could come in at 6.5–7.0 per cent. Reported monthly CPI for October stood around 8.0 per cent year-on-year. That inflation rate is high, especially in a war economy where supply-side bottlenecks and imported input pressures are persistent.

Labour: the binding constraint

The tightest bottleneck is people. Official unemployment runs near record lows (approx. 2.1–2.2 per cent late summer into September), but that masks a shrunken labour pool, mobilisation, and a shift of workers into defence plants with wage premiums and state orders. The labour minister has acknowledged acute short-falls; independent trackers project further tightening through the decade as demographics bite. The result is rising unit labour costs, patchy productivity, and chronic hiring difficulties in civilian services and construction.

Industry and re-tooling for war

Industrial output has been re-weighted towards munitions, armour, drones, and electronic warfare systems, supported by priority credit lines, procurement guarantees, and import-substitution programmes. This keeps assembly lines busy, but it also diverts machinery, metals, and skilled technicians from civilian producers.

Analysts warn of a “crowding out” dynamic: the defence complex grows while the tradable civilian base stagnates under high rates, uncertain inputs, and sanctions-compliance risks. Even Russian-leaning assessments concede a slower industrial expansion in 2025 than in the wartime boom of 2023–24. 

External accounts: thinner cushions

The current-account surplus — Russia’s macro shock-absorber — has narrowed sharply. In Q2 2025 the surplus was only US$7.3 billion, down from US$17.7 billion in Q2 2024. Through January-August the surplus stood at about US$22.2 billion. A thinner current account makes fiscal gaps harder to finance without rouble weakness or deeper domestic borrowing.

In the energy sector, export revenues are under pressure. The International Energy Agency reported that in September 2025 Russia’s crude and oil-product export revenues were US$13.35 billion, down from US$13.58 billion in August. This reflects both lower prices (exacerbated by sanctions-related discounts) and a steep drop in product exports.

Energy revenues and the “shadow fleet”

War finance still leans on hydrocarbons, but the channels are more expensive and fragile. Russia moves much of her crude via an ageing “shadow fleet” using opaque ownership, alternative insurance, and ship-to-ship transfers to skirt G7/EU restrictions. European measures since mid-2025 have expanded vessel black-lists, service bans, and (crucially) re-insurance prohibitions. Industry trackers still see around 3.7 million barrels per day of seaborne crude flows, but with rising compliance frictions and episodic detentions. Each enforcement turn widens discounts to Brent and erodes net-backs.

Policy-simulations suggest that a stricter price-cap—say US$30 per barrel—would cut Russian oil revenue materially versus the status quo, underscoring how dependent the budget remains on the effectiveness of sanctions enforcement rather than mere legal architecture.

Trade re-orientation and technology choke-points

Russia’s trade has pivoted decisively to China and a ring of Eurasian and Gulf intermediaries. This keeps consumer goods and many industrial inputs flowing under “parallel import” schemes; but access to cutting-edge semiconductors, specialised machine-tools and advanced software remains constrained, expensive, and unreliable. Export-control updates in late 2024 and 2025 broadened tooling and software restrictions; EU guidance in October tightened rules on dual-use and refined-product circumvention. The cumulative effect is not a halt, but persistent frictions, higher costs and slower diffusion of frontier technology into Russian industry. 

What this means for war sustainability

Taken together, these strands describe a war economy that is sustainable in the narrow sense—able to pay soldiers, replenish munitions, and keep equipment-factories humming—but at a rising marginal cost:

• Fiscal trade-offs are intensifying: guns before butter, with welfare, health and infrastructure squeezed to preserve defence allocations and domestic security. Debt issuance is climbing even as the sovereign’s liquid buffers shrink.

  
  

• Inflation and high-rates suppress private investment outside the defence sector; when rates fall, inflation risks re-accelerating. The key rate at 16.50 per cent is still extremely high for civilian sectors. 

  
  

• Labour scarcity is now a hard ceiling on growth and industrial throughput. Additional mobilisation or a longer war further cannibalises the civilian skilled base.

  
  

• Energy dependence has not gone away; it has been re-routed. A tougher, better-coordinated enforcement regime on shipping, insurance and pricing would quickly transmit into the budget.

  
  

• Technology constraints slow adaptation and quality-improvements in weapons and industry—even if quantity targets are met. The longer sanctions last, the more compounding these supply-side losses become.

The November 2025 bottom line

As of November 2025 Russia’s war economy is neither collapsing nor comfortable. She can fund and fight, but only by taxing the future: running larger structural deficits, burning administrative capital to steer labour and credit, accepting higher inflation than peacetime norms, and sacrificing civilian renewal to military priorities. Absent a major external shock—such as a step-change in sanctions enforcement that materially reduces net oil revenue—the system can grind on. But each additional rouble of military output buys a little less civilian capacity, a little less growth, and a little more fragility in the years ahead.