The Kremlin’s recent economic policies indicate that the Russian economy will likely face significant challenges in 2025 and that Russian President Vladimir Putin is worried about Russia’s economic stability in the long term. The Kremlin recently adopted several policies that aim to cut Russian government spending on wounded Russian servicemen, combat inflation, and address long-term demographic problems such as low birth rates and labor shortages. These policies demonstrate that the Russian economy is not as resilient to Western sanctions, monetary constraints, and the cost of the war effort as the Russian government postures. These policies also demonstrate that the Kremlin will not be able to sustain the protracted war effort for years and decades to come while shielding Russian society from economic challenges. Consistent Western and international support for Ukraine’s resistance on the battlefield will further exacerbate Russia’s economic problems.
Putin modified compensation promised for Russian servicemen wounded while fighting in Ukraine — a clear indicator that the Kremlin is trying to cut the mounting short- and long-term costs of the war and restore balance to the Russian economy. Putin controversially changed Russian policy guaranteeing a one-time payment of three million rubles ($30,124) to all Russian servicemen who have been wounded in combat in Ukraine since March 2022.[1] Putin signed a decree on November 13 that restricted the one-time payments of three million rubles only to servicemen who sustained serious injuries in combat, only offering one million rubles ($10,152) to lightly wounded servicemen, and 100,000 rubles ($1,015) to servicemen who sustained minor injuries on the battlefield.[2] Putin’s decree generated significant backlash from the Russian ultranationalist milblogger community, and Putin attempted to placate this community on November 14 by increasing the one-time payments to four million rubles ($40,136), but still only for Russian servicemen who sustain severe battlefield injuries that result in a disability.[3] A Russian milbloggers noted that Putin’s authorization to increase compensation for disabled servicemen does not alter the fact that the Kremlin is reneging on promises to thousands of Russian servicemen who joined the Russian military solely due to large financial incentives.[4] The milblogger added that Russian military medical commissions are also becoming increasingly — and often deliberately unfairly — selective in diagnosing Russian servicemen with severe injuries.
Putin originally introduced the policy offering all wounded Russian servicemen three million rubles to incentivize military recruitment after he had decided against declaring general mobilization in Spring 2022.[5] Financial incentives became the key pillar of the Russian military’s recruitment campaign and personnel retention efforts over the past nearly three years, and the reversal of such incentives indicates that the system is becoming economically unsustainable for the Kremlin. ISW notably assessed in Summer 2022 that the Kremlin’s reliance on high financial incentives for force generation was committing Russia to short- and long-term financial responsibilities to thousands of Russians, such as paying veterans pensions, compensations to families of deceased servicemen, and other state benefits.[6]
The Kremlin’s efforts to combat inflation and high interest rates are also reportedly impacting the expansion of the Russian defense industrial base (DIB) and prospects for mobilizing the economy. The Russian Central Bank recently raised the key interest rate to 21 percent on October 25, which reportedly prompted discontent among Russian politicians, DIB CEOs, and elites. Kremlin-affiliated Center for Macroeconomic Analysis and Short-Term Forecasting (TsMAKP) reported that the Russian economy is “effectively facing the threat of stagflation – simultaneous stagnation or even recession and high inflation” because of the Central Bank’s tight monetary policy.[7] TsMAKP assessed that if the Russian Central Bank maintains the key interest rate at around 20 percent until mid-2025 then the composite leading indicator (CLI) for recession will exceed its critical threshold. The Ukrainian Foreign Intelligence Service similarly reported that the number of loans with a dynamic rate — which depends on a discount from the Central Bank — increased from 44 percent in late 2023 to 53 percent in late 2024.[8] The Ukrainian Foreign Intelligence Service added that high interest rates may create a shock and a decline in production, which can result in bankruptcies and corporate defaults. A Kremlin insider source claimed that the Central Bank’s tight monetary policy is restraining the Russian DIB’s pace of development in the long term and has already complicated several Russian export projects, despite the fact that it had not yet directly impacted Russian military-technological support for the Russian war effort.[9]
The Russian DIB is unlikely to match the production rate necessary to replace Russian weapons losses under these monetary policies. Foreign Policy (FP), citing OSINT analysts, reported that Russia has been losing around 320 tank and artillery cannon barrels per month but can only produce 20 per month.[10] FP reported that Russia will likely run out of cannon barrels in 2025 due to battlefield losses, dwindling Soviet stocks, and sanctions impacts. FP also cited OSINT estimates that Russian forces have lost at least 4,955 infantry fighting vehicles (IFVs) since February 2022 — about 155 IFVs per month. FP reported that Russia can only produce about 17 IFVs monthly or 200 annually. FP assessed that the Central Bank’s policy of raising interest rates has made it difficult for nondefense companies to raise capital through loans, which is shrinking the civilian economy and may lead to significant post-war recession as returning Russian veterans will have a harder time finding employment.
The Kremlin is also adopting policies aimed at bolstering the domestic population in the long term, signaling mounting concerns over declining demographics and labor shortages that could threaten the sustainable operations of the Russian DIB. Russian state outlet RBK claimed on November 14 that the Russian government has developed a draft Strategy of Action through 2036 to address Russia’s increasingly dire demographic issues.[11] The Strategy of Action aims to increase birthrates and promote the family lifestyle by improving support system for families with children and providing birth incentives; solving housing problems to increase the availability of rental, social, and new housing; creating conditions for a more successful work-family balance; improving reproductive health of the population, in particular women’s prenatal and infertility care; and enhancing family-positive propaganda in media and the Russian information space. The Strategy of Action is a part of broader efforts by Russian authorities to advance policies aimed at increasing the Russian population both through concrete legislation but also through rhetoric centered on “familial and traditional” values.[12]
ISW previously assessed that Russia’s demographic challenges have been worsened by the war with an estimated 800,000 to 900,000 Russians — including many highly qualified workers- fleeing the country since February 2022 likely causing Russian authorities to rely more on migrant populations.[13] Russian Federal State Statistics Service (Rosstat) data shows that Russia’s labor shortage amounted to 4.8 million people in 2023, a problem that has reduced Russia’s economic output.[14] Rosstat also estimated in 2023 that Russia’s population will decline naturally at a rate of more than 600,000 people per year until 2032. Russian President Vladimir Putin acknowledged Russia’s ongoing labor shortage on November 7 and admitted to Russia’s heavy reliance on migrants in order to mitigate the impacts of its waning population on the broader Russian workforce.[15] Putin warned, however, that reliance on migrant populations requires systematic assimilation efforts, likely in response to continued tensions between Russian ultranationalist rhetoric and the need to keep the Russian labor force capacity afloat through migration. Migrant populations are also not likely to yield the desired outcome in Russia given continued racist rhetoric and legislation and lack of skillsets among economic migrants needed to comprise a professional working class. FP reported that the Russian “civilian economy” has experienced personnel shortages and lack of qualified workers due to concerted Russian government efforts to attract Russian laborers to its DIB leading to possible future economic turmoil resulting from labor shortages and declining population. ISW has recently observed Russian authorities revoking migrants’ Russian citizenship for refusing to register for military service, an increase in migrant deportations in 2024, protests, and violence against minority communities, among other rhetorical and legal realities that have created obstacles for migrants both to enter and to advance in the Russian workforce.[16] A combination of naturally declining population and aversion to creating conditions conducive to migration and enhancement of the skilled labor workforce will possibly impair the Russian economy and consequently Russian DIB in the mid- to long-term.
Russian forces recently advanced into Kupyansk during a likely roughly company-sized mechanized assault, although ISW does not assess that Russian forces control the area. Geolocated footage published on November 13 shows at least four Russian vehicles conducting an assault, indicating that Russian forces recently advanced southward along a railway line.[17] Russian and Ukrainian sources stated that Russian forces attacked in two armored vehicle columns and that one column consisted of one tank and three armored vehicles and the other column consisted of an unspecified composition and number of vehicles.[18] Ukrainian Center for Countering Disinformation Head Lieutenant Andriy Kovalenko reported on November 14 that Ukrainian forces repelled Russian attacks in Kupyansk and prevented Russian forces from establishing positions in Kupyansk.[19] The Ukrainian Armed Forces Center for Strategic Communications (StratCom) reported that Kupyansk is fully under Ukrainian control and reiterated a Ukrainian General Staff report from November 13 stating that Ukrainian forces repelled a Russian assault on the settlement.[20] ISW assessed that Russian forces likely advanced in northeastern Kupyansk but very likely do not control the area, and ISW maps currently show areas in northeastern Kupyansk where ISW assesses Russian forces have operated in or launched attacks against but do not control. Russian forces have intensified offensive operations near Kupyansk within the last two months and ISW continues to assess that the Russian seizure of Kupyansk would generate operationally significant effects.[21] ISW is not prepared to assess whether Russian forces will be able to leverage recent tactical advances to make operationally significant gains, however. Russian forces also continued offensive operations north of Kupyansk near Holubivka; east of Kupyansk near Petropavlivka; southeast of Kupyansk near Kolisnykivka, Hlushkivka, Kruhlyakivka, Lozova, Zahryzove, Kucherivka on November 13 and 14.[22]
A recent Russian state-affiliated poll suggests that most Russian residents feel largely unaffected by the war in Ukraine, supporting reports of growing concerns among Russian officials and elites that many citizens remain indifferent towards the war.Kremlin newswire TASS amplified a poll conducted by the Russian state-affiliated Institute of Sociology of the Federal Research Center of the Russian Academy of Sciences on November 14 revealing that 83 percent of respondents claimed that the “Special Military Operation” did not affect their daily life or affected it only to a slight extent.[23] Patriarch Kirill, head of the Kremlin-controlled Russian Orthodox Church Moscow Patriarchate (ROC MP), claimed on October 31 that some segments of Russian society choose to “turn a blind eye” to the realities of the frontline and the hardships faced by those living in border areas near the conflict, although the war in Ukraine represents the “most urgent threat” to Russia.[24] Kirill condemned Russians who are unwilling to sacrifice their personal comforts, instead relying on “superficial distractions” to avoid confronting the hard realities of the war. ISW assessed that Kirill’s remarks likely reflect underlying concerns among Russian authorities, as they suggest possible waning public support for the war effort, potential difficulties in future recruitment efforts, and a growing societal divide between portions of the Russian population most directly affected by the war and those largely insulated from its impacts.[25]
Kremlin Spokesperson Dmitry Peskov claimed on November 14 that Russian President Vladimir Putin is personally dealing with issues concerning Ukraine and that he requires no special envoys, likely in response to reports that US President-elect Donald Trump will “soon” appoint a “Ukrainian peace envoy to lead negotiations on ending the war.”[26]
Key Takeaways:
- The Kremlin’s recent economic policies indicate that the Russian economy will likely face significant challenges in 2025 and that Russian President Vladimir Putin is worried about Russia’s economic stability in the long term.
- Putin modified compensation promised for Russian servicemen wounded while fighting in Ukraine — a clear indicator that the Kremlin is trying to cut the mounting short- and long-term costs of the war and restore balance to the Russian economy.
- The Kremlin’s efforts to combat inflation and high interest rates are also reportedly impacting the expansion of the Russian defense industrial base (DIB) and prospects for mobilizing the economy.
- The Russian DIB is unlikely to match the production rate necessary to replace Russian weapons losses under these monetary policies.
- The Kremlin is also adopting policies aimed at bolstering the domestic population in the long term, signaling mounting concerns over declining demographics and labor shortages that could threaten the sustainable operations of the Russian DIB.
- Russian forces recently advanced into Kupyansk during a likely roughly company-sized mechanized assault, although ISW does not assess that Russian forces control the area.
- A recent Russian state-affiliated poll suggests that most Russian residents feel largely unaffected by the war in Ukraine, supporting reports of growing concerns among Russian officials and elites that many citizens remain indifferent towards the war.
- Kremlin Spokesperson Dmitry Peskov claimed on November 14 that Russian President Vladimir Putin is personally dealing with issues concerning Ukraine and that he requires no special envoys, likely in response to reports that US President-elect Donald Trump will “soon” appoint a “Ukrainian peace envoy to lead negotiations on ending the war.”
- Russian forces advanced in the Ukrainian main salient in Kursk Oblast, west of Ukraine’s main salient in Kursk Oblast in Glushkovsky Raion, in the Chasiv Yar direction, and in the Donetsk-Zaporizhia Oblast border area.
- Russian sources are speculating that North Korea may have provided North Korean-produced 170mm M1989 “Koksan” self-propelled artillery systems to Russia. Russian milbloggers published images showing a train transporting alleged North Korean 170mm M1989 “Koksan” self-propelled artillery systems in Krasnoyarsk, Krasnoyarsk Krai.