The Kremlin continues to downplay the social and economic costs of Russia’s war in Ukraine and inflated military spending. Russian President Vladimir Putin told journalists on June 27, following the Eurasian Economic Union (EAEU) summit in Minsk, that sanctions cannot hurt Russia’s economy and that Russia’s economic indicators are “satisfactory.”[1] Putin acknowledged that Russia’s economy is still contending with high inflation and that Russia’s economic growth in 2025 will be “much more modest to combat inflation.” Putin also claimed that Russia’s military budget is currently 6.3 percent of its GDP, or 13.5 trillion rubles (roughly $172 billion), and that Russia plans to steadily decrease defense spending beginning in 2026. Russia notably increased its defense budget by 25 percent between the 2024 and 2025 federal budgets and has been increasing its investments in Russia’s defense industry throughout 2025.[2]
Putin’s statements likely seek to portray the Russian government as committed to social and civilian expenditures and to downplay recent indicators of the societal and economic toll of Russia’s war against Ukraine and corresponding prioritization of military-industrial sector investment. Russian officials previously claimed that the 2025-2027 federal budgets would prioritize civilian and social sector investments, despite the September 2024 draft budgets indicating Russia will spend roughly 41 percent of its annual expenditures in 2025 on national security and defense.[3] The Russian Finance Ministry more than tripled its budget deficit target for 2025 in May – from 0.5 percent of Gross Domestic Product (GDP) to 1.7 percent of GDP – after several months of staggeringly low oil and gas profits.[4] Russian Central Bank Chairperson Elvira Nabiullina notably stated at the St. Petersburg International Economic Forum (SPIEF) on June 19 that Russia has exhausted many of its “free resources“ since the start of Russia‘s full-scale war against Ukraine, including Russia’s workforce, production and import substitution capacities, and reserves of the National Welfare Fund and Russia’s banking sector.[5] Russia’s military force generation strategy currently hinges on large recruitment and pension payouts, and it remains unclear how the Kremlin intends to fund these payments in the medium- to long-term, as Russia reportedly depleted the entire 2025 federal recruitment budget fund between January and March 2025.[6] Russia is also making significant financial investments in its domestic drone production capacity and committed 243 billion rubles (about $3 billion) to Russian drone companies between 2023 and 2024.[7] Any sharp decrease in Russia’s defense spending will likely depress the Russian economy in the medium term, as Russia’s defense industrial base now accounts for a significant portion of overall Russian domestic production.
Russia’s ongoing efforts to expand drone production are having a more immediate impact on the frontline in Ukraine, although Russia will continue to benefit from enhanced drone production capabilities during any future conflict. Russian First Deputy Prime Minister Denis Manturov visited various Russian military industrial facilities in Novgorod Oblast on June 27, including a fiber-optic drone production site that produced Russia’s first model of fiber-optic “Prince Vandal Novgorodsky” drones[15] The Russian government’s press release of the visit reported that Russia is now capable of domestically producing hundreds of thousands of fiber-optic drones per month and fully satisfying the needs of the Russian Armed Forces. Manturov also visited a series of other defense companies in Novgorod Oblast, including companies that specialize in electronic components, and inspected the Intelligent Electronics-Valdai Innovative Scientific and Technological Center’s new semiconductor materials science laboratory.[16] Manturov instructed the Ministry of Industry and Trade to examine the possibility of recapitalizing Novgorod Oblast’s industrial development fund to support the production of high-tech products. ISW previously noted that Russian fiber optic production has allowed Russian forces to impose new battlefield dilemmas on Ukrainian forces starting in mid-2024 because these drones were resistant to electronic warfare (EW) interference, enable precision strikes on armored equipment, and are scalable due to their simplicity.[17]
Russian forces continue to implement tactical innovations that correspond with technological weapons system advancements. A Russian milblogger claimed on June 27 that Russian forces are increasingly utilizing Geran 2 and 3 drones – Russian analogues of the Iranian origin Shahed-136 – over guided glide bombs for short- to mid-range frontline strikes.[18] The milblogger noted that Russian forces began reprioritizing the use of Geran drones last winter when Russia began mass producing modernized Geran 2 drones with improved speed, range, and carrying capacities, and claimed that Russian forces are using these drones to target Ukrainian storage areas, command posts, and strongholds on the frontline and in the near rear. The milblogger noted that elements of the Russian 51st Combined Arms Army [CAA] (formerly 1st Donetsk People’s Republic Army Corps [DNR AC], Southern Military District [SMD]) have pioneered mass frontline use of Geran drones and that Russia’s Central Grouping of Forces, operating largely in the Pokrovsk and Novopavlivka directions, will reportedly soon adopt the use of Geran 2 drones once Russian manufacturers further increase production rates. The milblogger assessed that Russian forces may be able to replace 500- and 1000-kilogram KAB glide bombs with Geran 3 drones if Russian developers are willing to compromise on the drone’s range to account for an increased payload. The Russian milblogger’s analysis largely coheres with ISW’s observations that Russian forces are increasingly using Shahed-like drones to strike Ukrainian targets along the frontline.[19] Russia’s defense industrial base has thus far successfully increased Geran drone production rates and improved the Geran drone’s precision and operability, which have enabled Russian forces to more readily deploy such drones along the frontline.[20]
Russia continues to use chemical weapons against Ukrainian forces and civilians in direct violation of the Chemical Weapons Convention (CWC), of which Russia is a signatory. The Ukrainian Center for Strategic Communications and Information Security reported on June 27 that Ukrainian forces recorded 888 cases of Russian forces using chemical weapons in May 2025, including in grenades.[21] The Organization for the Prohibition of Chemical Weapons (OPCW) published a report on June 26 confirming that environmental sample testing indicates that Russian forces used a first-person view (FPV) drone equipped with grenades containing chlorobenzalmalonodinitrile (CS) gas, a riot control agent (RCA) banned in modern warfare under the CWC, against Ukrainian forces near the Donetsk-Dnipropetrovsk Oblast administrative boundary in June 2025.[22]
Key Takeaways:
- The Kremlin continues to downplay the social and economic costs of Russia’s war in Ukraine and inflated military spending.
- Putin’s statements likely seek to portray the Russian government as committed to social and civilian expenditures and to downplay recent indicators of the societal and economic toll of Russia’s war against Ukraine and corresponding prioritization of military-industrial sector investment.
- Putin also reiterated Kremlin narratives aimed at discrediting Ukraine and blaming the West and NATO for his decision to invade Ukraine.
- Open-source data suggests that Russia is increasingly investing in its defense industry and expanding its drone, infantry fighting vehicles (IFVs), and aircraft production and shipbuilding capabilities – several of the key platforms that Russia would likely rely on in a future war with NATO.
- Russia’s ongoing efforts to expand drone production are having a more immediate impact on the frontline in Ukraine, although Russia will continue to benefit from enhanced drone production capabilities during any future conflict.
- Russian forces continue to implement tactical innovations that correspond with technological weapons system advancements.
- Russia continues to use chemical weapons against Ukrainian forces and civilians in direct violation of the Chemical Weapons Convention (CWC), of which Russia is a signatory.
- Ukrainian forces advanced near Lyman. Russian forces advanced in western Zaporizhia Oblast and near Kupyansk, Toretsk, and Pokrovsk.