As President Putin hosts an economic forum in St. Petersburg, senior Russian finance officials have warned him that spending on the Ukraine war is unaffordable and risks the budget deficit. The warnings come as Russia's economy shrank 0.2% in Q1 2026, hampered by sanctions and Ukrainian drone attacks that have hit a quarter of its oil refining capacity. With peace talks stalled, internal critics argue the economy cannot sustain a lengthy war.
Russian economic contraction
- ▪Russia's economy slowed to about 1% growth in 2025 from 4.9% in 2024, and shrank by 0.2% in the first quarter of 2026
- ▪Former central bank deputy chairman Oleg Vyugin said that with double-digit interest rates and war-related tax hikes, growth will be hard to achieve
- ▪Russia's economic growth is forecast to be a modest 0.4% in 2026
- ▪Factors that previously fueled Russian growth, such as foreign investment and energy revenues, are either gone or have exhausted their potential
Ukrainian drone infrastructure attacks
- ▪The attacks on refineries have created the risk of fuel shortages during Russia's driving season
- ▪Ukrainian drone attacks deep inside Russia have targeted refineries, fertilizer plants, and ports, affecting one-quarter of the country's refining capacity
Ukraine peace talks stalled
- ▪Russian businesses believe that ending the war in Ukraine is the best way to achieve economic growth
- ▪The Kremlin has stated that peace talks with Ukraine, which began in February 2025, are currently on hold
Sanctions relief prospects
- ▪Potential U.S. investments and an easing of Western sanctions, which were discussed during peace talks, are now on hold
- ▪The Russian economy has shown resilience to sanctions during the war, partly due to increased military production
Internal warnings on war
- ▪Officials in Russia’s Finance Ministry and central bank advised the Kremlin that current defense spending risks dangerously widening the budget deficit
- ▪Senior Russian government officials have warned President Vladimir Putin that current spending on the war in Ukraine is on an unaffordable path
- ▪Renat Suleimenov, a Duma member from the Communist Party, stated that Russia's economy will not survive a lengthy continuation of the war
- ▪Duma member Renat Suleimenov argued that military products like tanks and shells have no consumer value for the population
St. Petersburg Economic Forum
- ▪President Vladimir Putin is hosting the fifth wartime St. Petersburg International Economic Forum from June 3 to 6, with economic growth as its main theme
- ▪Delegates at the St. Petersburg forum are expected to discuss strategies including labor redistribution and promoting AI-powered digital platforms
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