Russia will face significant economic challenges in 2025 – ISW

Analysts at the Institute for the Study of War (ISW) have indicated that Russia's economy is likely to face significant challenges due to the war in Ukraine and Western sanctions.

Source: ISW

Details: The Kremlin's economic policies suggest that Russia may encounter substantial economic difficulties in 2025 and that Kremlin ruler Vladimir Putin is increasingly concerned about the nation's long-term economic stability.

The Kremlin has recently implemented measures to cut government spending on medical treatment for wounded Russian soldiers, curb inflation, and address persistent demographic issues like low birth rates and labour shortages.

These policies reveal that the Russian economy is less resilient to Western sanctions, monetary restrictions, and the financial burden of the war than Russian authorities claim.

Quote from ISW: "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."

Details: Putin has modified the compensation promised to Russian soldiers wounded in action in Ukraine, signalling the Kremlin’s attempt to curb the escalating short- and long-term costs of the war and stabilise the Russian economy.

On 13 November, Putin signed a decree restricting the RUB 3 million one-time payment (approximately US$30,148) to only those servicemen who were severely wounded in combat. The decree proposes a reduced payment of RUB 1 million (around US$10,000) for lightly wounded servicemen and RUB 100,000 (about US$1,000) for those who sustained minor injuries on the battlefield.

The decree triggered a strong backlash from Russia's ultranationalist military blogging community. In response, on 14 November, Putin attempted to placate this community by raising the one-time payments to four million rubles [approx. US$40,200], though this increase still applies only to Russian servicemen who were seriously injured on the battlefield, resulting in disability.

Quote from ISW: "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."

Details: The Kremlin’s attempts to control inflation and high interest rates are reportedly affecting the growth of Russia's defence industrial base (DIB) and hindering prospects for economic mobilisation.

Given this monetary policy, the Russian defence industry is unlikely to achieve the production levels needed to replace the weapons lost during the war.

To quote the ISW’s Key Takeaways on 14 November:

• The Kremlin's recent economic policies indicate that the Russian economy will likely face significant challenges in 2025 and that Russian President [sic] 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 defence industrial base (DIB) and prospects for mobilising 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, signalling mounting concerns over declining demographics and labour shortages that could threaten the sustainable operations of the Russian DIB.
• Russian forces recently advanced into Kupiansk during a likely roughly company-sized mechanised 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 14 November that Russian President [sic] 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-Zaporizhzhia 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.

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