Name: Why Russia's war machine is running out of steam | DW News
Uploaded: 2025-11-27T16:50:36.000Z
Duration: 12 min 22 s
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Adverbs of degree

We expect barely 1% growth, probably less.

Transition words & phrases

It is kind of a natural state of affairs because budgetary spending created high inflation and the central bank had to increase the base rate, which cooled down the whole economy.

I don't think that the economic situation in Russia would prompt Putin to be more flexible.

The sanctions against Russia's two largest oil companies, Rosnefty and Lukoil, hit really hard.

Is Russia running out of cash to fund its war in Ukraine?

That's the question I want to explore today with Alexander Kolyander, senior fellow at the center for European Policy Analysis and the author of a weekly guide to the Russian economy.

Alexander, thank you so much for joining us today.

Let's begin with a really basic question before we get into the details.

How would you describe the state of the Russian economy right now?

That would be the one word description of the state.

After two years of headlong growth, mostly fueled by the budgetary spending, Russian economy is definitely slowing down.

Just to give you the figures, GDP growth in the past year was above 4%.

For the year 2025, we expect barely 1% growth, probably less.

It is natural state of affairs because budgetary spending created high inflation and the central bank had to increase the base rate, which cooled down the whole economy.

And the economy is, well, we can say not growing anymore as, as it did in the past two years.

However, we see that real incomes continue to grow simply because Russia doesn't have enough people to fill all the job it has created and also to satisfy the desires of the army to put more people on the front lines.

But credit is down, lending is down, and consumer spending is also down.

We see that in the past several months, Russia's industrial production started to slow down.

There is an uptick in October, but apart from that, we see that there is no growth.

And this no growth situation applies even to the military production.

Russia continues to sell oil which supports its budget.

But mostly the budget is supported by higher taxes.

To fill the budgetary gap, the government had to increase taxes on basically everything.

So next year the Russians will see an increased vat, more taxes on small and medium sized businesses, and

a higher cost of all the government and the state services.

So the bottom line is economy is slowing down.

The government is in dire straits to balance its books, but it manages.

It gathers more taxes, it collects more fines, it is still selling oil.

And the overall economy is not collapsing, it just going on.

But as you mentioned, there are many signs of growing weakness.

I want to talk to you about the sanctions because up to now the narrative has been that Russia has been weathering Western sanctions relatively well.

This latest round from the US Is expected to hit a little harder.

It manages to circumvent the majority of the technological sanctions and it continues to sell oil.

The recent sanctions blow from the United States.

The sanctions against Russia's two largest oil companies, Rosneft and Lukoil, hit really hard.

The reason for that is not because the United States stopped buying Russia Russian oil.

It hasn't been doing so for quite a while, but

rather because Russia's main buyers in India, in Turkey, and

most mainly in China, decided to sit and wait and see whether they're under threat of American secondary sanctions.

So at the moment we see that the discount on Russian oil is widening and Russia is struggling to sell as much oil as it did previously.

I personally think that it's a temporary lull that China would find a way to accommodate a Russian sanctioned oil, even if sanctions stay in place.

And unless the United States decides to really enforce those sanctions really hard, Russia will find its way to live with those sanctions as well.

And China will be able to buy Russian oil and manage to refine sanctioned oil as it did with Iranian oil.

There might be slightly lower revenue from oil, but

from the point of view of the budget, that almost doesn't matter because the budget taxes Russian oil companies depending on the volume they produce and the global oil price.

that will definitely affect their ability to develop brownfields and green fields in the future.

For the moment, this will not capsize Russian budget.

Okay, so there's flexibility built into that budget.

Now, in the past years, Russia has been allocating huge resources to the military, really at the expense of all other sectors.

Do you have the sense that the ground is now shifting?

The government reduced military spending for the next year a little bit, but

it's mostly nominal because it increased spending on national security.

And so if we combine those two lines, we'll see that the spending is almost flat.

And the reason for that, as much as I can understand, is that the Russian military economy is just unable to grow.

So it doesn't matter how much money you inject in, is just unable to produce more.

You mentioned earlier that next year's budget features a range of tax Increases, including on vat.

How is that affecting public perceptions towards the war?

It's difficult to answer because I don't live in Russia and it's difficult to trust any public opinion poll in Russia.

from what I hear and understand, people are getting tired of the war.

There are no signs obviously of the Russians to revolt against high taxes or try to vote Putin out of his office.

the overall sense that life was pretty good in the past two years and now it's not so good is prevalent.

We've also seen reports that Russia has been selling physical gold from its reserves for the first time.

That's an attempt to boost government funds.

Assumedly, who is buying Russian gold and how should we interpret that development?

Well, it's mostly technical because Russia needs to sell liquid reserves from its national well being fund and after the sanctions is only liquid reserves.

However, first of all, the Russian government and especially the central bank doesn't want to sell all the Yuan reserves because that would deprive it of a possibility to smoothen the fluctuations of the exchange rate.

And secondly, there is, I would say, enough Yuan owned by the Russians inside the country.

And that's why, given the rise of gold prices in the past, what, month, month and a half, Russia decided to sell a bit of oil.

So this gold will be bought locally because Russian gold is sanctioned.

This will not affect the global price of gold.

And it's mostly done to balance the government books without depleting Russia's reserves of foreign currency.

It is rather a technical and tactical move by the central bank to leave it with weapons to smoothen any kind of fluctuations in the exchange rate, balance the books and find buyers inside the country, which is probably easier for gold than for yuan at this moment.

Now, all of this, of course, is happening against the backdrop of a proposed peace plan the US is trying to get Russia and Ukraine to agree to.

Do you think Russia's current economic troubles will be used as leverage at all?

I think that the Americans and whoever is talking to Russia would try to use it, but

The Russian government definitely sees problems, but those problems are not immediate.

So far, with all the list of various problems, be it high rates, high debt, the cost of debt, technological problems and the likes Russia manages.

So economic troubles are not forcing Putin to negotiate or to compromise.

I think that the Russian government assumes that those problems will not materialize in the immediate future.

I think that the government is a little bit overoptimistic, that the problems might appear, and