In 2024, Russia captured about 3,000 km2 of Ukraine, or 0.5% of the country's territory, paying for it with the lives of 45,000 soldiers. What are the economic costs of the war in its fourth year, and will the collapse of the Russian economy, predicted for years, finally become a fact?
About 3,000 km2 of Ukraine and 1,000 km2 retaken in the Kursk region are the balance of Russian gains in 2024, which can be compared to the area of Mallorca or Moscow. In the first four months of 2025, Putin's army occupied 1,600 km2 of the invaded country, i.e. its advances proceeded at a similar pace, with a significant slowdown observed in March and April.
Russia continues to accept massive casualties, and reports from the front indicate that the “meat assault” tactic is still alive. According to a note published on May 2 by British intelligence, in the first four months of 2025, the Russian military lost 160,000 dead and wounded.
If this level of losses continues for another eight months, it would be the costliest year of the war in terms of Russian personnel, British military intelligence said, adding that Russia could have lost 950,000 dead and wounded in Ukraine since the war began.
The Mediazona and Meduza portals have so far identified the names of 106,223 fallen Russians and estimate that this number could be 45-65% of the actual number of deaths, which would mean between 164,200 and 237,200 Russians killed since February 2022.
In a February 2025 report, the American think tank Institute for the Study of War (ISW) estimated the number of Putin’s soldiers killed at 150,000 since the beginning of the conflict. That’s ten times more than the losses suffered by the Soviet Union during the 10-year war in Afghanistan. Why so much about Russians killed on the front in a text about the economy?
Staff shortages weigh on Russian economy
According to a study conducted by the Bank of Russia in April this year, the shortage of workers remains one of the key problems faced by Russian companies. As shown by a survey conducted among 12,300 Russian companies, the level of staffing in Q1 2025 was close to a historical minimum.
Once a quarter, the Russian central bank asks companies about their employees and reports the difference between the percentage of companies that have enough workers and those that do not. In January-March, the difference was -31.9. It was worse (-32) only in Q3 2024. At the end of last year, the gap decreased to -31.2, but now the problems have increased again.
Enterprises indicated a shortage of personnel as the second most important factor (after rising costs) that limits their operations. The problem of a lack of personnel was mentioned by companies more often than the obstacle of lack of funds to finance working capital. Unemployment in Russia remains at a historically low level and according to the central bank's forecasts will remain at 2.5% this year.
Nevertheless, during the last discussion on the level of interest rates, decision-makers from the Bank of Russia claimed that the labor market was starting to show signs of a gradual easing of tensions. The number of vacancies was decreasing, and the number of CVs sent was increasing, economists calculated. The reason for this state of affairs could be the failure of Russian small and medium-sized enterprises.
The rise in interest rates, which are currently at 21%, has led to reports from the beginning of the year that 30% of transport companies were on the verge of bankruptcy, with construction (whose revenues have halved), airlines and the sanctions-hit mining industry among the next most threatened sectors. On the other hand, the war has brought unexpected benefits to Russia's poor regions.
Shopping, manicure, cemetery
Russian supermarket chains, electronics stores, gyms and fast food restaurants are opening in new locations in the country's poorest regions, the Financial Times reported in late March. These locations are major centers for military recruitment, with families of soldiers benefiting from high bonuses for new recruits and compensation for the deaths of loved ones.
Mari El, one of Russia's central republics, pays those joining the army a lump sum of 3 million rubles, or about 137,000 złoty, more than three times what is earned there in a year. “Demand is emerging in new areas where it was not there before, because people were simply too poor to go to a large retail store,” Janis Kluge of the German Institute for International and Security Affairs (GIDS) commented in the Financial Times.
Russians who previously couldn't afford it flocked to electronics stores, started eating out more, and increased their spending on food. The incomes of provincial Russians have become higher, but interest rates don't allow them to take out a loan to buy an apartment. As a result, they have increased their consumption.
In Russian cities with fewer than 100,000 residents, the number of beauty salons, nail salons and gyms is growing. “People now have money for themselves. They can pay more to stay healthy, and the growth of the fitness industry confirms this,” Mikhail Rychagov, spokesman for the Russian Association of Shopping Centers, told the Financial Times.
It is not only the families of soldiers who benefit from war, although they can earn the most. Especially in the case of the death of a recruit. The one-time compensation that the family receives then amounts to 12 million rubles (approx. 550,000 zlotys). Many residents of poor regions have found employment in factories producing weapons and clothing for the army. There is competition for employees between the private sector and the state, which results in rising wages. However, inflation exceeding 10% reduces the real income of Russians.
Deficit and Falling Oil Prices
Russia's military El Dorado will not last forever. Moscow's authorities do not intend to raise soldiers' salaries and bonuses any more, because “the budget is not made of rubber,” the Russian Viorstka news agency reported, citing sources in the capital's city hall. Instead of motivating new recruits with even more money, the Russian authorities intend to appeal to their patriotism by investing in propaganda.
“In 2024, Russia's total budget expenditure increased by over 24% year-on-year. The largest item was funds allocated for “national defense” – for the first time they officially exceeded spending on social policy. Financing the war absorbed at least 35% of the budget” – the Center for Eastern Studies pointed out in the economic assessment of Russia for 2024, which we wrote about on Bankier.pl in April.
When planning the Russian budget for 2025, the assumption was made that the price of oil would be around $70. At the time of writing, WTI oil costs less than $63, and Russian Urals oil (which is not listed on the main commodity exchanges) is usually sold at a discount. It currently costs $55 per barrel.
Oil prices caused Russia's revenue from energy sales to fall by 1.09 trillion rubles (about $11.8 billion) in April alone. In the first four months of the year, it was down 10.3% year-on-year, reaching $41.4 billion. In early May, Moscow reduced its annual forecast for oil and gas sales by almost a quarter, or $28.9 billion, to $92.5 billion.
The oil and gas industry practically accounts for about 30% of Russia's total federal revenues (according to the Bank of Finland). The Bank of Russia's new macroeconomic forecast clearly states that the budget deficit in 2025 will triple compared to the initial assumptions, reaching $42.1 billion or 1.7% of GDP.
Russian authorities are looking for money to fill this hole and intend to dip into the reserves of the National Welfare Fund (created from funds saved up over the years from the sale of natural resources), drawing another $5.5 billion from it. In April 2025, the liquid assets accumulated in this fund were worth about $39 billion, having fallen by two-thirds since the beginning of the war in Ukraine.
According to Gazprombank analysts, at the current pace of spending and the price of Russian oil at around $50 per barrel, the funds accumulated in the National Welfare Fund will run out within 2 years. If the price of Urals oil falls to $40 per barrel, the fund will suffice for another year of war.
In this situation, further sanctions against Russia, especially those aimed at the oil sector, may prove to be a heavy burden on the budget of the authorities in Moscow. Although the Russian economy has so far shown great resilience and will not collapse overnight, its weakening is progressing. The demographic and economic effects of the war will weigh on Russia for many years after the end of the war.
