Russia's escalating war costs eclipse social spending

Next year, the Kremlin will allocate as much as 41% of its budget to defence and security. This is more than the combined spending on education, healthcare, social policy, and economic development. Interestingly, almost 30% of these funds will indirectly support wartime activities. The costs of the conflict in Ukraine are continuously rising, gradually consuming the profits made in recent years.

Russian authorities are aware that budget revenues are systematically shrinking. In 2025, revenues from oil sales alone are expected to fall by 14% compared to this year, and when compared to the situation two years ago, by as much as 20%. To make matters worse, inflation at 21% further limits the real value of state funds.

In 2023, 6.4 trillion roubles (£51 billion) were allocated to defence. The following year, spending rose to 11 trillion (£87 billion), and in the upcoming year, the Kremlin plans to spend 13.5 trillion roubles, which corresponds to approximately £102.5 billion at the current exchange rate. By contrast, 6.4 trillion roubles are allocated to social policy—which includes pensions, demographic policy, and housing.

These represent the largest military expenditures in Russia's history. Never before has the state planned to allocate such enormous resources for military purposes. Moreover, a year ago, a completely different scenario was predicted. According to the budget approved last autumn, defence spending in 2025 was expected to decrease to 8.5 trillion roubles (£68 billion). However, the escalating conflict in Ukraine is generating ever-increasing costs. What exactly is the Kremlin spending these gigantic sums on?

The Kremlin officially does not disclose detailed information about war expenses, classifying them as part of the secret budget. However, based on the known costs of producing ammunition, tanks, and armoured vehicles, as well as fuel and supplies, one can make some estimates.

Russia spends the most money on supporting military operations. This includes the production of ammunition—especially costly ballistic and cruise missiles—and the repair and maintenance of armoured vehicles. According to U.S. intelligence, in the first two years of the war, these expenditures could have reached as much as £40 billion, which at the current exchange rate means nearly 5 trillion roubles. Almost half of this amount was spent on the production of various types of rockets, and the artillery shells alone reportedly cost £7 billion. The third-largest category of expenditures was the maintenance of military equipment.

These costs are spread across different ministries, further complicating precise tracking. For example, salaries for defence sector workers are paid by the Ministry of Industry and Trade, and development research is co-financed by the Ministry of Defence and the Ministry of Economic Development. In this way, the authorities effectively mask the actual costs of conducting the war. On the other hand, expenses related to military personnel are shared with the Ministry of Labour and Social Protection.

The costs of maintaining the Russian army are enormous. The monthly cost of one soldier on the front line is about 360,000 roubles, translating to roughly £2,900. Russia has about 470,000 ground troops on the frontline and an additional 30,000 members of the Rosgvardiya. Altogether, this amounts to 180 billion roubles monthly, or 2.2 trillion roubles annually—almost £17 billion. And this is just land forces. To this, we must add the costs associated with maintaining the Black Sea Fleet, numbering 25,000 sailors, and the Aerospace Forces, which have deployed several thousand more troops to the front.

Another significant expense is the compensation paid to the families of the fallen and injured. The Kremlin pays 7.4 million roubles (£59,000) for each soldier killed and 3 million (£24,000) for injured soldiers. In the first year of the war, Russia allocated 913.7 billion roubles (£7.3 billion) for these compensations, but this year that sum has increased to 2.4 trillion roubles (£19 million). A similar increase was noted in compensations for the injured—from 748.5 billion (£5.9 billion) to 2.5 trillion roubles (£19 billion).

Moreover, not all of these payments come directly from the Ministry of Defence's budget. Compensations for the wounded are funded from resources allocated to social policy, further straining an already tight budget in this sector.

Journalists from Forbes calculated that this year, the Kremlin spent the equivalent of one-quarter of Russia's average annual exports from the last decade. Despite sanctions, Russian exports are performing quite well—natural resources are sold through intermediaries in China, India, and African countries.

Despite falling revenues, Russia still earns enough annually to cover the cost of the war four times over. Cuts in social spending, investments, and social policy do not pose a problem for the Kremlin. And society, accustomed to living in poverty, does not resist.

One-third of Russians—over 50 million people—live below the subsistence level. 17.2 million citizens are considered poor, which constitutes 11.8% of the population. Only 32% of residents can afford purchases beyond the bare minimum. In such a society, it's hard to expect resistance against the authorities. Putin promises people a great Russia, and that vision is more important than a full bowl of food.