Russia plans to sharply increase military spending in 2027 while expanding the authorized size of its armed forces, according to budget documents seen by Reuters and a report by Novaya Gazeta Europe.

The developments point to Moscow preparing to expand its war effort into next year, even as its battlefield gains remain limited and its campaign increasingly relies on missile and drone attacks against Ukrainian cities and civilian infrastructure. It is also doing so as the Russian government faces a widening budget deficit and falling projected oil and gas revenues.

Russia plans 27% increase in 2027 defense spending despite widening budget deficit

Russia plans to spend 17.1 trillion rubles ($202.6 billion) on defense in 2027, according to government documents reviewed by Reuters. That is about 27% more than the 13.5 trillion rubles originally budgeted for defense in 2027 and would be the highest level of military spending since Russia launched its full-scale invasion of Ukraine in February 2022.

The documents project total defense spending of 50 trillion rubles over the next three years. The actual amount Russia will spend on defense in 2026 is classified, Reuters reported, while some military-related spending can be recorded under other parts of the state budget.

The planned increase comes alongside worsening fiscal pressures. Russia has raised its forecast for the 2026 budget deficit to 3.2% of GDP, from an earlier estimate of 1.6%, according to Reuters. Overall government spending is expected to rise 13.2% this year to 48.6 trillion rubles, or 20.9% of GDP.

The government also expects to increase net borrowing by 26% in 2026 to 5 trillion rubles and withdraw 459 billion rubles from its National Wealth Fund, Reuters reported. Its forecast for 2026 oil and gas revenues has been cut to 7.6 trillion rubles from 8.9 trillion.

Russia is reportedly planning new tax increases for 2027 to help cover the growing deficit. A new windfall tax on metals and mining companies is expected to bring in about 200 billion rubles a year, according to the documents. State debt is projected to rise to 21.7% of GDP in 2027, above the 20% level Russian authorities have previously considered safe.

The draft budget is expected to be submitted to Russia's parliament by October 1.

Army staffing also reaches new high

At the same time, Russian President Vladimir Putin has again increased the authorized size of the country's armed forces.

Putin signed a decree raising the official staffing level of the Russian Armed Forces to 2.44 million people, including 1.55 million military personnel, Novaya Gazeta Europe reported on September 28. The increase is 15,500 personnel compared with the previous decree issued in August.

It is the fourth increase in the authorized size of the Russian military in 2026 and the seventh since the beginning of the full-scale invasion of Ukraine, according to Novaya Gazeta Europe. Before the invasion, the authorized force stood at 1.90 million people, including 1.01 million military personnel.

Russia shifts more of the war into the air

The increases in military staffing and spending come as Russia continues to pursue its maximalist war aims despite limited battlefield progress. The Institute for the Study of War assessed on September 27 that Russia's frontline has remained largely static in recent months and that the Kremlin is increasingly relying on long-range missile and drone strikes as part of its effort to force Ukraine to capitulate during the winter of 2026–27.

ISW assessed that Putin may be trying to make Ukraine's infrastructure and air defense capacity buckle under sustained Russian strikes rather than relying solely on further territorial gains. The institute also said the Kremlin may delay a large-scale mobilization while it assesses whether its expanded long-range strike campaign can achieve its objectives.

The planned increase in military spending and the repeated expansion of the armed forces show that Moscow is preparing to sustain and expand its war effort into 2027, even as its forces make limited territorial gains in Ukraine.

Ukrainian drone strikes on the warehouses of Russia's biggest online marketplaces will cost the country's e-commerce 400 million orders and 400 billion rubles ($4.8 billion) in revenue this year, the research firm Data Insight estimates, The Moscow Times reported. It prices what the campaign has done to a whole consumer market, not only to the companies whose warehouses burned. Sellers are cutting back on the platform at the center of it, and Wildberries' payout delays are pushing some of them out.

The forecast, cut by a fifth

Data Insight lowered its growth forecast for Russian online retail by 20%, founder Fyodor Virin said. The market will now grow to 9.6 billion orders this year instead of 10 billion, and to 15 trillion rubles ($178 billion) in sales instead of 15.4 trillion.

That is exclusively the effect of the Ukrainian strikes on marketplace warehouses, Virin said, and most of the loss falls on Wildberries. The bombardment of the depots cut sales because goods were unavailable in a given city or entirely, and because delivery times grew as parcels had to travel further.

All of it lands in the second half of the year. Strikes on Wildberries warehouses began on 18 July and on Ozon's on 25 August, according to Virin. Euromaidan Press reported the first strike on an Ozon warehouse on 22 August.

About 30% of the orders that got stuck or disappeared from sale were cancelled outright, Virin estimates. The rest of the unmet demand went mostly to other online platforms and, to a lesser degree, to physical retail. Payout delays that began in mid-August have pushed some sellers to pull their stock, and Wildberries blamed the first missed round on a DDoS attack.

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A warehouse built to hold up to 54 million items burned down in Tambov Oblast, Russia

What the companies lost

Damage to RWB, the company that runs Wildberries, from the loss of warehouses and infrastructure may reach 147 to 280 billion rubles ($1.7–3.3 billion), while sellers have provisionally lost 445 to 507 billion rubles ($5.3–6 billion), Data Insight's lead analyst Sergei Semko estimated. All of the marketplace's key logistics complexes have been hit, and it could lose a fifth of its network and over half its main hubs at once.

Much of what the sellers lost will not come back. On 22 July, Wildberries' founder said the warehouses were insured but that standard policies do not cover drone-strike risk, and Ozon has told sellers that losses from military action are an entrepreneurial risk neither it nor insurers will compensate.

Total losses for Ozon and its sellers are far lower, at around 100 billion rubles ($1.2 billion). Ozon has a much more branched warehouse network and rents most of its large complexes, Alfa-Bank analysts said. Its shares still fell as much as 29% in a single August session on a day when the Moscow exchange lost 2.9%.

Russia's economy, which defied initial sanctions and saw growth propelled by massive military spending and robust oil exports, is now showing significant signs of a downturn.

Recent economic indicators are flashing red, with manufacturing activity declining, consumer spending tightening, and inflation remaining stubbornly high, straining the national budget, the Wall Street Journal (WSJ) reported on July 4.

Russian officials are openly acknowledging the risks of a recession. Economy Minister Maxim Reshetnikov warned last month that Russia was on the "verge of a recession," while Finance Minister Anton Siluanov described the situation as a "perfect storm." Companies, from agricultural machinery producers to furniture makers, are reducing output. The central bank announced on July 3 it would debate cutting its benchmark interest rate later this month, following a reduction in June.

While analysts suggest this economic sputtering is unlikely to immediately alter President Vladimir Putin’s war objectives—as his focus on "neutering Ukraine" overrides broader economic concerns—it exposes the limits of his war economy.

The slowdown indicates that Western sanctions, though not a knockout blow, are increasingly taking a toll. If sanctions intensify further or global oil prices fall, Russia’s economy could face more severe instability. This downturn undermines Putin's strategic bet that Russia can financially outlast Ukraine and its Western allies, suggesting Moscow may struggle to finance the war indefinitely.

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Experts warn that Russia's economic growth model, overly reliant on military spending, is unsustainable and necessitates a contraction of civilian economic capacities to free up workers for the war machine, which is not a viable long-term strategy. Putin recently dismissed suggestions that the war is stifling the economy, echoing Mark Twain by stating reports of its death "are greatly exaggerated." However, he also cautioned that a recession or stagflation "should not be allowed under any circumstances."

After a brief recession in 2022, military spending, which accounts for over 6% of gross domestic product this year (the highest since Soviet times) and approximately 40% of total government spending, had propped up Russia’s economy and blunted the impact of Western sanctions. Russia’s ability to reroute oil exports to China and Beijing’s support with electronics and machinery provided additional economic stimulus. This created an economic paradox: the most sanctioned major economy was, for a period, growing faster than many advanced economies.

However, this military spending "sugar rush" fueled runaway inflation, compelling the central bank to raise interest rates to a record 21% to try and tame it. Higher interest rates increased borrowing costs for businesses, curbing investment, expansion plans, and squeezing profits. The economic comedown has already begun.

Official data shows Russian GDP growth slowed to 1.4% in the first quarter compared to a year earlier, down significantly from 4.5% in the fourth quarter of 2024. S&P Global’s purchasing managers’ index indicated Russia’s manufacturing sector contracted at its sharpest rate in over three years in June, and new car sales dropped nearly 30% year-over-year in June.

Businesses across Russia are feeling the effects, according to the WSJ. Rostselmash, the country’s largest producer of agricultural machinery, announced in May it would cut production and investment, and pull forward mandatory annual leave for its 15,000 employees due to a lack of demand. In Siberia, electricity grid operator Rosseti Sibir stated it was on the verge of bankruptcy due to high debt, halting investments and proposing tariff hikes for industrial users.

While some analysts argue the Russian banking system remains stable, others warn of increasing instability. A recent report by the Washington, D.C.-based Center for Strategic and International Studies (CSIS) highlighted risks from a government decision to control war-related lending at major Russian banks. The state could direct banks to offer preferential loans, potentially forcing the government to absorb losses if high interest rates prevent companies from meeting obligations.

The Moscow-based Center for Macroeconomic Analysis and Short-Term Forecasting also assessed in May that the risk of a protracted systemic banking crisis in 2026 was "moderate" and growing.

These economic challenges intensify pressure on the Kremlin by reducing its financial capacity to fund its war in Ukraine. The government has operated with a budget deficit throughout the war and projects this will continue for at least two more years. This fiscal strain could provide an opening for Western nations to implement more powerful sanctions.

Falling oil prices present another significant risk for Russia, as energy sales account for about a third of its budget revenues. The price of Russian crude has consistently remained below the level assumed in this year’s budget, and Russia’s oil-and-gas revenue in June fell to its lowest level since January 2023, according to Finance Ministry data.

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Iran is reportedly preparing to mine the Strait of Hormuz, a move that would spike global oil prices and give a significant boost to the Russian economy and its war machine in Ukraine.

Reuters reported on July 1 that Iran loaded naval mines onto vessels in the Persian Gulf last month, citing two U.S. officials, who said the preparations had been detected after Israel launched its "preemptive" attack against Iran on June 13.

Amid the conflict with Israel which has currently settled into an uneasy ceasefire, Iran has repeatedly threatened to block the Strait of Hormuz as a means of deterrence.

If the Strait were mined, Iran could block one-fifth of global oil demand and spike world energy prices — a boon for Russia's oil-dependent economy.

"Any disruption to Gulf supplies would push up global crude prices. Prices for Russian crude would rise in line," John Gawthrop, Argus Eurasia Energy editor, told the Kyiv Independent.

Russia’s energy sector made up 35-40% of its budget revenues pre-full-scale invasion and is powering its war machine.

Western sanctions on Russian energy and the G7’s Russian oil price cap of $60 per barrel have hampered its profits, with Russia losing more than $150 billion over the last three years, but have yet to deal a crippling blow.

The conflict between Israel and Iran caused a spike in prices — Brent crude, the global benchmark, on June 13 jumped from $69.36 to $75 per barrel, a surge that looked like it could grant Russia's economy a reprieve.

Until the Israeli attacks, the future for Russian crude wasn’t looking so bright. Europe was planning its 18th sanctions package targeting Russia's energy sector, and the G7 was pushing for a $45 price cap. Hungary and Slovakia have since blocked the sanctions package.

Prices have since settled along with the conflict and on July 2 Brent crude was $67.50, but if Iran does go ahead with mining the Strait of Hormuz, blocking one-fifth of global oil demand, another surge would follow.

This would also mean Iran blocks its own oil exports too, so it would only be a last resort from Tehran, David Fyfe, chief economist at Argus Media, a market analyst group, told the Kyiv Independent last month.

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President Vladimir Putin claimed on June 20 that Russia's economy is strong despite war and sanctions, brushing off mounting warnings from his own officials about stagnation and looming recession.

Speaking at the St. Petersburg International Economic Forum, Putin was asked about reports that the ongoing war in Ukraine was "killing" the Russian economy.

"Rumors of my death are greatly exaggerated," he replied, quoting American writer Mark Twain.

The president claimed that Russia has outpaced global economic growth over the past two years, allegedly expanding by over 4% annually.

"Our most important task is to ensure the economy's transition to a balanced growth trajectory," Putin said. "At the same time, some specialists and experts point to the risks of stagnation and even recession. This should not be allowed under any circumstances."

The statement came just a day after Central Bank Governor Elvira Nabiullina warned on that Russia's wartime economic momentum is fading fast. She said the economy is approaching the limits of its growth potential, adding that previously effective tools are now exhausted.

Economy Minister Maxim Reshetnikov echoed the concerns, telling a separate forum audience on June 19 that Russia is "on the verge of a transition to recession." He emphasized that recession is not inevitable and that "everything depends on our decisions."

Moscow has experienced rapid inflation and historically high interest rates amid its full-scale invasion of Ukraine. The central bank raised rates repeatedly to combat inflation, but on June 6, it made its first cut in nearly two years, from 21% to 20%.

Putin has criticized the central bank's tight monetary policy for choking off private investment, especially in non-defense sectors.

Despite Putin's optimistic rhetoric, analysts attribute Russia's economic slowdown to sustained international sanctions, falling oil prices, rising wartime spending, and supply disruptions.

Russia's ever-mounting losses on the battlefield which recently passed the 1 million mark are also likely contrbuting to the economic turmoil as the Kremlin is having to pay people to sign up to fight rather than introduce what would be a hugely unpopular mass mobilization.

According to an analysis by economist Janis Kluge, Russia's daily bill just for sign-up bonuses is $24 million.

The ballooning bills come at a time when Russia's economy is already under huge strain from Western sanctions and falling oil and gas revenues.

"The implications for Russia are grave," energy security analyst Wojciech Jakobik wrote in an op-ed for the Kyiv Independent this week.

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Russia's wartime economic momentum is fading fast, with key resources nearly exhausted, Russian Central Bank Governor Elvira Nabiullina said, warning that the country can no longer rely on the same tools that sustained growth in the first two years of the full-scale war against Ukraine, the Moscow Times reported on June 19.

Speaking at the St. Petersburg International Economic Forum, Nabiullina said that the Russian economy had been expanding on the back of "free resources," including labor, industrial capacity, bank capital reserves, and liquid assets from the National Wealth Fund (NWF) — all of which are now reportedly nearing depletion.

"We grew for two years at a fairly high pace because free resources were activated," she said. "We need to understand that many of those resources have truly been exhausted."

Speaking at the same forum, Russian President Vladimir Putin ordered officials "not to allow stagnation or recession" in the Russian economy under any circumstances.

"We must consistently change the structure of our economy," he said.

The comments come after Russia's ambassador to the U.K., Andrei Kelin, claimed in an interview with CNN this week that Russia is spending "only 5–7%" of its federal budget on the war. Kelin claimed that Russia can continue waging its war, saying Moscow "is winning."

According to the state statistics agency Rosstat, Russia's unemployment rate has dropped to a historic low of 2.3%. At the same time, mass emigration and large-scale wartime recruitment have created a labor shortage estimated at 2 million people. Industrial capacity utilization has surged beyond 80%, the highest in modern Russian history.

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Russia's economy is now "on the verge of a transition to recession," Russian Economy Minister Maxim Reshetnikov said at the same forum. Official data show that GDP growth slowed from 4.1% in late 2023 to just 1.4% in the first quarter of 2024, with the economy contracting quarter-on-quarter for the first time since 2022.

Business profits in March fell by one-third overall and dropped by half in the critical oil and gas sector. Industrial growth stagnated at 1.2% year-over-year between January and April, while civilian sectors of the economy began shrinking. Retail turnover growth slowed from 7.2% in December to just 2.4% in April.

An anonymous Russian analyst told Novaya Gazeta Europe that government technocrats are effectively telling Putin it's time to choose between "war or economy."

During its invasion of Ukraine, Russia has faced rising inflation due to record military spending, pushing the central bank to maintain high interest rates. Under government pressure, the bank cut the rate slightly from 21% to 20% earlier in June, despite concerns about weakened private investment.

Officials have scaled back key development projects and reduced shipments of metals and oil products. Early hopes for recovery in 2025, driven by talks with the U.S., have faded as inflation and sanctions weigh heavily on growth.

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The Russian economy appears to be "on the verge of a transition to recession," Russian Economy Minister Maxim Reshetnikov said on June 19, adding that the next step will be decisive.

The comments underscore Russia's mounting economic challenges as it continues its all-out war against Ukraine.

"According to figures, we have a cooling stage (in the economy). But all our numbers are like a rearview mirror," Reshetnikov said at the St. Petersburg International Economic Forum when asked about Russia's economic situation.

"According to current business perceptions, we are already, it seems, on the verge of a transition to a recession," the minister added. Reshetnikov clarified that recession is not inevitable and that "everything depends on our decisions."

Russia has faced soaring inflation during its invasion of Ukraine, driven by record wartime spending. This forced the central bank to set one of the highest key interest rates in decades, hurting private investments in non-defense-related sectors.

Facing government pressure, the central bank slashed the interest rate from 21% to 20% earlier this month.

Reshetnikov himself urged the central bank to cut rates in order to boost growth, aiming to achieve a 3% growth target set by Russian President Vladimir Putin.

Russia has been forced to slash key projects across various sectors in the face of an economic slowdown, brought on in part by plummeting oil prices. Major Russian exporters have also cut down on rail shipments of metals and oil products, even beyond earlier projected reductions.

After some positive signals earlier in 2025 due to U.S. President Donald Trump's outreach to Moscow and hopes for a ceasefire, more recent reports again indicate a sharp slowdown in Russia's economic growth.

Analysts have connected this development to the central bank policies, sanctions, low oil prices, supply difficulties, and high inflation.

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