The conclusion of the war in Ukraine will inevitably lead to an economic collapse in Russia. According to Ukraine’s Foreign Intelligence Service, military spending has become the main driver of the Russian economy, sidelining private business and civilian sectors. Strengthening Ukraine militarily and economically will accelerate Russia’s financial exhaustion.

Currently, Russia’s economy still largely depends on the oil sector, which accounts for about 77.7% of the federal budget. China remains Russia’s main economic partner. In 2024, bilateral trade between Russia and Beijing exceeded $240 billion. Beyond trade, China supplies Russia with critical components for producing military drones and equipment, boosting Moscow’s military capabilities.

The military-industrial complex keeps the economy Afloat

According to the Ukrainian Foreign Intelligence Service, Russia’s defense spending has risen to nearly 8% of GDP, making the military-industrial complex the sole driver of domestic demand. While the Kremlin supports growth in strategic sectors, it simultaneously destabilizes the broader economy, leaving small and medium-sized businesses without prospects.

Mass layoffs after the war

Once the war ends, Moscow will be forced to cut defense spending. Millions of workers in the military-industrial complex will lose their jobs, and entire regions will be left without an economic foundation.

The demobilization of hundreds of thousands of contract soldiers will create an additional shock to the labor market.

Budget deficit and decline of civilian production

Russia’s federal budget is already strained: revenues in the first half of 2025 fell by nearly 17% due to declining oil and gas income.

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Sanctions and import restrictions on technology force Russian companies to produce cheaper, simpler goods, reducing competitiveness and closing opportunities in global high-tech markets.

Inevitable economic crisis

Russia is trapped in a “military rent” scenario: continuing to finance the war is increasingly difficult, yet cutting spending without triggering economic collapse is impossible. Resolving this crisis will require a long and painful restructuring of the entire system.

Russia’s economy is shrinking, according to Ukraine’s Foreign Intelligence Service. Russia’s small and medium-sized enterprises are on the brink of survival.

Record drop in registered companies

According to the agency, the number of registered businesses in Russia fell to its lowest level since 2010. It is just 3.17 million as of 1 September 2025. By comparison, there were 3.29 million companies in 2023.

Causes of the crisis

The main factors driving the business decline are the high interest rate of the Central Bank, which stayed at 21% annually for six months, and intensified tax control.

In 2024, the Russian tax authorities liquidated 100,000 legal entities, compared to 172,000 in 2023 and over 214,000 in 2022. Rather than revitalizing the market, this has weakened competition, reduced jobs, and decreased innovation.

Business “mortality” exceeds “birthrate”

For the first half of 2025, more companies closed than were created, a trend not seen since 2022. Trade, construction, and industrial enterprises were hardest hit. Even with a slight reduction of the key rate to 17%, the market continues to contract, leaving little chance for growth in Russia’s small and medium-sized business sector.