Prime Minister Mikhail Mishustin offered a dark assessment of Russia’s economic and fiscal situation at a Cabinet meeting on Thursday. Even the pro-Kremlin Moskovskij Komsomolets newspaper struggled to whitewash Mishustin’s remarks, observing that the economy “is going through difficult times.”
The newspaper explained that the “overwhelming majority of [regional] governors are experiencing problems with filling their budgets this year.” This is due to a “general slowdown in the economy, a drop in business profits, the closure of and restrictions on the work of enterprises, [and] problems with the export of key products.” Limited revenue gains have been absorbed three times over by inflation rates hovering around 10%, with nondefense government expenses also significantly increasing. Data also show that the regional government budgets are running a total deficit of nearly $5 billion over the first part of 2025. That’s no small amount for an economy 13.5 times smaller than that of the United States.
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But these aren’t even Vladimir Putin’s most serious problems.
Russia’s economic growth forecasts for 2025 have been cut from 2.5% to 1.5%. Moskovskij Komsomolets adds that the federal government’s “ability to provide assistance to the regions is severely limited, as the federal budget shows a similar picture. Revenues [from non-oil and gas revenues] grew by a modest 2.8% in the first half of the year, which was also eaten up by inflation. At the same time, revenues from oil and gas sources fell by 17% [and continue to fall]. In turn, expenses grew by a record 20%.” This has meant that, as a percentage of GDP, the federal budget deficit is already twice what was forecast for 2025.
It’s clear that international sanctions imposed because of Russia’s war on Ukraine are biting hard. While inflation is slowly falling, it remains high, standing at 8.8% in July. Soaring costs continue to eat away at household and business purchasing power, federal and local government resources, and the Kremlin’s ability to paint the picture of a thriving economy under Western pressure. Putin is obsessed with both the reality and presentation of absolute domestic control, a fixation exacerbated by Yevgeny Prigozhin’s aborted June 2023 coup attempt. This economic situation is thus a big problem.
That’s not all. Because while Russia’s economic growth is now nearly wholly dependent on defense spending, it remains hamstrung by a shortage of labor and high-tech goods, growing business sector debts, and collapsing private investment. Corruption, a defining feature of Putin’s rule, is also running more rampant than ever.
President Donald Trump has an opportunity here if he’s willing to take it.
The president should be aware of Russia’s economic difficulties from his intelligence briefings — the CIA has analysts who assess the economic data and performance of foreign nations. In turn, if Trump really wants Putin to abandon his current gamesmanship in relation to Ukraine peace negotiations, he should now turn up the sanctions pressure on Moscow.
Trump should expand so-called “secondary sanctions” on India over its continued purchases of Russian energy supplies to include China, Hungary, and Turkey. Trump should also add new sanctions on the Russian central bank, Russian energy export enablers such as Trafigura, and energy front companies in the United Arab Emirates, perhaps including the UAE government itself, which is complicit in this activity.
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These actions would dramatically worsen the Kremlin’s ability to sustain its war effort while providing even basic domestic government services. Putin would thus find himself under much increased pressure to choose between keeping up his war and games at the expense of Trump and the cause of peace or finally offering meaningful concessions to secure a just peace. Putin will know that if he makes the wrong choice, a palace coup led by someone smarter than Prigozhin may follow.
Trump has been dealt the economic cards to play Putin artfully; he just needs to use them.