Bugajski for The Geopost: Russia’s accelerating disasters

Janusz Bugajski

The Russian state is showing increasing signs of stress, decline, and conflict, visible in several dramatic recent developments. In particular, elite fractures are becoming more evident as the state is rapidly exhausting its decreasing revenues and depleting its financial reserves. An accumulation of negative factors can spiral into a full-blown crisis within the coming months.

Russia is undergoing a significant economic downturn and the rosy picture painted by the Kremlin is a façade. Russia faces deep structural problems with over-reliance on energy exports and the pursuit of a war economy at the cost of the civilian sector. In 2025, military expenditure will reach a third of the federal budget, with resources diverted from other shrinking economic sectors. Growing distress is gripping Russia’s industrial economy. Core export sectors such as steel, chemicals, and machinery have been collapsing, as international sanctions have cut access to key markets, spare parts, and finances.

Crude oil sales have kept Russia’s economy afloat but the oil market is volatile while exports of Russia’s refined oil are declining. Although Western energy sanctions were inadequate during the first three years of the war, they are now being expanded to limit Russia’s oil trade and diminish state earnings. Oil and gas revenues have dropped by over one third this year in comparison to 2024. Russia is also depleting its financial reserves accumulated during periods of high energy prices and is unable to borrow on international financial markets. Russia’s National Wealth Fund could be drained completely by the end of 2025. Even Elvira Nabiullina, the head of the Central Bank, states that Russia’s resources are practically exhausted.

All these factors will have dire consequences for financing the war, for social spending, and for Russia’s domestic stability. The current level of defense expenditures is unsustainable and will destabilize the civilian economy. The authorities will sooner or later be unable able to pay government salaries and pensions or fund necessary social services. Western intelligence services estimate that Moscow’s ongoing summer offensive has proved the costliest of the war so far, with total manpower losses now reaching 1.3 million. As Russian forces suffer further annihilation, Moscow may need to conduct mass mobilization, a highly unpopular move that it has avoided fearful of triggering another mass outflow of people and potential social unrest in the large cities.

Purges and power struggles have already begun. Russia’s elites are fearful that as the revenue pie shrinks, they will lose their resources and positions allocated by the Kremlin. Some members of the elite are trying to establish their own political coalitions in order to survive beyond the Putin era. This itself undermines the foundations of the regime and will precipitate power struggles as Putin has no obvious successor. Growing factionalism and violence between security and economic clans will test the country’s survivability.

In an indication of growing pressure on the regime, Russia’s transport minister and former governor of the Kursk oblast was recently found dead in his car after being fired from his post. He was about to be arrested for embezzling state funds allocated for the construction of defense fortifications in Kursk. Several senior generals have been arrested for corruption or incompetence in the war against Ukraine, while others have been sidelined, as Moscow tries to stage a crackdown against corruption to prevent the bleeding of ever scarcer financial resources. The Kremlin is also squeezing the oligarchs for desperately needed funds, including the energy and mineral magnates, and is on the verge of seizing all major private assets and nationalizing large companies. Even the oligarchs loyalty to Putin and the war effort will not spare them from the government’s financial desperation.

A conflicted central regime in Moscow, with dwindling economic resources, and growing resentment against the results of the war, can tear Russia apart. As during the Soviet collapse, this can bring to the forefront more independent-minded regional leaders who will challenge Moscow’s economic exploitation and withhold revenue payments to the center. Additionally, tens of thousands of returning military veterans with arms in hand, unable to reintegrate in the civilian sector, and facing dire poverty may form armed militias and drift toward regional leaders who could offer them better conditions in return for protection against Moscow. Subsequently, as the center weakens several regions and republics may reach for real sovereignty and even independence, as we have witnessed in previous imperial collapses.

Janusz Bugajski is a Senior Fellow at the Jamestown Foundation in Washington DC and author of three new books: Pivotal Poland: Europe’s Rising Power, Failed State: A Guide to Russia’s Rupture, and Free Nations, New States: The End Stage of Russian Colonialism (Anthology)