The Foundation for Defense of Democracies notes that the Kremlin plans to spend $145B of its total $436B state budget on defense in 2025. This is more than 6.3% of Russia’s GDP, and the country’s highest level since the Cold War. Also, additional war-related payments are scattered throughout Russia’s annual budget. Therefore, the true burden on the Russian economy is approaching an impressive 10% of GDP.
At the same time, the Russian government is forced to work with a deficit that reached $34B in 2023 and is emptying the National Wealth Fund. In 2021, its liquidity was $117B, but today it is only $55B.
After the fund is empty, Moscow will have to take unpopular steps that carry risks for the regime’s stability. So, for Europe and the US this is an opportunity to put even more pressure on Russia – to lower the price ceiling for Russian oil to $30 and tighten sanctions against illegal buyers in China, India, and Turkey.