Russia's wartime spending soars amid economic squeeze

The war with Ukraine is costing Russia more and more, and its military budget is approaching levels not seen since Soviet times. What is the Kremlin spending the most money on?

Next year, the Kremlin will allocate as much as 41% of its budget to defence and security. This is more than what will be spent on education, healthcare, social policy, and economic development combined. Interestingly, almost 30% of these funds are expected to indirectly support war activities. The costs of the conflict in Ukraine continue to rise, gradually consuming the profits made in recent years.

Russian authorities are aware that budget revenues are systematically shrinking. In 2025, revenues from oil sales alone are expected to fall by 14% compared to the current year, and by as much as 20% compared to two years ago. To make matters worse, inflation at 21% further reduces the real value of state funds.

In 2023, 6.4 trillion rubles (CAD 92 billion) were allocated to defence. The following year, spending rose to 11 trillion (CAD 156 billion), and in the upcoming year, the Kremlin plans to spend 13.5 trillion rubles, which corresponds to about 183 billion Canadian dollars at the current exchange rate. By contrast, for social policy—which includes pensions, demographic policy, and housing—6.4 trillion rubles are allocated.

These are the largest military expenditures in Russia's history. Never before has the state planned to allocate such enormous resources for military purposes. Moreover, a year ago, an entirely different scenario was predicted. According to the budget approved last fall, defence spending in 2025 was expected to decrease to 8.5 trillion rubles (CAD 122 billion). However, the escalating conflict in Ukraine is generating ever-increasing costs. What exactly is the Kremlin spending these gigantic sums on?

The Kremlin officially does not disclose detailed information about war expenses, placing them in the secret part of the budget. However, one can make some estimates based on the known costs of producing ammunition, tanks, armoured vehicles, and fuel and supplies.

Russia spends the most money on supporting military operations. This refers to producing expensive ballistic and cruise missiles and repairing and maintaining armoured vehicles. According to U.S. intelligence, in the first two years of the war, these expenditures could have reached as much as CAD 70 billion, which at the current exchange rate means nearly 5 trillion rubles. Almost half of this amount went toward the production of various types of missiles, and artillery shells alone reportedly cost CAD 13 billion. The third-largest category of expenditures was the maintenance of military equipment.

These costs are spread across different ministries, further complicating precise tracking. For example, salaries for workers in the defence sector are paid by the Ministry of Industry and Trade, and development research is co-financed by the Ministry of Defence and the Ministry of Economic Development. In this way, the authorities effectively mask the actual costs of conducting the war. On the other hand, expenses related to military personnel are shared with the Ministry of Labour and Social Protection.

The costs of maintaining the Russian army are enormous. The monthly cost of one soldier on the front is about 360,000 rubles, which translates to roughly CAD 5,100. Russia has about 470,000 ground troops on the frontline and an additional 30,000 members of the Rosgvardiya. Altogether, this amounts to 180 billion rubles monthly, or 2.2 trillion rubles annually—nearly CAD 30 billion. And this is just land forces. To this amount, we must add the costs associated with maintaining the Black Sea Fleet, numbering 25,000 sailors, and the Aerospace Forces, which have deployed several thousand more troops to the front.

Another significant expense is the compensation paid to the families of the fallen and injured. The Kremlin pays 7.4 million rubles for each soldier killed and 3 million for injured soldiers. In the first year of the war, Russia allocated 913.7 billion rubles for these compensations, but this year that sum has increased to 2.4 trillion rubles. A similar increase was noted in compensations for the injured—from 748.5 billion to 2.5 trillion rubles.

Moreover, not all of these payments come directly from the Ministry of Defence's budget. Compensations for the wounded are funded from resources allocated to social policy, further straining an already tight budget in this sector.

Forbes journalists calculated that this year, the Kremlin spent the equivalent of one-quarter of Russia's average annual exports from the last decade. Despite sanctions, Russian exports are doing quite well—natural resources are sold through intermediaries in China, India, and African countries.

Despite falling revenues, Russia still earns four times annually what the war costs. Cuts in social spending, investments, and social policy do not pose a problem for the Kremlin. And society, accustomed to living in poverty, does not resist.

One-third of Russians—over 50 million people—live below the subsistence level. 17.2 million citizens are considered poor, constituting 11.8% of the population. Only 32% of residents can afford purchases beyond the bare minimum. In such a society, expecting resistance against the authorities is hard. Putin promises people a strong Russia, and that vision is more important than a full bowl of food.