Putin’s Budget Exposes his Fear, as he desperately tries to stop the Russian State from tracking Soviet Faultlines
If there was ever a time to tank the Russian economy, it would be now. Start now, and in three to four months, the Kremlin will be forced to make a choice: stop the war to prevent an economic collapse, or continue the war and let the Russian state follow the path of the Soviet Union.
Why did the Soviet Union collapse?
History offers many lessons from the way the Soviet Union marched towards its downfall.
Overspending on the military, the steady deterioration of living standards, economic stagnation in the years and decades leading up to the collapse, the loss of trust in the state, and the draining of resources due to the Afghan war all eroded society’s confidence.
Between 1985 and 1991, the Soviet economy was in decline, struggling with inflation, falling industrial output, and overall productivity that failed to meet the population’s needs.
Line by line, we can match that six-year period before the collapse of the Soviet Union with the last three years of the Russian state.
Economy in a decline — Check.
Rising inflation — Check
Loss of productivity — Check
Trying to act like a superpower and get punched in the face — Check
Unnecessary war draining state resources — Check
The Kremlin cannot address the first four points unless and until the last one is dealt with. The problem for Putin is that he reads history. He will revise it for everyone but himself, but he will still read the right lessons. In those lessons, it says the Russians are not kind to a ruler who loses a war. So, he’s trapped in a dilemma of his own making.
Since he cannot stop or reverse any of the issues listed above, there is one area he could have focused on: balancing defense expenditures with social spending. But no — Putin has chosen to double down on the same mistake the Soviet Union made in the lead-up to its collapse.
In 1989, two years before the collapse, the Soviet Union claimed it would spend 77 billion rubles on defense out of a total budget of 200 billion rubles. However, the CIA estimated the actual figure to be between 130 and 160 billion rubles. This is what they do: tell us one thing while the real figure is much higher.
Even still, they had officially budgeted nearly 38% for defense just two years before the collapse. Once again, history is repeating itself.
The Russian government has allocated 41% of its 2025 budget for national security and defense. Federal revenue is forecasted to hit $433 billion, with expenditures at $446 billion. The Social Policy section of the 2025 budget stands at a mere $69 billion.
Four out of every ten dollars in revenue are going toward the war, while only 1.5 out of every ten dollars go toward “social policy.” The one to two million-strong military takes 40% of the revenue, while tens of millions of Russians have to make do with 15%.
The Institute for the Study of War believes this budget will not be enough for Putin to quell the growing dissatisfaction with his regime or ease the economic hardship faced by the population.
Sustained high levels of defense spending in the coming years during a protracted war in Ukraine and continued military preparations for a possible conflict with NATO will make it more difficult for the Kremlin to sustain funding for the social programs that the Russian population cares about, such as pension increases and healthcare.
Putin is heading down the same path of overspending on defense, just like the Soviet Union did. Ukraine’s combat power is increasing, while Russian casualty rates have doubled in the last year and continue to rise.
I remember Wagner’s slain chief, Prigozhin, complaining that the Russian army was losing 1,000 soldiers every day in the field — with a huge exclamation mark next to it. Now Russia is inching closer to the 1,500 mark. That’s where we are today. What will happen when Ukraine’s combat power grows further, and the Russian military continues its desperate push for inches by sacrificing thousands?
The cost of the war will keep rising, pulling more and more resources from the Russian budget.
If the Western world can figure out how to reduce Russian revenue, even by just 20%, it would place immense strain on the Russian economy, thereby reducing the funds Putin can funnel into his war.
They don’t need to search for new methods to cut Russian revenue. All they have to do is find a way to enforce the $60 price cap already imposed on Russian oil. Like the Soviet Union, Russia is a one-trick pony, heavily dependent on oil revenue, as Gazprom — its gas export company — is nearly defunct.
A drop in oil prices was one of the major factors that triggered the collapse of the Soviet Union. The West can achieve the same effect now, simply by enforcing its existing oil sanctions.
It’s absolutely not a difficult task. There’s a simple way to do it: increase transparency around Russian oil exports. Request a meeting with Indian Prime Minister Narendra Modi and the G7. Tell him he can buy as much oil as he wants, but ask him to promise that he will pay exactly $60 per barrel. If he makes that promise to the G7, he’s more likely to follow through. There are, of course, plenty of ways to incentivize the Indian government to make its oil transactions more transparent.
On one hand, push for this transparency; on the other, target the shadow fleet transporting Russian oil. Incentivize shipping companies that comply with the rules, while punishing those that don’t with everything at your disposal. This approach will reduce Russian revenue without removing Russian oil from the market. That’s been the West’s goal all along: to reduce revenue without disrupting the flow of Russian oil.
So, go ahead and do it. If this is done, there’s a strong likelihood that Putin will find a way to end the war on his own terms. If faced with an impending economic collapse, he’ll tell Russians that he has achieved all his objectives in Ukraine and that it’s time to withdraw. He’ll claim that the war has reshaped the world order, pointing to Moscow’s strengthened relationships with China, India, Iran, and North Korea as proof.
Putin will figure out a narrative to sell to the average Russian. There’s a way to end the war without further fighting, and it’s called enforcing the sanctions.
Great idea! I like some of your phrases, as well: "punch them in the face..." LOL The Tsar's government was overthrown by a crowd of women protesting for bread. Maybe the same thing will happen again!