Russia faces spreading economic crisis as war costs mount

Researcher Alexandra Prokopenko, a former employee of the Central Bank of Russia, warns that the Russian state is facing a spreading economic crisis that can no longer be delayed. In a writing for the Carnegie think tank, Prokopenko argues that the Kremlin's ability to simultaneously fund massive defense spending, maintain price stability, and ensure economic growth has reached its limit due to depleted reserves and a shrinking tax base.

The crisis is manifesting across various sectors, including fuel shortages and the inability of the state to assist businesses affected by drone strikes. Prokopenko notes that companies are being forced to fund their own air defense and repairs. She suggests that the administration, which previously claimed the cost of war was sustainable, is now beginning to demand payments from millions of citizens. This shift challenges the fundamental social contract between the ruler and the subjects, as the state struggles to fulfill its duty to protect citizens from external violence. While the economy is not expected to collapse suddenly, the crisis is spreading gradually through eroding state procedures, growing budget deficits, and declining living standards.