Surging oil prices triggered by the war in Iran boosted Russia’s oil revenue, but money isn’t the Kremlin’s biggest problem right now.
“Oil sales bring rubles. But rubles do not fight. They must be converted into weapons and soldiers that do,” wrote Nigel Gould-Davies, a senior fellow for Russia and Eurasia at the International Institute for Strategic Studies, in a report published on Monday.
“This is becoming harder for Russia than is generally appreciated,” he added.
His assessment comes even as crude oil futures have jumped over 40% since the US and Israel attacked Iran. The US has also temporarily eased some sanctions pressure on Russian oil.
That boosted Russia’s federal oil tax revenues to a six-month high of 707.1 billion rubles, or $9.9 billion, last month, according to Bloomberg calculations based on Russian Finance Ministry data.
But Russia is increasingly struggling to convert oil revenue into the things that matter most in a prolonged industrial war: soldiers, factory workers, and military production capacity, Gould-Davies wrote.
“Russia faces serious and growing constraints on its ability to turn money into military mass because it has little spare productive capacity to meet relentlessly growing military demand,” he wrote.
That’s because additional spending would mainly drive inflation higher rather than boosting output, ultimately hurting real incomes, he added.
While the Kremlin can still spend more money, the problem is finding enough people and productive capacity to sustain the war.
Russia has avoided another large-scale mobilization since the chaotic “partial mobilization” drive in 2022 triggered panic and a mass exodus from the country. Instead, the state has relied heavily on large signing bonuses and high salaries to attract volunteers.
That model may be starting to break down.
Russia’s economy is now barely growing, most non-military sectors are stagnating, and real interest rates — after accounting for inflation — are among the highest in the world. Major defense enterprises are operating around the clock at full capacity.
At the same time, Russia’s labor market has been squeezed by mounting battlefield losses. Ukrainian estimates put total Russian casualties at more than 1.3 million since the start of the war, though Western estimates are lower. A longstanding demographic crisis has compounded the labor shortage.
“Labor is a scarcer input than physical capital or finance. It is also harder to increase,” Gould-Davies wrote.
That is adding to the strain on Russia’s wartime finances, which appeared resilient in the first years of the war in Ukraine.
Putin under pressure
The country’s economy, fueled by wartime activity, is increasingly coming under strain amid sweeping Western sanctions and high interest rates.
Ukraine has also intensified drone attacks on Russia’s energy infrastructure, with refineries and export infrastructure beginning to weigh on Russian exports, wrote Tom Pawlicki, a senior specialist of market intelligence at StoneX, a financial services firm, on Thursday.
That pressure is landing as Russia’s broader wartime economy shows signs of slowing. Russia’s economy contracted by 0.2% in the first quarter, its first quarterly contraction since early 2023. GDP is expected to grow just 0.4% in 2026, sharply lower than the 1.3% previously forecast, Russian Deputy Prime Minister Alexander Novak said earlier this month.
Official figures showed Russia’s economy grew 1% in 2025, down sharply from 4.3% growth in 2024.
Russian President Vladimir Putin may already be acknowledging the strain of the war in Ukraine.
“I think that the matter is coming to an end,” Putin told reporters earlier this month, referring to the conflict.
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