Putin’s military economy is bursting at the seams: how deficits and falling oil revenues are putting Russia on the brink of crisis

Russia’s economy is under serious pressure from the war in Ukraine, while US and Russian presidents Donald Trump and Vladimir Putin are preparing to meet in Alaska.

This is reported by Bloomberg .

It notes that Russia’s economic growth is slowing, oil revenues are falling, the budget deficit has reached a three-decade high, and inflation and interest rates remain high. Some Russian financial insiders are warning of a possible debt crisis.

In preparation for the summit, Putin tried to turn the country’s financial system into a “war machine,” massively increasing military spending and financing defense enterprises through state banks at preferential rates. Initially, this yielded results: the ruble recovered, energy revenues increased, and the circumvention of sanctions through third countries allowed economic stability to be maintained.

But the reality has been harsher. Russia’s budget deficit reached 4.9 trillion rubles in July 2025, oil is selling for $55 a barrel instead of the expected $70, and the country’s National Welfare Fund is rapidly depleting. The central bank has raised its key rate to 21%, putting pressure on banks, many of which hold large amounts of “war” loans at low interest rates. This creates the risk of mass defaults and bankruptcies in the military-industrial sector.

In addition, inflation and the rise in food prices, particularly potatoes, have already exceeded 10% by mid-2025, and GDP growth rates have fallen to 1.1% in the second quarter. IMF and Gaidar Institute experts predict further deterioration of the economic situation, including the risk of a systemic banking crisis by April 2026.

Before the summit, Putin tried to get sanctions relief, but his demands to hand over Donbas and Crimea to Ukraine were rejected. At the same time, Trump hinted that he was ready to impose new restrictions on Russia’s oil revenues, which would only worsen the state of the country’s economy. As a result, the meeting in Alaska will be a test for Putin of whether he can maintain a balance between military ambitions and economic stability.

It is worth adding that US President Donald Trump has stated that he does not seek to impose new sanctions against Russia , preferring diplomacy and negotiations. At the same time, he stressed his readiness to apply economic restrictions if the situation requires it.

The day before, it became known that the approval of a new, already 19th, package of EU sanctions against Russia due to its war against Ukraine is expected next month.

It was previously reported that US President Donald Trump planned to present economic incentives at his meeting with Vladimir Putin on August 15 — but not through NATO. If Moscow agrees to end the war in Ukraine, Washington could offer it preferences that would change the balance.

It is worth adding that staff reductions have begun at the largest shipbuilding plant in the Russian Federation, Vympel, which produces civilian and military vessels.

It was previously reported that business activity in Russia’s industrial sector fell in July 2025 to its lowest level since March 2022 .

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