Kremlin Cannot Exit War Against Ukraine Without Crisis Intelligence

Intelligence data shows that the war Russia launched against Ukraine has reshaped the structure of the Russian economy.

Over the past three years of militarization, the country has found itself in a trap: defense spending has risen to nearly 8% of GDP, and the military-industrial complex has become the main driver of demand.

This has allowed the Kremlin to maintain growth in strategic sectors, but at the same time has destroyed the balance, leaving private business and civilian industries sidelined.

"It is impossible to return to a peacetime model without a sharp downturn. After the war, Moscow will begin to cut defense spending. As a result, millions employed in the defense industry will lose their jobs, and entire regions where defense enterprises are concentrated will be left without an economic base," the FIS said.

In addition, the demobilization of hundreds of thousands of contract soldiers will also shock the Russian labor market.

Meanwhile, the Russian budget is already showing signs of exhaustion.

In the first half of 2025, federal revenues fell by almost 17%, mainly due to declining oil and gas income, as energy exports are now sold at a steep discount.

The growth of Russia's oil and gas revenues does not compensate for the losses, forcing the Ministry of Finance to raise taxes and introduce new levies – measures that place even greater pressure on businesses.

Moreover, sanctions and restrictions on technology imports are causing the degradation of civilian production: Russian companies are forced to manufacture cheaper and simpler goods, undermining competitiveness.

In the long term, this deprives the country of the ability to return to global markets with high-tech products.

"Thus, Russia has fallen into a 'military rent trap.' The Kremlin cannot sharply reduce military spending without collapse, but continuing to fund the war is becoming increasingly difficult. This means that a new economic crisis for Russia is inevitable, and overcoming it will require a lengthy and painful restructuring of the entire system," the intelligence service concluded.

Photo: AA

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