SUMMARY -- Source: Foreign Affairs 20-10-2025 

The Cracks in Russia’s War Economy

How America and Europe Can Exploit Moscow’s Vulnerabilities

Alexandra Prokopenko

This article, "The Cracks in Russia’s War Economy: How America and Europe Can Exploit Moscow’s Vulnerabilities" by Alexandra Prokopenko, argues that while Russia's economy has been surprisingly resilient in the short term, its long-term vulnerabilities will prevent it from achieving its goal of a massive military expansion capable of truly challenging NATO. The author, a former Russian central bank employee, advises the U.S. and Europe to exploit these weaknesses immediately.

Russia's War Economy: Short-Term Resilience vs. Long-Term Constraints

The author acknowledges that Russia's economy has outperformed most forecasts over the past three years due to extravagant government spending on the military (now nearly 40% of the federal budget, or 8% of GDP), high commodity prices, and skillful economic management.1 Russia has managed to sustain its war effort through a partial mobilization, around-the-clock defense production, and the use of parallel imports and Chinese supplies to bypass Western sanctions.

However, this success is limited:

• Plateaued Capacity (*): Defense-industrial capacity (excluding drones) has largely plateaued. The equipment sent to the front is mostly refurbished, not new.

• Exhausted Reserves: Russia has exhausted its reserves of manufacturing capacity and manpower. To significantly expand output or troop numbers, Moscow would need a full shift to a comprehensive wartime footing (like in World War II) by commandeering civilian production, a move it has avoided due to the fear of social unrest and consumer shortages.

Key Cracks and Vulnerabilities

The Russian war economy operates like a "disposable-goods economy"—generating high activity and wages but no lasting assets or productivity gains, making the country "busier yet poorer." Its constraints are:

1. Fiscal Strain: Oil and gas revenues are declining, forcing the government to rely on "revenue mobilization" (fines, fees, and tax increases on VAT and corporate income).2 For the first time since the war began, military spending is set to stop growing in the 2026 budget draft, suggesting Moscow can neither sustain its current spending nor safely transition back to a civilian economy.

2. Labor Shortage: The labor market is extremely tight, with firms reporting a 2.2 million worker deficit.3 The war has exacerbated this with high casualties and injuries among working-age men, while restrictions on migration compound the problem.4

3. Technological Isolation: Export controls have cut off supplies of advanced components (semiconductors, specialized machine tools), forcing Russia into costly, lower-quality import substitution.5 This has created a dependence on China for components and machine tools, making Russia subordinate to Beijing as a resource supplier rather than a technological equal.

4. Defense Industry Fragmentation: The defense industry is a "patchwork quilt" of state giants and small, innovative firms. However, post-war, the government is likely to restore the old, centralized Soviet-style system over the innovative small shops, which could slow technological development and lead to internal conflicts over control and revenue.

Recommended Western Strategy

The author concludes that Russia's planned military resurgence will be slow, uneven, and costly, creating a window of opportunity for its adversaries. The U.S. and Europe must act with urgency rather than wait for the economy to collapse:

• Tighten Controls: Policymakers should tighten controls on critical components (optics, semiconductors, advanced machine tools), and continue sanctioning Russia’s oil exports and financial system.

• Target Consumer Goods: Make it harder for Moscow to import the consumer goods (electronics, clothing, household items) that underpin middle-class life. This would threaten the "normalcy of daily life" that Putin has maintained to ensure public acquiescence to the war.

The goal is to increase pressure while Russia is constrained, hindering its long-term ambition to become a credible military threat to NATO.

(*) Plateaued capacity

• Plateaued capacity refers to a state where the ability of a system—such as a factory, industry, or an economy's output—to increase further has stopped or leveled off, reaching its maximum sustainable limit. It suggests that, despite continued effort, investment, or demand, the production or output rate cannot be significantly raised beyond its current point because all available resources (like manpower, machinery, or infrastructure) are being utilized at their fullest extent. The system has hit a "ceiling" or a "plateau."

• In the context of the article, Russia's defense-industrial capacity has "plateaued," meaning its ability to manufacture more weapons and equipment has reached its limit and cannot easily be expanded without fundamental, difficult changes (like shifting the entire civilian economy to wartime production).

• Dutch Translation: Geplateauïseerde capaciteit. Het systeem heeft een 'plafond' of een 'plateau' bereikt.

Summary provided by Gemini