The Political Economy Behind Russia’s War on Ukraine
Former British ambassador Nigel Gould-Davies examines the political economy of Russia’s war against Ukraine, arguing that Moscow is waging its first major conflict in history by purchasing resources instead of seizing them by force. This shift has triggered a crisis: volunteer recruitment is declining, casualty rates remain high, and the Kremlin faces a stark choice between a painful compromise and compulsory mobilization. Gould-Davies rejects both narratives of Russia’s inevitable collapse and claims of its resilience, describing the situation as a severe crisis.
Now a senior fellow for Russia and Eurasia at the International Institute for Strategic Studies (IISS), Gould-Davies previously headed the economic section of the British embassy in Moscow. In his May 2026 paper, 'The Looming Crisis in Russia’s Political Economy,' he notes that Russia has benefited from a large influx of petrodollars due to conflict in the Middle East, while the United States has eased some energy sanctions against it. Since the invasion began, Russia has more than doubled its military spending.
War by Purchase, Not Conscription
It is crucial to note that Russia is fighting this war by buying resources rather than forcibly extracting them.
“This is the first major war in history where the Russian state pays citizens to fight rather than driving them by force,” Gould-Davies states.Compensation for a Russian contract soldier and their family in case of death can exceed 30 times the average Russian annual salary. Yet Russia’s ability to recruit new soldiers in 2026 has dropped by about 20%. Monthly Russian losses amount to roughly 30,000 killed or severely wounded, while Ukrainian Defense Minister Mykhailo Fedorov has set a target of inflicting 50,000 Russian casualties per month.
Gould-Davies views the Kremlin’s position as precarious. He notes that 'Moscow is trapped by its own creation.' If Russia cannot replenish its massive battlefield losses—described as 'the two blades of the scissors'—it will have to admit it cannot wage war as it wishes.
“Either Russia will be forced to limit its military objectives and accept a painful, difficult compromise, a ceasefire,” the expert emphasizes.
Forced mobilization is also back on the table. Duma deputy Andrey Gurulyov has stated that mobilization is only a matter of time, and Putin has signed a law canceling personal debts of up to $100,000 for those who go to the front. Meanwhile, Russia has brought in around 14,000 North Korean troops, highlighting serious challenges in recruiting new soldiers.
Gould-Davies further argues that Russia’s economic troubles are deepening.
“Those who truly understand the Russian economy have no illusions about this,” he says.Notably, spending on personnel in this war accounts for about 36% of total costs, far exceeding the 6% during World War II. It is also worth noting that Russia has clearly overestimated its economic strength.
The situation inside the country is growing increasingly complex, as 'Putin’s logic' could lead to an escalation of the conflict. Nigel Gould-Davies warns that “when you’re losing a war, the only option is to start a bigger war.” This underscores the threat looming not just over Russia but over the entire region.
Gould-Davies’ analysis highlights the critical economic and social challenges Russia faces amid a prolonged war. High personnel losses, a shrinking pool of volunteers, and mounting financial difficulties create a precarious situation for the Kremlin, potentially affecting its war strategy. As internal problems intensify alongside international pressure, further developments in Russia and on the front could have significant implications for regional security.
As the situation evolves, it's essential to understand the broader implications of Russia's military operations, which now seem to extend beyond even Putin's direct influence. This shift raises critical questions about the sustainability of Moscow's current strategy and its potential consequences for the region. To explore this complex dynamic further, read about how Russia's war machine is operating beyond Putin's control.