War Pushes Russian Economy to the Breaking Point, IISS Report Warns

Russia’s Wartime Economy Under Strain

According to ХВИЛЯ: A report released on May 21, 2026, by the International Institute for Strategic Studies (IISS) finds that Russia’s economy is struggling to sustain the pace of the war. The Kremlin now faces a difficult choice: either intensify domestic pressure or scale back its maximalist ambitions, as the economy approaches its limits. While Russian military factories run at full capacity with round-the-clock shifts, the civilian sector has stagnated.

According to the report, Russia’s debt service costs in 2025 surpassed those of Germany. By the end of 2025, over 352,000 Russians had been killed in the war, with total Russian losses reaching up to 1.3 million people. In 2025 alone, Russia suffered 416,000 casualties-including deaths, injuries, and missing personnel-and combat losses began exceeding the number of new recruits starting in December 2025. During this period, Russia gained less than one percent of Ukrainian territory, highlighting its battlefield setbacks.

Mobilization Challenges and Social Fallout

The Kremlin has avoided compulsory mobilization due to fears of social unrest, instead relying on a scheme dubbed 'deathonomics.' Under this approach, an average soldier who dies a few months after signing a contract earns more than he would have in his entire civilian life. This underscores the declining quality of recruits and growing mobilization difficulties. In 2022, then-Defense Minister Sergei Shoigu estimated Russia’s mobilization potential at nearly 25 million people, but actual capacity has proven far lower.

Among the measures the Kremlin may consider are:

• restrictions on property rights;
• limitations on freedom of job choice;
• restrictions on foreign travel;
• new taxes;
• voluntary contributions from oligarchs;
• nationalization of assets;
• a second wave of partial mobilization.

Nigel Gould-Davies, IISS Senior Fellow for Russia and Eurasia, notes: 'Oil sales bring in rubles. But rubles don’t fight.'

The situation described in the report highlights the critical economic challenges Russia faces amid a protracted war. Battlefield failures and heavy combat losses threaten not only the country’s military capacity but also its social stability. If the Kremlin fails to find effective solutions to these problems, it could trigger major shifts in domestic policy and society, as well as further intensify social tensions. Developments in Ukraine and the response of the international community are also likely to shape Russia’s future, as economic sanctions and political isolation continue to compound the country’s difficulties.

As the conflict continues to strain Russia's resources, the failure of the Russian military has become increasingly evident, particularly in the fifth year of warfare. This situation raises questions about the Kremlin's strategic decisions and the long-term implications for both its military and economic stability.