Military Spending Now Half of Russia’s Budget
John C. K. Daly
Executive Summary:
Germany’s Federal Intelligence Service reported on February 4 that Russia’s 2025 military spending was 66 percent higher than the Kremlin claims, accounting for half of the Kremlin’s overall budget and approximately 10 percent of Russia’s gross domestic product (GDP).
Russia’s expanding war budget is colliding with falling energy revenues as sanctions and lost European gas markets shrink export profits, widening the federal deficit and forcing the government to sell gold reserves, raise taxes, and consider spending cuts.
The Kremlin’s prioritization of military spending signals long-term militarization and heightened risk for Europe, with expanded Russian forces amassed near North Atlantic Treaty Organization (NATO) borders even as inflation, debt pressures, and economic stagnation threaten Russia’s financial stability.
Germany’s Bundesnachrichtendienst (BND), the Federal Intelligence Service, reported on February 4 that Russia’s 2025 military spending was 100 billion euros ($115.6 billion) higher than the Kremlin claimed, half of the Kremlin’s overall budget at 250 billion euros ($287.6 billion). Even accounting for classified items, this is 66 percent higher than the Kremlin’s official figures, and approximately 10 percent of Russia’s gross domestic product (GDP) (BND, February 4; The Moscow Times, February 5). The BND’s analysis reveals that many expenditures that should have been allocated to the defense sector were hidden within other departments. For example, construction projects for the Ministry of Defense, military technology development, and social benefits for members of the armed forces were not listed in the official defense budget. Since Russia’s full-scale invasion of Ukraine, military and armaments budgets have risen every year, and their deleterious effect on Russia’s economy continues to grow. The BND analysis concluded:
These funds are used not only for the war against Ukraine, but also for the further development and expansion of military capabilities, especially near the North Atlantic Treaty Organization’s [NATO’s] eastern flank. These figures clearly demonstrate the growing threat to Europe from Russia (BND, February 4).
The increasing military demands on the Russian budget have coincided with a downturn in government energy export revenues. Western sanctions imposed in response to the Kremlin’s full-scale invasion of Ukraine have caused Russian oil profits to decrease (Meduza, December 30, 2025). Russia’s January oil revenue was 50.2 percent less than in the same period in 2025, adding to an ever-widening budget deficit (Russian Ministry of Finance; TASS, February 6). Russia’s full-scale invasion of Ukraine has crippled Russian natural gas pipeline exports to Europe, which used to be its largest export market (The Bell, December 30, 2025). Before February 2022, Russia annually sold roughly 150 billion cubic meters (bcm) of gas to the European Union. That number is now down to 38 bcm (Council of the European Union, March 13). According to the recent pricing for European gas futures, a bcm now sells for around $353 million. Lost sales cost Russia up to $40 billion each year.
The BND conclusions bolster the assessment that Russia’s war expenditures are far higher than the government acknowledges and that they are increasingly distorting the national budget. According to the BND analysis, in 2022, Russian military spending accounted for 6 percent of the country’s gross domestic product (GDP). According to the BND, this figure rose to 6.7 percent in 2023 and to 8.5 percent in 2024 before reaching ten percent in 2025 (Die Zeit; Kleine Zeitung, February 4). The BND is not the only Western analytic organization to note the increasing distortion of military costs on Russia’s economy. According to the Berlin-based Foundation for Science and Politics (SWP), in January–September 2025, Russia’s federal budget expenditures on military items reached a record high of 11.854 trillion rubles ($154.5 billion). Per SWP, the 2025 Russian military budget increased by 95 percent compared to 2023 and by 295 percent compared to 2021 (Deutsche Welle, February 4).
At present, there are no substantial signs that the Kremlin is willing to significantly constrain rising military spending. In September 2024, the Russian government submitted a draft federal budget for 2025 and plans for 2026 and 2027 to the State Duma. According to the document, 2025 expenditures under the “National Defense” category were expected to amount to $175.9 billion (13.5 trillion rubles), more than the combined spending on social policy, healthcare, and education (Vtomske.ru accessed via Dzen.ru, October 1, 2024). In the 2024 budget, $140.8 billion (10.8 trillion rubles) was allocated for defense. The 2025 expenditure increased by 24 percent (Vtomske.ru accessed via Dzen.ru, October 1, 2024).
European NATO countries aim to reach a defense budget of 5 percent of their GDP by 2035, as set out in a June 2025 memorandum of understanding (European, September 23, 2025; The Economist, February 16). Russia’s military spending hitting 8–10 percent of its GDP, in comparison, underlines Russia’s massive military prioritization amid its war against Ukraine (European Union Institute for Security Studies, September 23, 2025). The increase in Russian defense spending is also a signal to Europe. With a rising military budget and expanded capacities on NATO’s borders, Russia is demonstrating its power and influence (Newstime, February 4).
Russia’s 2026 budget is essentially a military budget. In September 2025, Deputy Chairman of the Russian Security Council and Chairman of the United Russia party Dmitrii Medvedev announced this at a meeting with members of his State Duma faction. Medvedev told his membership, “It is crucial for us to maintain funding for the people’s program, despite all the budget’s complexities. A budget is never simple, and right now, let’s face it, it is a military budget” (RIA Novosti, September 16, 2025). Medvedev’s recent remarks represent a complete reversal from earlier comments—in February 2024, he said that the Russian budget could not be considered military. According to him, only a third of expenditures were related to Russia’s full-scale invasion of Ukraine, adding that approximately 30 percent of federal budget expenditures go toward social spending, education, and healthcare, while the other third is “simply for the country’s development, that is, the economy” (Vedomosti, September 16, 2025).
Strictly speaking, Russia has fulfilled its promise to reduce defense spending. In June 2025, Russian President Vladimir Putin told journalists covering the Eurasian Union (EAEU) summit in Minsk:
We are planning to reduce defense spending, both next year and the year after that, and for the next three years. There is no final agreement yet between the Ministry of Defense, the Ministry of Finance, and the Ministry of Economic Development, but overall, everyone is thinking along these lines (President of Russia, June 27, 2025).
In reality, this reduction is close to the margin of error—only 1.5 percent. The military budgets for 2027 and 2028 are greater than 2025’s (Novaia Gazeta Evropa, September 30, 2025). According to NATO’s methodology for categorizing military spending, Russia’s military spending in 2025 could reach 16–17 trillion rubles ($206.1–$218.9 billion) (Novaia Gazeta Evropa, September 27, 2024). In contrast, before the full-scale invasion of Ukraine began, Russia spent $38.6 billion–$45 billion (3–3.5 trillion rubles) annually on defense (Novaia Gazeta Evropa, September 30, 2025).
In 2024, Russian inflation reached 9.5 percent because of high military budget expenditures and the accompanying increase in the federal deficit (Novaia Gazeta Evropa, October 30, 2025). One of Russia’s top financial managers commented that there are growing signs of inflation well above the 6 percent declared by the authorities, despite austerity measures (The Moscow Times, February 5). In February, the soaring costs of the war, combined with a rising deficit from shrinking energy exports, prompted Kremlin economists to warn Putin that “there are three or four months left” before the onset of a large-scale economic crisis (The Moscow Times, February 5). Russia’s financial difficulties could become even more serious as Europe weighs additional sanctions against shadow-fleet tankers used to ship Moscow’s oil in defiance of sanctions. Russia’s budget deficit will continue to grow due to falling oil and gas revenues, as the banking system comes under increasing strain from high interest rates and a large volume of loans to finance the war. While Putin continues his war, Russia’s economy will continue to worsen.
In late February, the Russian government stated that it is preparing to cut spending due to declining oil revenues and a slowing economy, acknowledging that it cannot meet its commitments set out in its 2026 budget. In a February 25 interview on Vesti state television, Russian Finance Minister Anton Siluanov said that the government is preparing to cut spending and revise the parameters of its “budget rule,” which determines what share of excess revenues from oil and gas exports the state saves in the National Wealth Fund (FNB) and what share goes on day-to-day expenditures. Siluanov remarked:
Perhaps, given the external environment, the figures will be slightly shifted or changed. But I repeat once again that our most important commitment to the people regarding our projects and national technological initiatives is that they will provide them with the necessary funding (Vesti, February 25).
In its relentless search for funds to cover its revenue shortfall, the Central Bank of the Russian Federation has begun selling physical gold from the government’s FNB reserves to help fund the military budget (Interfax, November 19, 2025). Russia’s gold reserves exceed 2,300 tons and rank as the fifth-largest in the world. Prior to the Kremlin’s full-scale invasion of Ukraine, the FNB accumulated 405.7 tons of gold. Since 2022, the Ministry of Finance has sold off 57 percent of this reserve, 232.6 tons, to plug budget holes. As of November 2025, the fund’s gold holdings were only 173.1 tons (The Moscow Times, November 20, 2025).
NATO frontline states are nervously contemplating possible Russian aggression after the end of the Kremlin’s war against Ukraine. According to recent observations by the Finnish broadcaster YLE, following the end of hostilities in Ukraine, Finland could be a Russian target. YLE has noted increased Russian military activity in Kandalaksha, south of the Kola Peninsula; the reactivation of the Leningrad Military District; and military activity in the Karelian Isthmus near St. Petersburg. Until then, Russia will compensate for its land capabilities tied up in the far north by placing greater emphasis on its air and naval forces (Europäische Sicherheit & Technik, February 6).
The U.S.–Israeli airstrikes against Iran that began on February 28 may provide the Russian economy with some slight relief. Oil and gas revenues, which account for 25 percent of Russia’s budget, could rise. According to Igor Iushkov, an expert at the Financial University under the Government of the Russian Federation, the current situation is generally beneficial for Russia, as the discount on Russian has will narrow because of growing demand, primarily from the People’s Republic of China (PRC), which has now lost its supply of Iranian oil (Moskovskii Komsomolets, March 3). In January, the price of Russian Urals crude oil exported was $41 per barrel, but the government budgeted an average annual price of $59.90 per barrel (The Moscow Times, February 28). The day the conflict in Iran began, Kremlin special envoy Kirill Dmitrev gloated, “$100+ oil per barrel soon,” even though Brent crude is about $73 a barrel and West Texas Intermediate trades at about $67 (X/@kadmitriev, February 28).
The surge in military spending is occurring amid Russia’s stagnant GDP and halved oil revenue due to Western sanctions. Seeking new revenue, the Russian government is ramping up taxes on the hapless population. The Ministry of Finance has already proposed legalizing online casinos, imposing a 30 percent tax on their revenue, and introducing export duties on diamonds (Kommersant, January 27; Interfax, January 29). The Ministry of Natural Resources has announced a radical increase in environmental fees for metallurgists, gold miners, and the oil and gas sector (Kommersant, January 28). In 2026, the value-added tax (VAT) rate increased from 20 to 22 percent (Forbes.ru, September 24, 2025). The corporate income tax rate has been increased from 20 to 25 percent, and a steeper progression of the personal income tax rate away from the previous single flat rate of 13 percent is under consideration, along with higher land and real estate taxes, higher excises, and higher tax rates for small businesses (Forbes.ru, January 4; RBC, March 13). If Russia’s Central Bank keeps interest rates high and oil and gas revenues decline, Russia will face a difficult choice: raise taxes again, cut spending, or increase debt. While Russia’s military success is uncertain, the Russian population will be footing the bill for Putin’s expansionist ambitions.
This article was originally published in Eurasia Daily Monitor.