How Russia finances its war against Ukraine

Russia’s economic statistics reveal that it is capable of continuing the Ukraine operations for few more years, notwithstanding the sanctions.

There are repeated allegations in American policy circles about ‘India financing Russia’s Ukraine War’. While India has purchased Russian oil in significant proportions in last few years, it does not lead to suo moto affirmations of such allegations. For the record, China and the European Union (EU) buy more Russian oil or gas. Concurrently, Russia has multiple sources under its structured war finance arrangements. The constricted oil trade with friendly countries under the US-imposed sanctions regime is just ‘one source’. Russia’s economic statistics reveal that it is capable of continuing the Ukraine operations for few more years, notwithstanding the sanctions.

Russia was never the top-most producer and exporter of oil and gas. Yet, war compulsions have made Russia resort to large-scale oil and gas sales. Since 2022, Russia is on an extraordinary mission to sell oil to friendly countries, initially at a much-discounted rate.

In 2024, Russia’s oil and gas revenues crossed $235 billion. India accounted for some $52.73 billion in oil imports from Russia. Thus, if oil figures are construed to be the major source of Russian war operations, then India’s contribution was only around one-fifth and it did not (singularly) finance Russia’s war coffers.

To that extent, high-sounding bombastic statements emanating from Europe and America miss out on statistics. Further, oil and gas revenues account only for 30 per cent of Russia’s budget expenditure. It is quite apparent, therefore, that Russia has other significant sources for funding its expenditure, including war expenditure. 

The Russian strategy of war financing involves many components that enables it to test Ukraine’s defensive operations.

First, President Putin may have planned for the Ukraine special operations much before the actual onslaught and taken precautions (like budget and supply-chain logistics) as part of his offensive war strategy. This is evident in the fact that all sectors of Russian economy are sluggish but stable. The protracted war has not affected any particular sector in a major way though there has been marginal reduction in social sector expenditure. Russia has also managed to manipulate the façade of public support, essential in war atmospherics when Russian soldiers are complaining of fatigue and exhaustion.

Second, Russia is a warfare-oriented state with cost-sensitive war strategy. The country spared itself from any external borrowing in big way that would have in any case not materialised due to an anti-Russia campaign led by the US and NATO allies. Russia has also not levied any exclusive war tax to mobilise additional resources for the war. Since Russia is not a major trading nation (except oil, gas and military weapons), it has internalised the war costs instead of externalising the same. This is done through a series of local subsidies available to the domestic military industrial complex (MIC). Consequently, Russia produces military goods and weapons at a much cheaper cost than they are available in the international arms market or at rates at which Russia sells them to friendly countries.

Third, Russia has a huge domestic MIC, producing front end, high-tech weapons and is a lead exporter in the world. Despite more than three years of war, Russia still accounts for 7.8 per cent of the global military sales, according to the Stockholm International Peace Research Institute (SIPRI) Fact Sheet on ‘Trends in international arms transfers, 2024 (March 2025)’.

While Ukraine has emerged as the world’s largest arms importer, Russia doesn’t figure anywhere in the top 40 importers’ list. Russia may have, therefore, stored huge stockpiles of arms and ammunitions and minimised its dependency on international arms market. Thus, the Russian MIC is still in good shape. From a defence economy perspective, this is commendable.

Probably, the best defence economic indicator going in Russia’s favour is its defence budget as portion of the GDP.

According to the SIPRI Fact Sheet on ‘Trends in world military expenditure, 2024 (April 2025), Russia spent a whopping $149 billion in 2024, accounting for 7.1 per cent of its GDP. These figures are higher by almost 100 per cent when compared to 2015 and 38 per cent when compared to 2023. This still provides Russia the leeway to raise its defence budget from 10 to 15 per cent of the GDP.

Concurrently, Ukraine already stretched its defence budget to $64 billion last year, accounting for an unmanageable 38 per cent of its GDP. Ukraine cannot go further unless hand-held by the US and NATO allies. If defence budgets are to exclusively announce war outcomes, the equations are fast gravitating to Russia’s side!  

It has also been alleged that the Russia (like India) is a dead economy. However, if past couple of years are any indication, Russia has managed to remain stable and grow at more than 4 per cent. This growth came despite sanctions and war atmospherics. While future growth projections are sluggish, that may not strain Russia’s war finances since Russian leaders are not interested in curbing military spending growth. Russia has an overgrown military establishment where defence budget is just one component. There are other important components like large armed forces size, wide-spread MIC, exports, top arms-producing companies and of course front-end leadership in military innovation. Collectively, they make Russia the second most important military power in the world. With Ukraine’s own resources almost drying up, Russia may sense an opportunity to impose or negotiate pax Russiana sooner than later!

Russia’s decision to impose war on Ukraine was a volitional and calibrated choice. Russia’s war finances were well planned and secured from beginning. The oil revenues provide only ‘additional sources of war funding’.

When the American and European leaders place undue emphasis in curtailing oil sales from Russia, they only showcase their ignorance about Russia’s political economy of defence. Russia’s war finance is ‘an independent variable’ and largely immune from international sanctions. Therefore, the west should calm down on sanctions and encourage Russia towards negotiated ceasefire with Ukraine.

Note: The author is in the Indian Defence Accounts Service. Views are personal and do not represent the stand of this publication.