President Vladimir Putin has reshaped Russia’s economy and society around the war in Ukraine, pouring vast state resources into the military in an effort to sustain battlefield momentum and strengthen his hand in peace talks. Nearly 40 percent of the federal budget now goes to the military and security services, while additional funds are consumed by debt payments tied to wartime spending. Economists warn that this redirection of resources has come at the expense of long-term development and innovation.

The war has deepened structural weaknesses that predated the invasion, including demographic decline, economic stagnation and heavy reliance on natural resources. Hundreds of thousands of soldiers have been killed, and many young and educated Russians have fled abroad, worsening labor shortages and accelerating a brain drain. Investment has fallen, inflation remains a concern and much of the country’s innovation is focused on bypassing sanctions rather than advancing new industries.

Although heavy military spending initially cushioned the economy from the impact of sanctions, oil and gas revenues have fallen and financial reserves have dwindled. As security and social obligations consume most of the federal budget, other areas of public investment are largely frozen. Analysts say that even if a peace deal brings sanctions relief, reversing the structural transformation of Russia’s war-driven economy will be difficult and costly, leaving the country’s long-term prosperity uncertain.