Discussion with Friends – Russian Economy and Military Capability
A slow discussion unfolded within one of our groups of friends on the Russian Economy and Military Capability. (Sovereignista.com is blessed to be in the company of good friends!)l
Following are the thoughts:
Russian Economy and Military Capability
The Russian economy is the fourth largest in the world according to the IMF GDP PPP measure, and this has been the case since 2024. In 2024 the growth rate was 4.3 per cent. In 2025, it was 1 per cent. That was when monetary policy deliberately produced very high interest rates to slow the rate of inflation. So slower growth was a policy decision. That continued into January and February 2026, when Putin publicly criticised the head of the central bank, and monetary policy was eased. This year growth is forecast to be 1.6 per cent. Those high interest rates did slow down growth for January and February 2026 before some easing owing to Putin’s intervention.
https://tass.com/economy/2117019
14 April 2026.
“In the baseline scenario, the Russian Ministry of Economic Development has lowered its forecast for Russia’s GDP growth in 2026 to 0.4% from 1.3%. The forecast for Russia’s GDP growth in 2027 has been lowered to 1.4% from 2.8%, and in 2028, it has been lowered to 1.9% from 2.5%. In 2029, the ministry has forecasted a growth rate of 2.4% for the Russian economy.”
Compare that to the G7. The UK for the first three months of 2026 [Q1] had a growth rate of 0.6 per cent and that was the highest of all G7 economies. In April 2026, the UK had slightly negative growth.
I now expect the Russian economy to grow faster than the official predictions above, partly because it has increased oil production to ease the impact of the closure of the strait of Hormuz. Most of that oil will go to India and China.
Income from oil used to be a very large proportion of the state budget, but in recent years, including 2026, it has been around 20 per cent of the state budget. The Special Military Operation [SMO] in Ukraine costs 8 per cent of the state budget and, by chance, 8 per cent of GDP. So one can guess how much oil exports would need to be reduced to have any impact on the SMO. There is a direct pipeline from Kazakhstan to China which Russia rents to export oil to China, and Russia has recently redirected Kazakh oil going to the Berlin area of Germany, probably sending it to China too.
In addition, when the strait of Hormuz was closed, Russia immediately put up for sale all the available untapped sources of oil in Russia, presumably with a view to exporting the proceeds. Oil is near the surface in Russia, and so extraction costs are very low.
In my view, the idea that stopping one1ship out of 700, a ship that was recently boarded by a small UK force and taken to Weymouth, will make any difference is comparable to a mosquito bite on a rhinoceros hide. What worries me is that NATO views of Russia’s military capabilities are also roughly this wide of the mark.
In this context, we now see this:
Jesscia Elgot.
That abysmal UK performance in military strategy and force readiness was already obvious from the chronic state of the Trident submarines. They are all reported to be in dock. No wonder some months ago Maria Zakharova, Russian foreign affairs spokesperson, declared that the UK Trident submarines are not a deterrent.
Trying to keep the upgraded Challenger tanks programme is a classic case of the ‘sunk costs’ fallacy. They were originally designed to help slow a Soviet land invasion on the north German plain, where the ground can support their weight. They did not do well in the famous Ukrainian/Russian Black Earth conditions.
Meanwhile, Russia has incurred a relatively small debt in funding the SMO. It will be paid off by the end of this year. That must be the first time since about 1688 that a major military conflict in Europe was conducted without one of the protagonists getting into debt (almost). It is overwhelmingly funded out of current income. Yet ‘everyone in NATO thinks’ that the Russian economy, and the SMO itself, are in trouble.
Some relevant data regarding the SMO:
Having established that the Russian economy is not under serious stress in financing the SMO, here are some readily accessible statistics. The point is to indicate that Russia has continued to increase the actual resources committed to the SMO, as well as to provide the best available estimates of Ukrainian casualties and damage to equipment. The Russian Ministry of Defence needs accuracy in these statistics, because they feed into their computer algorithms that monitor how the conflict is going. They are not concerned with public opinion in NATO countries, unlike Ukraine, because they are able to supply all equipment and other resources domestically.
Here is the best independent estimate of Russian Army losses:
https://kyivindependent.com/russian-independent-media-update-estimate-of-russian-losses/
10 May 2026.
“For the first time this year, independent Russian media outlets Mediazona and Meduza on May 9 updated their overall estimate of Russia’s military losses in Ukraine. According to their report, 352,000 Russian men between the ages of 18 and 59 have been killed since the start of the full-scale invasion in February 2022.”
Now we can look at how the number of Russian military personnel has grown:
https://kyivindependent.com/putin-raises-russian-military-personnel-to-nearly-2-4-million/
4 Mar 2026.
“Russian President Vladimir Putin signed a decree on March 4 expanding the Russian regular army to nearly 2.4 million personnel, according to a Russian legal acts website.
This is not the first time Russia has expanded its army since the start of its full-scale invasion of Ukraine, with Putin having signed a similar decree in September 2024.
Russia’s regular army has grown to 2,391,770 personnel. Of these, 1,502,640 will serve as active-duty troops — 2,640 more than before, according to the March 4 decree.
The manpower balance remains strategically important as the Kremlin tries to sustain the war without full mobilization. Moscow continues to rely on contract recruitment and financial rewards to avoid the political backlash that followed the 2022 draft.”
Here are two sources on the recent number of military personnel in the SMO:
https://newsukraine.rbc.ua/news/putin-says-russia-concentrates-over-700-000-1781278787.html
12 Jun 2026.
https://www.rt.com/russia/624894-putin-names-number-of-troops/
Putin reveals number of troops engaged in Ukraine conflict.
Some 700,000 are currently at the front, the Russian president said.
Note that Ukrainian sources accept some of these numbers, and that the best independent source on Russian casualties [Mediazona et al.] has them much lower than Ukrainian claims, which add about 1 million extra Russians without any sources. The Mediazona estimate is based on collection of data on funeral services and notices, since Russia does not publish its own figures on Russian forces’ fatalities.
It is important to note also that of the roughly 2.4 million Russian troops, roughly 1.5 million are active-duty troops, with the rest forming logistics, medical support, food supply and other sustainment functions. This is quite normal. Of the roughly 1.5 million active-duty troops, 700,000 are in the SMO, and so Russia has 800,000 active-duty troops in reserve. It is well-known that the reserve troops are getting the latest and best equipment. This implies serious planning for any escalation in the conflict.
The obvious conclusions are:
- The NATO rhetoric about the Russian invasion being ‘full scale’ in 2022 is self-evident nonsense since only about 120,000 troops were involved then, with a much more substantial majority in reserve. Yet the phrase is repeated daily across all NATO media.
- The claim that Russia is facing difficulties on the battlefield is implausible, since it can add more troops at will. NATO countries simply refuse to understand that they are facing a doctrine of attritional war, in which territorial gains are viewed as secondary, and in which (if successful) attritional war implies that one can expect a cascading collapse in the later stages of the war. That will probably induce panic in NATO countries.
- The recent evidence shows that Russia is mainly funding the war out of current income – a situation that NATO countries simply cannot conceive of. Sanctions have failed and indeed helped to induce favourable changes in the Russian economic performance that might otherwise have been politically difficult.
[end.]