The Kremlin continues to attempt to disguise and dismiss the economic impacts of its costly war in Ukraine, Western sanctions, and poor economic policy decisions. Russian President Vladimir Putin acknowledged on February 3 that Russia’s gross domestic product (GDP) grew only one percent in 2025, compared to 4.1 percent in 2023 and 4.3 percent in 2024, but claimed that the reduction was “man-made” and part of the Russian government’s efforts to curb inflation.
Putin claimed that Russian inflation decreased to 5.6 percent by the end of 2025, down from Putin’s claimed high of 9.6 percent in 2024.
Putin acknowledged that inflation rose to 6.4 percent year-on-year in January 2026 but claimed that the Russian government expected this rise after Russia increased the value-added tax (VAT) from 20 to 22 percent as of January 1, 2026. The Russian government likely increased the VAT to buttress federal budget deficits that unsustainably high defense spending caused, placing the burden directly on the Russian population.
ISW has observed reports of sharp food price increases of up to 25 percent both before and after the VAT tax hike went into effect, suggesting that the true Russian inflation rate is higher than Putin is claiming.
The Kremlin’s continued false portrayal of the inflation rate aims to posture that neither the war in Ukraine nor Western sanctions are hurting the Russian economy.
India is reportedly planning to curb its imports of Russian oil, which would likely further strain the Russian budget and deficit and hinder Russia’s ability to fund its war effort without more economic consequences.
US President Donald Trump stated on February 2 that Indian Prime Minister Modi agreed to stop buying Russian oil and to increase purchases of US and possibly Venezuelan oil as part of US efforts to end the war in Ukraine.
Kremlin Spokesperson Dmitry Peskov stated on February 3 that Russia has not received any notice from India about plans to cut off its imports of Russian oil, however.
India is one of the largest importers of Russian oil and continued purchasing Russian crude throughout the summer and fall of 2025 despite Western secondary tariffs against India.
Russian oil exports that make up a significant portion of Russia’s federal revenues have largely funded Russia’s war against Ukraine.
Russian revenues from oil and gas counted for roughly 30 percent of Russia’s total federal revenues in 2024 but fell 22 percent year-on-year in 2025.
Russian Finance Minister Anton Siluanov further acknowledged that Russian authorities expect the share of Russia’s revenues from oil and gas sales to fall by roughly 30 percent in 2026.
Russian officials are also reportedly privately expressing concern over Russia’s increasingly high spending deficit, despite the Kremlin’s public claims of economic stability. Unspecified sources told Bloomberg on January 31 that Russian officials are concerned that federal budget spending will exceed planned levels again in 2026.
Bloomberg noted that the Russian government had to drastically revise its deficit target in 2025 from 0.5 percent to 2.6 percent of its GDP. The sources stated that Russia is attempting to find as much as 1.2 trillion rubles (roughly 16 billion USD) in new sources of income to balance a key budget indicator amid declining oil and gas revenues and the unintended consequences of the strengthened ruble. Bloomberg’s calculations found that already weak crude oil prices, coupled with the impacts of Western sanctions, could leave a shortfall of nearly 2.2 trillion rubles (roughly $29 billion) in 2026.
