EditReport: Western sanctions have crippled Russia’s large-scale offensive capabilities
Sanctions have proven highly effective, dismantling the myth of Russian resilience, according to the Free Russia Foundation.
Russia’s prospects for a large-scale offensive against Ukraine are waning. As evidenced by the limited “Summer offensive” of 2025, Moscow’s military capabilities are largely depleted. A report by Vladimir Milov for the think tank Free Russia Foundation sheds light on the mounting crisis and the underlying forces at play. EUalive summarised the key findings of the report.
Vladimir Milov is a Russian politician, economist and the former chairman of the Russian political party Democratic Choice from May 2012 to December 2015.
Instead of expansive campaigns, Russia is confined to targeted operations at only a handful of points along the 1,000-kilometer frontline. A full-scale assault reminiscent of the February-March 2022 invasion or an attempt to seize Kyiv, Kharkiv, or other major Ukrainian cities now appears impossible.
Sanctions have played a crucial role in curbing Russia’s military ambitions, effectively halting its ability to sustain large-scale offensives, as recent military activity confirms.
The unraveling of Russia’s economy
Once heralded by Vladimir Putin as resilient despite Western sanctions, Russia’s economy is now unraveling at an alarming pace.
The narrative of “economic resilience” following Russia’s 2022 invasion of Ukraine was largely predicated on three temporary factors: the depletion of financial reserves, swift import substitution and trade pivots to China and the Global South, and the delayed impact of sanctions – particularly the EU’s oil embargo, which fully took effect in 2023.
However, by mid-2025, these lifelines have largely dried up, plunging Russia into a perfect storm of stagnation, budgetary turmoil, and relentless inflation. The situation shows no signs of improvement, forcing a stark reassessment of Russia’s unsustainable economic model.
The idea that a “military economy” can drive Russia’s resilience is a myth. Military production accounts for roughly 10% of GDP and industrial output – insufficient to buoy the broader economy.
Despite high demand for arms, key sectors like steel are suffering crises, with profitability either low or negative.
Rostec CEO Sergey Chemezov admits that military industries heavily depend on state budgets and face sanctions and credit restrictions that stifle growth and innovation.
Sanctions: the root cause of woes
Western sanctions have proved highly effective in dismantling Russia’s economic resilience limiting access to Western technology and financial markets, constraining output and creating a “demand outstripping supply” scenario that fuels inflation.
It also imposed reliance on monetary emission – printing money, to cover deficits, with limited access to foreign debt or investments. Also increased government spending to sustain the war effort, even as revenues decline due to reduced exports and discounts.
This cycle breeds rising deficits, inflation, and stagnation. Ending the Ukraine conflict could help break this cycle, but Putin’s current stance suggests he remains committed – at least for now.
Economic sanctions and internal hardships have curtailed Russia’s capacity for large-scale military operations.
Nonetheless, Putin can sustain “terrorist warfare” – missile and drone strikes, tactical advances, and propaganda, indefinitely with current resources.
Recent proposals to cede parts of Donbas through negotiations indicate an acknowledgment of military limitations. The upcoming 2026 federal budget will reveal whether Putin’s strategy remains sustainable under economic strain.
While Putin may cling to his current approach, the deepening crisis might force a strategic shift – potentially toward ending the war if international pressure and alternative options run out.
Economic stagnation: a new reality
Despite initial growth of 4.1% in 2023 and 2024, Russia’s economy hit a wall in 2025. Official forecasts have been sharply revised downward: the government’s September 2025 projection now estimates just 1.2% growth for the year, down from an earlier 2.5%.
The National Wealth Fund (NWF), established in 2004 as an emergency reserve, has shrunk from $116.5 billion in February 2022 to just $49 billion in September 2025. This is below the $53 billion federal budget deficit accumulated in the first eight months of 2025 alone (roughly 2% of GDP).
Experts project a budget deficit exceeding 9 trillion rubles ($110 billion) in 2025. As former Central Bank Deputy Chairman Oleg Vyugin warns, only monetary emission – simply printing money, can bridge this gap, risking further inflation.
Finance Minister Anton Siluanov admits that domestic borrowing remains prohibitively expensive, yielding only about $3 billion so far in 2025. Potential tax hikes, including raising VAT from 20% to 22%, threaten to increase inflationary pressures.
Despite a brief dip to 8% annualized inflation in mid-September 2025 inflationary pressures remain high. Service prices and non-seasonal foods increased above 11% in August, with non-food goods prices climbing again after earlier Central Bank credit restrictions. Key drivers include the expanding budget deficit, a weakening ruble, and a severe labor shortage.
The Central Bank’s cautious rate cuts – from 21% in June to 17% in September, have been met with skepticism. Markets reacted negatively when the rate was only reduced by 1% instead of the anticipated 2%, reflecting concerns about fiscal stability and inflation. Since January 2025, the ruble has appreciated by about 33%, temporarily stabilizing the economy. However, this strength comes at a cost: it hampers exports and reduces government revenues.
Sanctions, war costs, mismanagement, and dwindling reserves are undermining its economic foundations.
While the Kremlin may cling to current strategies, the deepening crises suggest that significant adjustments – potentially including ending the war, may become unavoidable if external pressures intensify and internal challenges mount.
Caption: Storage tanks and pipelines at the Central oil tank farm operated by Mero CR near Nelahozeves, Czech Republic, 14 January 2025. In 2025, the Czech Republic’s EU exemption on oil imports from Russia, which is part of sanctions imposed on Russia by the EU over the invasion of Ukraine, will expire. The Czech Republic is now technically ready to switch to full Western oil supply and for a potential Russian oil outage, the Czech government confirmed on 14 January 2025. EPA/MARTIN DIVISEK
Updated: September 29, 2025 - 14:28
