A combination of current and retrospective data spanning nearly 20 years indicates that the Russian government's decisions in the budgetary, tariff, monetary, and foreign economic spheres form a coherent picture and represent a deliberate long-term choice, made 15-20 years ago, and that ending the war in Ukraine and normalizing relations with the West are not part of the Russian government's plans, according to a report on Kyiv Security Forum (KSF) website on Thursday.
"If these were temporary economic measures, there would be signs of a willingness to adjust them, but the current signals, on the contrary, indicate a deepening of the current course toward confrontation. Russia's defense spending: a twenty-year trend indicates long-term, meticulous preparation for war," economic advisor to the KSF Viacheslav Butko, adding that the share of defense spending in Russia's GDP has been on a steadily rising trajectory since the early 2010s.
He said this growth occurred at a time when oil prices initially remained above $100 per barrel and then fell sharply to $52-55 per barrel in 2015-2016; thus, the priority given to funding the military-industrial complex was not revised regardless of whether Russia's budget oil revenues were high or low.
Butko said in 2017-20, the Russian government attempted to limit tariff increases to a level below inflation, but abandoned this approach starting in 2022, and the Russian Ministry of Economic Development's three-year forecast for 2027-2029 projects that tariff indexation rates will exceed the target inflation rate, which is characteristic of a sustainable medium-term policy choice.
"The use of regulated tariffs to transfer resources from the population and the civilian sectors of the economy to infrastructure monopolies is a long-standing practice. It makes sense to assume that Russia uses infrastructure monopolies to finance military spending," the KBF's economic advisor said.
He also points out that the argument regarding a long-term choice is confirmed by the evolution of Russian policy: the shift from integration into Western markets to an "economic fortress" model was prepared long before 2022 through the consistent accumulation of reserves, reduction of external debt, and the purchase of gold for reserves. "Russia's international reserves have grown steadily for nearly two decades… This policy, actively implemented after the 2008-2009 crisis, was aimed at creating a "safety cushion" that is both liquid and cannot be frozen. Since the start of the full-scale war against Ukraine, it has been used to finance the budget deficit and offset the pressure of sanctions. The fact that it was established long before the war began attests to the long-term nature of the Russian Federation's strategy," the report reads.
At the same time, as reserves were accumulated, Russia's external debt was consistently reduced. As a result, the Russian financial system is largely insulated from external shocks, which is the result of decisions made by the Russian authorities many years before the start of the full-scale invasion of Ukraine. "Such a low level of debt alongside such high defense spending is a combination that indicates the Russian authorities' choice of a model in which the military-industrial complex and related sectors are financed not through borrowing, but through the redistribution of current revenues via tariffs and budgetary measures. At the same time, low debt leaves debt financing as a potential fallback option," Butko said.
The KBF's economic advisor said the share of oil and gas revenues in Russia's budget has declined from 45% in 2000 to 27% in 2025, but this decline has not been accompanied by a diversification of the commodity structure of exports, which has remained consistently raw material-based for two and a half decades. Specifically, in 2025, the share of fuel and energy products in the value of exports stood at 54%.
"Russia is replicating the model of a raw materials exporter, redistributing rent in favor of priority areas – the military-industrial complex, state infrastructure projects, and social support for Putin's electorate. The "Pivot to the East" appears not as a forced maneuver but as a logical continuation of the course toward consolidating Russia's role as a supplier of raw materials and energy resources – but now to Asian markets rather than European ones. "The reorientation of Russian energy flows toward the East was part of a strategic course, the foundations of which were laid long before the start of the full-scale war, rather than an immediate reaction to the closure of the European market," he said.
Butko concludes that for two and a half decades, Russia has been building up its reserves and reducing its external debt, while simultaneously increasing the share of defense spending in GDP and maintaining above-average growth in tariffs for infrastructure monopolies, thereby creating additional financial resources for them to use, including for military needs. All three processes were and remain elements of a single strategy. He notes that such a long-term choice comes at a price, but it is a calculated cost for carrying out a structural transformation of the economy in favor of war and a systemic, long-term confrontation with the "collective West."
