A lot of people still imagine Putin’s war in Ukraine is paid for somewhere else.

Some hidden reserve. Some secret pot of money. Some mysterious Kremlin vault ordinary people will never see.

That would almost be comforting.

But the truth is uglier: you are looking at the war budget every time a Russian family buys groceries, postpones a home purchase, loses a business, or watches their savings shrink.

The Kremlin is not funding this war from a magic basement. It is funding it by making ordinary Russians poorer. That is the invisible war tax.

Today, I want to show you how Putin is really paying for this war — not with hidden treasure, but by squeezing Russia’s own society until normal life starts to hollow out.

Here’s our roadmap:

• The Empty Cushion — why the old reserve is no longer enough
• Your Grocery Basket Pays — how inflation became a hidden war tax
• Business Under Siege — why private property in Russia is only rented from the state
• The Country Eating Itself — how war money drains the civilian economy
• Ukraine Raises the Cost — why strikes on infrastructure make every export harder
• Future as Collateral — how Russia is burning tomorrow to buy one more year of war

The Empty Cushion

The first lie we need to clear away is that Russia still has some vast, secret, inexhaustible reserve of money.

It doesn’t.

Yes, the state still has resources. There’s no threat of immediate bankruptcy like in 1998. But the old comfort is gone. The cushion is much thinner than it looks from the outside.

For years, Putin’s system lived by a very primitive formula. Sell raw materials abroad. Pull the hard currency into the state’s hands. Then redistribute it downward through pensions, salaries, contracts, subsidies, and handouts to loyal elites. As long as enough export money kept flowing, the system could pretend to be stable. It could hide its stupidity, corruption, and decaying infrastructure. It could pay for wars.

That was the real miracle of Putinism. Not good management, innovation, or productivity. Just a tremendous cash flow from abroad, landing in the hands of the state.

Now look at what has happened to that formula.

The liquid part of Russia’s National Wealth Fund stood at about 52 billion dollars as of March 1. Before the full-scale invasion, that cushion was twice as large. And the budget deficit in 2025 rose to 2.6 percent of GDP, the highest level since 2020.

That matters because it tells us something about the regime itself. An incompetent government uses reserves the way an alcoholic uses inheritance money. It sells one more asset to keep the music playing for one more season and calls this stability.

Even the recent jump in oil prices does not solve the structural problem of the Russian economy. It helps. Of course, it helps. If oil prices go up for a while, Moscow breathes easier for a while. That is all. Once the prices go down again – and they certainly will – any small gains will be wiped out.

A normal country in trouble can borrow broadly. Attract capital from international markets, and buy itself time that way. Russia cannot do that anymore. Sanctions, financial isolation, and political risk have narrowed that path drastically. So when the war keeps getting more expensive, the Kremlin turns inward. It squeezes its own society.

And that works. Millions of Russians live off the money first collected by the state and then redistributed downward. 41 million pensioners. 19 million people working in public administration, education, healthcare, and other sectors that are largely budget-funded. Overall, about 55 to 60 million Russians depend directly on state-controlled flows of money. And beyond them stand millions employed in state-owned firms, state contractors, and towns where one budget-fed employer keeps the whole place alive. This is who ultimately pays the cost of the Kremlin’s war.

Your Grocery Basket Pays

When people hear that Russia is still paying soldiers, building missiles, and financing drone factories, they often imagine some separate war budget, sealed off from normal life. As if there is one room for missiles and another room for potatoes.

But no. There is only one room.

When the regime spends heavily on war, while the economy is already tight and short of labor, the pressure shows up in prices. Especially in food.

This is what I mean when I say an everyday Russian’s grocery basket is paying for the war.

In April 2025, Russian households spent 35 percent of their income on food: the highest level in five years. For poorer Russians, the pressure was even worse. Food inflation ran above 20 percent, around ten points higher than the official inflation rate. Potatoes, cabbage, onions, the boring things that keep a family fed, rose sharply.

And here is why this happens.

The state pumps money into the military sector. It pays soldiers more. It pours funds into arms plants, security structures, subsidies, and politically useful industries. That extra money enters an economy already stretched by sanctions, labor shortages, weak logistics, and a falling supply of imported goods. Too much money chases too few real things. Prices rise.

Then the state acts surprised. Or rather, it pretends to be surprised.

This is not a bug. It is the hidden tax by which an authoritarian regime shifts the cost of war onto the population without openly saying so. You don’t get a letter in the mail saying, “Dear citizen, we are taking ten percent of your food budget to buy artillery shells.” That would be too honest. Instead, you get the same amount of rubles and less food. The state buys a tank. Your pension buys fewer eggs.

Inflation in a war economy like Russia’s is actually a political technology. It allows the regime to extract resources quietly. I have a dedicated video about how Russia’s rulers played this trick again and again over centuries.

You can already see what this does to society.

The Russian middle class was never very large. But it did exist. People who could travel. People who could save. People who could choose between brands. That layer is now getting thinner. Consumers downgrade. The habit of normal life starts to die. You stop choosing what you want and start grabbing what you can still afford.

This matters more than it may seem. Because a modern consumer economy creates habits of independence. You compare, develop standards, and expect quality. But a poorer, harsher economy pushes people back toward sheer adaptation. Survival crowds out choice. And once people get used to living with less, the regime finds them easier to govern.

Business Under Siege

In Russia, private property exists right up to the moment the state wants it.

Western observers still use words like “the private sector,” “investor confidence,” “market adaptation.” But in Russia, those words describe the wallpaper, not the structure. A businessman may hold the keys and sign the contracts. But if the state decides that his factory, airport, grain terminal, warehouse, or oil service company now serves a “strategic” purpose, he can lose it very quickly. Since the beginning of full-scale invasion and to mid-2025, the Russian state had transferred assets worth about 3.9 trillion rubles, or roughly 46.6 billion dollars, into state ownership.

That tells you something essential about how this war is being financed. The Kremlin does not only tax large businesses. It raids them.

This is why I keep insisting that Russian business is not a true property-owning class. It is a service class. It keeps what it has only while it remains useful, obedient, and politically harmless.

And notice what this does to behavior. If you know your assets are not truly yours, you stop thinking like an owner. You do not invest for the long term. Instead, you chase immediate gains and move money outward if possible.

The war has made this worse, not better. As the easy reserve shrinks, pressure spreads through the entire system. The Kremlin denies reports that Putin has directly asked oligarchs to make “voluntary” contributions to fund the war at a closed-door meeting. But the denial itself is almost beside the point. The point is that the story was plausible to everyone, because this is exactly how the system works. Once pressure rises, it begins to cannibalize everything around it. First competitors. Then outsiders. Then allies. Then itself.

Learn more about The Snow Queen’s Spring

The Country Eating Itself

To keep military spending high, the Russian state squeezes the rest of the economy. It cuts support where it can. It pressures banks and keeps interest rates painfully high to control inflation. It lets civilian sectors suffocate first.

In February, major developer Samolet had sought state help after the end of subsidized mortgage programs and the burden of high rates hit construction and real estate hard. The finance ministry refused direct aid, and the company had to negotiate refinancing with banks instead.

That may sound like just another corporate story. It isn’t.

Construction is one of those sectors that pulls half the economy behind it. Mortgages support home buying. Home buying supports construction. Construction supports cement, steel, machinery, transport, wiring, glass, interior materials, and thousands of ordinary jobs. When mortgages weaken and construction stalls, that sends a chain reaction through the economy.

And that chain reaction is already visible. In March, MMK, one of Russia’s biggest steelmakers, announced plans to cut 10% of its management staff and pause new investment because weak domestic demand has left it operating at only about 60% capacity. The company pointed directly to falling demand from construction, energy, automotive, and machinery. Its chief executive said no meaningful rebound in steel demand is expected before 2027.

This is the part many people miss when they hear that Russia is “on a war footing.”

Yes, war can create islands of growth. Arms plants stay busy. Uniforms are sewn. Ammunition is packed. Some regions tied to defense spending look lively for a while. But this is not healthy growth. The state overfeeds the sectors that keep the war going, while underfeeding those that make normal life possible.

So the civilian country begins to hollow out.

A family postpones a home purchase. A developer freezes a project. A steel plant cuts investment. A supplier cuts staff. A region loses tax revenue. The economy still moves, but now it moves like a sick body that keeps sending blood to one wounded limb while letting the rest go pale.

Ukraine Raises the Cost

There is one more problem for Putin’s war budget.

Even when the state still has something to sell, it must move that product. Get it out of the country without too much disruption. And that is getting harder.

For a long time, Russia survived by leaning on geographic and historical advantages. It had raw materials and enough inherited Soviet infrastructure – ports, railways, pipelines, tankers – to move those commodities and profit from export.

Ukraine is trying to break exactly that comfort.

In March, about 40 percent of Russia’s crude oil export capacity had been halted after a wave of Ukrainian attacks on export infrastructure. That included all three major oil export ports in the west of Russia: Novorossiysk on the Black Sea, and Primorsk and Ust-Luga on the Baltic. Shortly after that, Ukrainian drones struck Ust-Luga again, damaging a Transneft-operated oil terminal and halting operations there once more.

That matters a lot.

Because oil becomes money only when an entire chain keeps working. The well, the pipeline, the port, the tanker, the insurance, the payment channel, the buyer, the timetable. Damage enough links in that chain, and even high prices stop feeling like salvation.

Just as rising tensions in the Middle East and higher oil prices seemed ready to hand Moscow a windfall, Ukraine shifted toward the ports and terminals that actually turn oil into cash. Ust-Luga alone used to handle around 700,000 barrels of crude per day and exported almost 33 million metric tons of oil products last year. If a hub like that is repeatedly hit, Russia loses its lifeline.

Future As Collateral

In the end, the deepest cost of this war is not today but tomorrow.

An authoritarian state has many ugly tricks for surviving one more year. What it cannot do is create a healthy future.

Reuters wrote in February that Russia’s economy is nearly stagnant despite running at full capacity. It described a system sliding toward financial repression, reduced competition, and cronyism.

Financial repression means the state keeps reaching deeper into domestic savings, domestic banks, and domestic business. Reduced competition means weaker firms survive because they are connected, while stronger ones are constrained if they are too independent. Cronyism means loyalty beats competence, again and again.

It is a path toward a harsher, poorer, more controlled version of the Russia we already know.

The regime does not need to nationalize every bakery and shoe store. It only needs to tighten command over the key arteries of the economy. It needs people to understand, quietly, that the safest life is the obedient life.

And once a society gets poorer, that message becomes easier to sell.

Not because people suddenly become ideological. Quite the opposite. Because they get tired. Because they adapt. Because when choice shrinks for everyone, equal misery can start to look like justice. If no one around you is rising, then poverty begins to feel normal, even moral.

That is how stagnation hardens into a social order.

The state keeps telling people that sacrifice is patriotic, that autonomy is suspicious, and that those who demand more are selfish or disloyal. Meanwhile, the privileged estate remains privileged. It still has access, protection, and exit options. The shared poverty is for the lower floors of the building.

This is why the story ends the same way again and again in Russian history.

Authoritarianism stands on four pillars. First: monopoly over major income. Second: monopoly over violence. Third: arbitrariness instead of law so protection comes not from a court but from a patron. And fourth: a privileged estate who share in the income and are shielded from violence and responsibility. That estate will defend the regime savagely, because without the regime it loses everything.

For a while, this system can look stable. Especially from abroad.

Foreigners see disciplined officials and a strong center – and mistake concentration of power for order. They see large contracts and opportunities for trade – and move in.

Then comes the rot.

Because a system like this cannot diversify properly. It cannot allow real alternative centers of wealth and power to grow, since those centers might restrain the ruler and his circle. But without that diversification, the economy remains fragile. Once its main source of revenue begins to wobble, the whole country pays.

That is why I want to end on the real solution.

The solution to the Russian problem is not another reset like the one that followed the Soviet Union collapse. Not another fantasy that the exhausted Kremlin elite has finally become normal and is now ready for mutually profitable friendship.

No.

The only durable answer is economic diversification inside Russia itself — creation of multiple real sources of wealth, multiple independent centers of power, and real legal protection that does not depend on personal favor. In plain English: income from foreign trade must not flow mainly into the hands of the state. It must be spread widely enough to create competing interests strong enough to check one another.

That is what authoritarianism fears most.

Real counterweights.

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