**Mounting Economic and Demographic Struggles Challenge Russia's War Effort**

The Institute for the Study of War (ISW) has detailed increasing economic, demographic, and defense industry issues facing Russia amidst its ongoing conflict in Ukraine. As of August 2024, inflation stands at 9%, with persistent economic challenges resulting from demand outpacing supply. Ukrainian intelligence suggests that Russia aims to secure a decisive victory by 2026, but economic and force generation limitations pose significant constraints.

Western sanctions, labor shortages, and slowing economic growth have led Russia to depend more heavily on China, Türkiye, and North Korea for support in both economic and military realms. While the Russian economy has shown some short-term resilience, doubts about its sustainability in the long term continue to rise. The Kremlin has implemented various policies to mitigate costs, curb inflation, and address the country’s demographic decline. According to ISW, these measures illustrate that Russia's ability to maintain a prolonged war effort while insulating its society from economic difficulties is limited. They suggest that ongoing Western and international support for Ukraine will exacerbate Russia's economic woes.

A recent policy modification highlights the struggle to balance financial burdens and military recruitment needs. Initially, in March 2022, wounded servicemen were promised a one-time payment of three million rubles ($30,124). However, on November 13, Russian President Vladimir Putin revised this policy, now reserving the full three million rubles for severely injured servicemen, while those moderately injured receive one million rubles ($10,152), and minor injuries yield 100,000 rubles ($1,015). This downward adjustment has sparked criticism from Russian ultranationalist bloggers, who accuse the Kremlin of breaking promises to recruits. To quell dissatisfaction, Putin has increased payments for severely injured soldiers to four million rubles ($40,136); however, critics argue selective medical assessments deny fair compensation.

Russia's economic strains are not limited to military compensation. The country's defense industrial base and economy are pressured by high interest rates, with the Russian Central Bank hiking its key rate to 21 percent on October 25. This move has drawn complaints from defense industry CEOs and policymakers. The Center for Macroeconomic Analysis and Short-Term Forecasting warns that such policies are inducing stagflation, a perilous mix of stagnation and high inflation, which could lead to a recession by mid-2025. Foreign Policy reports that Russia's defense production is significantly lagging behind its military losses, producing only 20 tanks and artillery barrels monthly against a loss of 320, and 17 infantry fighting vehicles in contrast to losses of 155 per month. The high interest rates are also hampering loans for non-defense companies, further shrinking the civilian economy and increasing the risk of a post-war recession.

Addressing the demographic crisis, Russian authorities introduced a Strategy of Action through 2036, aiming to boost birth rates and tackle labor shortages through family support, reproductive healthcare, and family-positive media campaigns. However, despite these efforts, Russia’s population continues to shrink, with Rosstat data indicating a natural decrease of over 600,000 people annually until 2032. Although Russia has turned to migrant workers to fill labor gaps, xenophobic rhetoric and legislative hurdles impede their effective integration. ISW concludes that the combination of a naturally declining population and an aversion to improving conditions for skilled labor migration could impair Russia's economy and its defense industrial base over the mid- to long-term.