As Russian losses in Ukraine hit 1 million, Putin's war economy heads toward breaking point

Russian losses in Ukraine hit a massive, and grim milestone on June 12 — 1 million Russian soldiers killed or wounded during the 39-month-long full-scale war, according to figures from Kyiv.

Although hugely symbolic, the number is unlikely to prompt a change in tactics from Moscow as it gears up for more offensives this summer, and escalates drone and missile attacks on Ukrainian civilians.

But behind the figure lies an economic time bomb that the Kremlin will find impossible to ignore.

"(Russian President) Vladimir Putin made a fundamental strategic mistake in deciding how to resource this war," George Barros, Russia team lead at the Institute for the Study of War (ISW), told the Kyiv Independent.

"What Vladimir Putin has done is he has created a system in which he doesn't use the monopoly of violence of the Russian state to coerce Russians to go fight and die in Ukraine, as the Soviet Union might have. What Putin has done is he's created an alternative social contract where he pays you to go fight in Ukraine.

"That strategy can work if you're planning on running a short war. It does not work if you are running a multi-year protracted war."

Russia's two armies

Russia effectively has two armies — a conscript army, and a contract army.

Russia's conscript army is the country's standing armed forces that are required to defend Russia itself.

To maintain this force, the Kremlin conducts conscription twice a year, in spring and fall, requiring eligible men to serve for one year.

In the latest draft, Putin signed a decree on March 31 ordering the spring conscription of 160,000 men.

But crucially, conscripts by law are not allowed to be sent abroad to fight wars in foreign countries, something which is not only a legal contract, but a social contract that is deeply embedded in Russian society — civil society groups consisting of the mothers of conscripts are perhaps the only group of Russian citizens that Putin is still forced to respect and listen to.

This is where Russia's contract army comes in.

"When the full-scale invasion started, the Russians attacked Ukraine with what they call the contract servicemen, the professional military who have some experience, and (voluntarily) sign contracts for a fixed period of time," Kateryna Stepanenko, Russia deputy team lead and analyst at the Institute for the Study of War (ISW), told the Kyiv Independent.

But Russia soon ran into a problem — the Armed Forces of Ukraine.

The Kremlin had envisioned a swift and easy victory over Ukraine, and the capture of Kyiv within a matter of days. This proved to be a disastrous miscalculation and instead, many of Russia's most elite troops and modern equipment were obliterated by Ukrainian resistance.

As the war dragged on, and Russia's losses mounted, Moscow needed to replenish its forces without drawing upon its conscript army and announcing a full mobilization to avoid unrest.

A partial mobilization announced in September 2022 led to the only widespread protests against the war inside Russia during the entire full-scale invasion, making clear to Putin that announcing anything more would cause him serious problems.

"The Russians realized that they were in a challenging political situation," Stepanenko said.

The solution? Pay people to fight.

"It is the only way of recruitment for the war now because ideologically motivated recruits ended in spring-summer 2022 and partial mobilization of the fall 2022 created domestic political tensions and risks which were considered as unacceptable for the Kremlin in those circumstances," Pavel Luzin, senior fellow with the Democratic Resilience Program at the Center for European Policy Analysis (CEPA), told the Kyiv Independent.

The contract soldier's price

Russia's mounting losses throughout the war created a double-edged problem — more and more replacements were needed, but attracting them to what was clearly such a high-risk endeavour necessitated increasing rewards.

The solution? Keep offering more and more money.

Sign up bonuses for joining the Russian army have ballooned over the course of the war. In July 2024, Putin ordered a doubling of the lump-sum payment offered to recruits in September 2022 to 400,000 rubles (over $5,000).

But this was just the base level payment — the Kremlin has placed recruitment quotas on Russian oblasts, meaning some have had to offer many times more than this in order to reach them.

"There are some oblasts in central Russia that are offering up to $40,000, 3 million rubles plus, just for a one-time sign-up bonus," Barros said.

For context, the average Russian monthly wage in 2024 was $980, so a one-time sign up bonus of $40,000 is nearly four times higher than what the average worker can expect to make in a whole year.

But with such huge losses in Ukraine, the bill for the Kremlin is huge.

"They lose and recruit somewhere in the ballpark of 35,000 to 45,000 people per month, and perhaps they recruit a little bit north of that number," Barros said.

"At $40,000 a head just for the sign-up bonus, let alone salaries and other benefits and remittances if you're killed or wounded, this is a very fast way to not be sustainable."

According to an analysis by economist Janis Kluge, Russia's daily bill just for sign-up bonuses is $24 million.

The ballooning bills come at a time when Russia's economy is already under huge strain from Western sanctions and falling oil and gas revenues.

"The implications for Russia are grave," energy security analyst Wojciech Jakóbik wrote in an op-ed for the Kyiv Independent this week.

"Military spending has ballooned to 6.3% of GDP — its highest level since the Cold War — while the budget deficit continues to rise," he added.

"To fund its war, the Kremlin is raiding reserves, raising taxes, and cutting social programs. Absent war spending, Russia might already be in recession."

Could Russia's economy collapse?

Predictions about the imminent collapse of Russia's economy have been made throughout its full-scale invasion of Ukraine, yet so far it hasn’t crashed and burned as some expected.

But three years of sanctions are eroding the country’s fiscal stability, despite Moscow claiming otherwise.

Russian GDP growth has dropped precipitously this year as sanctions hamper its main sources of income — oil and gas revenue — and curb imports of components needed for its military-industrial complex.

According to Barros, making any predictions about whether or not the Russian economy is going to collapse is "supremely difficult to do," but the signs for the Kremlin "don't bode well."

"If you look at the current Russian economic indicators, for example their inflation rate, their overnight lending interest rates, Russian monetary constraints… government spending is out of control — it's a very loose fiscal policy and so the economy is at risk of overheating," he said.

"I don't know to what extent the economy can continue to last."

Barros said one major thing to keep an eye on are the Russian banks that are taking on "tremendous amounts of debt" in order to finance the Russian economy and the Kremlin's war machine in Ukraine.

"I suspect what will happen one day at the current rate is a Russian bank will have to default on its debt and that will trigger some sort of financial meltdown," he said.

"I can't name the time or the hour or the place, but it seems very much like Vladimir Putin today is writing checks that Vladimir Putin a year or two years from now will not be able to cash."

Keeping up the pressure on the Russian economy

Currently, Western sanctions against Russia are still in place and the EU has just announced its 18th package.

In the U.S., a bipartisan sanctions bill, introduced on April 1 by Republican Senator Lindsey Graham and Senate Democrat Richard Blumenthal, seeks to impose a 500% tariff on imports from countries that continue purchasing Russian oil and raw materials.

This would deal another major blow to the Kremlin and its ability to wage war but U.S. President Donald Trump seems in little rush to hurry it through.

But the biggest factor in bringing down the Russian economy remains in the hands of Ukraine.

"We have to keep reminding ourselves that the key driver, the engine of Russia's economic woes, is in fact its casualty rate and its losses on the battlefield in Ukraine," Barros said.

"That is what is driving the need to recruit and replace 45,000 soldiers a month. That is what is destroying all the main battle tanks. That is what is actively destroying the Russians.

"And the minute the Ukrainians become less lethal, the minute that the Ukrainians do not impose those heavy losses on Russia at the same scale, then the economic picture becomes much better for the Kremlin."

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The Kyiv IndependentKate Tsurkan