Panic-Stricken Putin Fears a 'Soviet-Style Collapse' as Russia Feels Mounting Pressure from the War in Ukraine

Under this headline, an article in the British Express appeared, which reports that Vladimir Putin is experiencing the severity of economic difficulties reminiscent of those that led to the collapse of the Soviet Union, while Russia is struggling with the severity of the ongoing war in Ukraine.

According to Western officials, the Russian president, already forced to increase defence spending while simultaneously cutting social services, is grappling with the financial fallout from a protracted conflict that shows no sign of abating.

Despite hopes of a breakthrough, it is expected that the fighting in eastern Ukraine will continue. This week, Russian troops took control of the strategic town of Vuhledar, while Ukraine launched sudden attacks in Russia’s Kursk region. But the tension of the war is most palpable in Russia’s economic decisions.

Recently, the Central Bank of Russia hiked interest rates to a staggering 19 percent—a move driven by Western sanctions and a severe shortage of labour in critical sectors.

Meanwhile, the draft budget documents indicate that Moscow plans to boost defence spending by a quarter in 2025 to 6.3 percent of GDP—the highest level since the Cold War.

In stark contrast, the Russian government is slashing social services, including pensions, by about 15 percent.

“Putin knows his economy is under pressure,” a Western official said, adding that the current situation mirrors the economic tensions that contributed to the collapse of the Soviet Union. They noted, “He’s listening closely to the advice of the head of the Central Bank because he understands that this is what led to the downfall of the USSR.”

However, they cautioned, “While I’m not suggesting that an imminent financial crisis is unavoidable, the economic and political pressure will only increase as we head into 2025.”

Adding to the tension, Putin has been reluctant to extend mobilization due to concerns about further economic decline, which, according to estimates, means Russia is losing around 1,200 soldiers each day.

While U.S. officials have emphasized that Russia’s economic situation remains precarious, they have stopped short of predicting an immediate financial collapse.

By 2025, Russia’s military expenditure is forecast to reach 13.5 trillion rubles (£110.5 billion), more than double the amount allocated to social needs, according to reports by Al Jazeera.

Defence spending will account for 32 percent of the total budget—a figure not seen since the late Soviet period, when the USSR was embroiled in a costly war in Afghanistan.

The Russian Ministry of Finance has highlighted that the increased funds will go towards arming the military, paying soldier salaries, and supporting the defence industry.

In comparison, social service spending, which includes pensions and health care, is being significantly cut. This move is likely to exacerbate domestic discontent, as everyday Russians bear the brunt of economic hardship.

“Putin’s gamble on war means that, despite no visible financial collapse on the horizon, the president is still acutely aware of the potential for economic instability,” said an analyst at the Carnegie Moscow Center.

Adding to the uncertainty, oil and gas revenues—long the lifeline of the Russian economy—are projected to decline further over the next two years. Finance Minister Anton Siluanov has stated that the country is slowly moving away from its dependence on oil and gas, but this shift is creating new economic challenges.

With the Kremlin funnelling resources into its war effort, the resulting budget deficit is expected to widen in both 2024 and 2025, pushing Russia into an increasingly fragile position.

While some analysts believe the country can withstand the pressure for now, they caution that Putin’s focus on military spending at the expense of social stability could create a volatile situation reminiscent of the late Soviet era—a period marked by mounting public dissatisfaction and economic collapse.

With the economic outlook becoming increasingly bleak and no end in sight for the war, many are questioning whether Putin’s gamble on war and heightened defence spending will ultimately lead Russia down the same path as the Soviet Union.

“Putin may be pushing his country toward a similar fate,” one Western observer noted. “The ghost of the Soviet Union’s collapse looms large over the Kremlin.”