\n| \n Finished metal products<\/span><\/p>\n<\/td>\n | \n +21,2%<\/span><\/p>\n<\/td>\n | \n +13,9%<\/span><\/p>\n<\/td>\n | \n +0,7%<\/span><\/p>\n<\/td>\n | \n -1,3%<\/span><\/p>\n<\/td>\n | \n +18,0%<\/span><\/p>\n<\/td>\n | \n +31,6%<\/span><\/p>\n<\/td>\n<\/tr>\n\n| \n Computer, electronic, optical equipment<\/span><\/p>\n<\/td>\n | \n +12,8%<\/span><\/p>\n<\/td>\n | \n +14,4%<\/span><\/p>\n<\/td>\n | \n +7,5%<\/span><\/p>\n<\/td>\n | \n +10,6%<\/span><\/p>\n<\/td>\n | \n +11,7%<\/span><\/p>\n<\/td>\n | \n +27,9%<\/span><\/p>\n<\/td>\n<\/tr>\n\n| \n Other means of transport <\/span><\/p>\n<\/td>\n | \n +60% (?)<\/span><\/p>\n<\/td>\n | \n +6%<\/span><\/p>\n<\/td>\n | \n +6%<\/span><\/p>\n<\/td>\n | \n +6,4%<\/span><\/p>\n<\/td>\n | \n +32,0%<\/span><\/p>\n<\/td>\n | \n +34,2%<\/span><\/p>\n<\/td>\n<\/tr>\n\n| \n Aviation equipment<\/span><\/p>\n<\/td>\n | \n \u2013<\/span><\/p>\n<\/td>\n | \n +41%<\/span><\/p>\n<\/td>\n | \n +40%<\/span><\/p>\n<\/td>\n | \n +29,5%<\/span><\/p>\n<\/td>\n | \n +172%<\/span><\/p>\n<\/td>\n | \n +175%<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\nAll of this coincides with the widespread shift of enterprises \u2013 primarily in the civilian sectors of the Russian economy \u2013 to reduced operating hours or a complete shutdown.<\/span><\/p>\nAs shown in the table, the production rate of combat armored vehicles declined most significantly, while the production volumes of ammunition and artillery decreased overall. Production of command, control, guidance, and communications systems maintained its positive momentum, but later became unstable in nature. Production of aviation equipment, which mainly consisted of UAVs, remained at a high level, but in November 2025, the pace of this production began to slow down. The increase in UAVs production also explains the relative stability of production of computer, electronic, and optical equipment, since a significant portion of these components is used specifically in unmanned aerial vehicles and their control systems.<\/span><\/p>\nAt the start of 2026, Russia\u2019s economy shifted from stagnation to recession. At the same time, the country\u2019s defense-industrial complex faced significantly greater difficulties. In January\u2013April of this year, the decline in production of most types of weapons and military equipment in Russia accelerated.<\/span><\/p>\nTable 2. Trends in the production of weapons and military equipment in Russia in the first half of 2026, compared to 2025. Changes are presented relative to the same period last year.<\/span><\/p>\n\n\n\n| <\/td>\n | \n 2025 \u0440.<\/span><\/p>\n<\/td>\n | \n 2026 \u0440.<\/span><\/p>\n<\/td>\n<\/tr>\n\n| \n January-April<\/span><\/p>\n<\/td>\n | \n May<\/span><\/p>\n<\/td>\n<\/tr>\n\n| \n Finished metal products<\/span><\/p>\n<\/td>\n | \n +18,0%<\/span><\/p>\n<\/td>\n | \n +7,9%<\/span><\/p>\n<\/td>\n | \n +15,8%<\/span><\/p>\n<\/td>\n<\/tr>\n\n| \n Computer, electronic, optical equipment<\/span><\/p>\n<\/td>\n | \n +11,7%<\/span><\/p>\n<\/td>\n | \n +0,0%<\/span><\/p>\n<\/td>\n | \n +2,1%<\/span><\/p>\n<\/td>\n<\/tr>\n\n| \n Other means of transport<\/span><\/p>\n<\/td>\n | \n +32,0%<\/span><\/p>\n<\/td>\n | \n +31,3%<\/span><\/p>\n<\/td>\n | \n +24,7%<\/span><\/p>\n<\/td>\n<\/tr>\n\n| \n UAVs of the Shahed type<\/span><\/p>\n<\/td>\n | \n +172%<\/span><\/p>\n<\/td>\n | \n plan +230%<\/span><\/p>\n<\/td>\n<\/tr>\n\n| \n Iskander tactical missile system<\/span><\/p>\n<\/td>\n | \n +14%<\/span><\/p>\n<\/td>\n | \n plan +100%<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\nThe rise in oil prices resulting from the USA and Israel\u2019s military operation against Iran had a somewhat positive impact on the Russian economy with a two-month delay \u2013 that is, in May of this year. This also affected the defense industry. It was precisely from that time onward that the production of military equipment and weapons in Russia began to increase. In June and July of this year, the Russian economy\u2019s growth rate began to slow down, and industrial output declined overall. Clearly, this had a negative impact on the growth of military equipment and weapons production, and it is possible that production volumes fell again.<\/span><\/p>\nThe exception to this is the production of UAVs and missiles, which play a central role in modern warfare. And with the actual shift of combat operations on the front lines in Ukraine to a positional phase, their importance has reached a qualitatively new level. Despite the worsening economic situation in Russia, their production is growing significantly. In other words, given the lack of funds in the Russian Federation\u2019s state budget to fully finance the defense-industrial complex, funds are being reallocated among its various sectors. The bulk of the funds is allocated to the production of UAVs and missiles, while the production of other types of weapons \u2013 primarily armored vehicles and artillery \u2013 is financed on a residual basis. However, even under this scenario, Russia\u2019s defense-industrial complex is unable to ensure adequate funding for the production of the full range of missile systems. Thus, priority is given to the production of ballistic missiles for the \u201cIskander-M\u201d tactical missile system, which are capable of penetrating Ukraine\u2019s air defense system. Production of air-launched cruise missiles and X-47M \u201cKinzhal\u201d aeroballistic missiles is declining. Specifically, in 2026, production of the X-47M missiles fell from 60 to 5 units per month.<\/span><\/p>\nHowever, Russia\u2019s defense industry is facing growing funding problems.<\/b> Due to the rapid growth of the state budget deficit, the government is significantly short of the necessary funds. As a result, advance payments to defense industry enterprises for fulfilling military orders are being cut. And these enterprises cannot resolve this problem by obtaining bank loans due to high interest rates. In June 2026, the Central Bank of the RF lowered the rate to 14.25%. However, this level is still too high, as defense industry enterprises can only operate when the rate does not exceed 7%. Therefore, defense enterprises, like most others, are significantly lacking the necessary funds to ensure the smooth operation of their production processes \u2013 including the purchase of necessary materials and components from suppliers, the payment of employee salaries, and the coverage of electricity, transportation, and utility costs. This threatens to disrupt military orders, which is prohibited by law and carries criminal liability. In this situation, defense industry enterprises are forced to take out bank loans even at high interest rates. However, some of them are unable to repay these loans and go bankrupt. Typically, assistance is provided for them in such cases. However, this assistance can only come from the state budget, which is also becoming increasingly problematic. <\/span><\/p>\nBankrupt defense industry enterprises are unable to repay their debts to creditors, leading to a banking crisis. As a result of this problem, the Defense Bank \u2013 the primary financial institution of the Russian Federation\u2019s defense industry \u2013 has found itself in an extremely difficult situation. By the end of 2025, it had lost 19 billion rubles, while receiving 29 billion rubles in state aid.<\/span><\/p>\nFor the same reasons, the Russian defense-industrial complex is transforming from the driving force of the Russian economy into one of the main drivers of the country\u2019s payment crisis. Military enterprises are compelled to fulfill government orders. Consequently, they enter into contracts with subcontractors without guarantees of payment or with deferred payment terms. As a result, the subcontractors also lose funds and find themselves in the same difficult situation. Thus, the cycle of non-payment is spreading further, including into the civilian sector. It has now affected about 60% of large companies.<\/span><\/p>\nTo reduce their expenses, defense industry enterprises are implementing strict cost-cutting measures.<\/b> Investment in the development of the defense industry has been significantly reduced, which has effectively halted the launch of new production facilities. According to many experts, including the International Institute for Strategic Studies (IISS), most enterprises in the Russian defense-industrial complex had already reached their limits for increasing arms production by the summer of 2025. Previously, the problem of insufficient production capacity had been addressed by expanding it. Until last summer, there was intensive development of infrastructure at tank, missile, artillery, and aviation plants, as well as at UAV manufacturing facilities. That development then slowed down and has now practically come to a halt, with the exception of the expansion of some UAV manufacturing facilities.<\/span><\/p>\nThe Russian government effectively acknowledges that it is unable to rapidly increase the production of weapons and military equipment. As Minister of Industry and Trade of the RF A. Alikhanov stated in July of this year, the defense-industrial complex, as the engine of industrial growth, will soon reach its maximum capacity and a high baseline and will no longer, as before, provide a significant boost to the growth rate of the manufacturing sector. This trend is confirmed by the reduction in the recruitment of new personnel in the defense-industrial complex. Since 2022, approximately 600,000 people have been recruited. Recruitment peaked during the first year of the war. At that time, job openings in the defense-industrial complex accounted for 2% of the country\u2019s total labor market. After that, the number of job openings began to decline. In the summer of 2024, it stood at 50,000, and in the summer of 2025 \u2013 at 35,000. In June of this year, demand for labor in the Russian defense-industrial complex was at its lowest level since the war began, and even lower than before it started. In this regard, the most telling sign was the virtual absence of demand for commissioning engineers, who are responsible for commissioning new plants and their equipment.<\/span><\/p>\nIn addition to a lack of funding, a whole range of other problems significantly hinders the operation and development of Russia\u2019s defense-industrial complex.<\/b> The main ones include: the inability of Russian industry to replace foreign materials and components lost as a result of Western sanctions; the cessation of supplies to Russia of high-tech equipment used for weapons production; and a shortage of highly qualified personnel.<\/span><\/p>\nThe main problem with import substitution is Russia\u2019s inability to independently establish production of complex digital microchips, specifically processors and memory components. This also applies to many other products, materials, and equipment, including bearings, composite coatings, and CNC machine tools. Russia has either lost the technologies and production infrastructure that enabled their manufacture, or never had them in the first place. Russia is unable to restore or rebuild them due to a critical decline in the quality of its scientific and technical capabilities. According to an assessment by the UK\u2019s Royal Institute of International Affairs, Russia\u2019s military-industrial complex is technically deteriorating. Therefore, in the near future, it will have to scale back and slow down military production, as well as accept a decline in the quality of its products.<\/span><\/p>\nRussia is attempting to address these issues by circumventing Western sanctions. However, this is also becoming an increasingly difficult challenge for the country. China is considered Russia\u2019s largest partner. It supplies Russia with some sanctioned goods, but at prices ten times higher than those charged to other countries for similar products. Besides, many Chinese products supplied to Russia are of poor quality. As early as 2025, North Korea significantly reduced its supply of artillery shells to Russia. Some believe this occurred under pressure from China, which the USA and the EU had accused of facilitating such shipments and which could have faced sanctions as a result.<\/span><\/p>\nIran has also halted arms transfers to Russia. It lost this ability due to the war with the USA and Israel. Military-technical cooperation between Russia and Iran will not be able to resume quickly even after the war in the Middle East ends, as Iran\u2019s defense industry has been largely destroyed. At the same time, as the USA and the EU have imposed stricter controls over the enforcement of their sanctions, circumventing them has become more difficult and costly.<\/span><\/p>\nAs mentioned earlier, the Russian military-industrial complex is facing an acute labor shortage. The sector already employs about 4 million people. According to various estimates, several hundred thousand more workers are needed. This primarily refers to qualified engineers, IT specialists, lathe operators, milling machine operators, and other metalworking specialists. It is difficult to address this problem due to a massive exodus of people to the army, a demographic crisis, and competition from the civilian sector. In a number of military industry sectors, wages have begun to decline, including in comparison with civilian enterprises in the same regions. There are also significant wage arrears.<\/span><\/p>\nThe difficulties in the civilian sector are having a negative impact on Russia\u2019s military-industrial complex. First and foremost, these include the downsizing or suspension of operations at enterprises that are not directly part of the military-industrial complex but supply it with various products. An example of this is the shutdown of PJSC \u201cRusskie Motory\u201d in Nizhny Novgorod. The company has stopped supplying components to military-industrial complex plants that assemble engines for aircraft and ships.<\/span><\/p>\nAnother, so to speak, powerful factor causing damage to Russia\u2019s military-industrial complex is the strikes by the Ukrainian Defense Forces on Russian enterprises and their associated infrastructure. <\/b>Indeed, since early 2026, the Ukrainian Defense Forces have begun to more actively strike military and civilian enterprises that support the operations of the Russian armed forces. This first of all refers to the radio-electronic, optoelectronic, chemical, and other industries that produce components for UAVs and missiles, as well as components for explosives. As a result, Russia has seen a sharp decline in the production of ammonium nitrate, which is used in the manufacture of gunpowder and explosives. At the same time, Russia\u2019s military-industrial complex is facing a severe shortage of radio-electronic components.<\/span><\/p>\nWestern and independent Russian experts believe that the current state of Russia\u2019s military-industrial complex still allows it to supply the troops with the necessary weapons and military equipment, although shortages are increasingly evident and quality is declining. In particular, even pro-Russian war correspondents and propagandists acknowledge that the troops lack small arms, ammunition, and UAVs. The Russian defense industry is also unable to bring new weapons systems up to standard, including the \u201cSarmat\u201d ICBM. As the war demonstrates, many other weapons \u2013 which the Russians claimed were \u201cunmatched in the world\u201d \u2013 do not meet their stated specifications. In particular, this refers to the \u201cKinzhal\u201d hypersonic missiles, which are successfully intercepted by American Patriot systems or diverted from their targets by electronic warfare measures. Statements by Russian leadership regarding the successful testing of the \u201cBurevestnik\u201d and \u201cPoseidon\u201d systems are nothing but propaganda.<\/span><\/p>\nMajor programs for the development and production of new military equipment were also derailed, including the Su-75 multi-role fighter, the PAK DA strategic bomber, the T-14 \u201cArmata\u201d tank, and the \u201cIzdelie-80\u201d cargo drone.<\/span><\/p>\nHowever, the operations of Russian military industry enterprises \u2013 as well as the Russian economy as a whole \u2013 could deteriorate sharply in the very near future as a result of the fuel crisis engulfing the country. By the end of this summer, the situation could become critical, significantly complicating \u2013 or even rendering impossible \u2013 logistics for both military and civilian enterprises.<\/span><\/p>\nRussian military units on the front lines in Ukraine are already feeling the fuel shortage. The situation is most acute in the southern sector in Kherson and Zaporizhzhia regions, where the delivery of fuel and other types of logistical support is hampered by Ukrainian Special Operations Forces strikes on transportation routes. The commanders of units and subunits are forced to limit combat sorties and the operations of mobile air defense groups that provide cover for motorways. There is also a shortage of fuel for power generators, which support headquarters operations and the functioning of various radio-electronic systems \u2013 including electronic warfare (EW) equipment \u2013 as well as charge UAV batteries. In the combat zone, all of this reduces the combat capabilities of the Russian army.<\/span><\/p>\nThus, despite the fact that the uninterrupted operation of the military industrial complex is of extreme importance to Russia\u2019s leadership in the context of an ongoing war against Ukraine and a potential military confrontation with the USA and NATO, since mid-2025, the Russian Federation has seen a slowdown in the production of weapons and military equipment, and in some areas, actual output has been declining. The main reason for this is the growing deficit in the Russian Federation\u2019s state budget. Given this, the Russian government cannot guarantee adequate funding even for such priority and protected items as military needs, including the production of weapons and military equipment.<\/b><\/p>\n There are also problems related to the inability of Russian industry to: a) replace foreign materials and components; b) resume the supply of high-tech equipment to Russia; c) address the shortage of highly qualified personnel; and d) mitigate the negative impact of challenges in the civilian sector.<\/b><\/p>\n The government of the RF acknowledges the limits of its capabilities regarding the military-industrial complex. Therefore, amid the resurgence and acceleration of negative trends in the country\u2019s economy, priorities are being set for the production of weapons and military equipment. Right now, the main priorities are UAVs, missiles, and electronic warfare systems. Armored vehicles and artillery systems are taking a back seat.<\/b><\/p>\n Problems in the operation of Russia\u2019s military-industrial complex are also arising as a result of strikes by the Ukrainian Defense Forces on military-industrial enterprises. Currently, this first of all refers to the production of radio-electronic systems, gunpowder, and explosives. However, the fuel crisis in Russia could have an even more significant impact on the country\u2019s military-industrial complex. For now, the operation of Russia\u2019s military-industrial complex allows it to continue the war in Ukraine. However, the deepening crisis in the Russian economy \u2013 which is irreversible in nature \u2013 will inevitably lead to a critical deterioration in the state of affairs within its military-industrial complex. This will reduce Russia\u2019s ability to wage war against Ukraine, at least at the current intensity. Moreover, it will be unable to launch an attack on Europe as well.<\/b><\/p>\n Yurii Mykhailenko,
\n<\/b>Institute for Global Politics<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"Yurii Mykhailenko<\/p>\n The key conditions for any army\u2019s success in war are its personnel\u2019s\u00a0 high level of training and motivation, as well as the availability of effective weapons in sufficient quantities<\/p>\n","protected":false},"author":8,"featured_media":34168,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_crdt_document":"","ngg_post_thumbnail":0,"footnotes":""},"categories":[261,260],"tags":[272],"class_list":["post-34167","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analitika","category-publikacii","tag-mixajlenko","wp-image-borders"],"translation":{"provider":"WPGlobus","version":"3.0.2","language":"en","enabled_languages":["uk","en","ru","fr","ar"],"languages":{"uk":{"title":true,"content":true,"excerpt":true},"en":{"title":true,"content":true,"excerpt":true},"ru":{"title":false,"content":false,"excerpt":false},"fr":{"title":false,"content":false,"excerpt":false},"ar":{"title":false,"content":false,"excerpt":false}}},"gutentor_comment":0,"yoast_head":"\n Russia\u2019s Economy As the Driving Force Behind the War. Part II. - Institute for Global politics<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/igp.org.ua\/publikacii\/ekonomika-rosi\u0457-yak-lokomotiv-vijni-chastina-2\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Russia\u2019s Economy As the Driving Force Behind the War. 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