Putin is putting on a brave face, but it’s increasingly hard to portray Russia as a strong and victorious nation.
Even as it seeks to project strength at the St. Petersburg Economic Forum, the so-called Russian Davos, local refineries are in flames following Ukrainian drone strikes.
Further behind the scenes, the regime is in deep economic trouble. Putin knows this. The Moscow elite knows this. The Russian people feel it in their daily lives.
The numbers speak for themselves. The Russian economy is under serious strain. Revenues are plummeting. Expenditures are skyrocketing. The Kremlin’s supposedly endless financial reserves have long since dwindled. Social systems are eroding. Living conditions are rapidly deteriorating. Life expectancy has stagnated at 72 years, and for men in many regions, at 64. Russia has killed nearly half a million of its own men in Ukraine, even as birth rates fall. The healthcare system is overburdened, underfunded, and technologically outdated. One in three Russians lives on government payments.
Meanwhile, inflation is eating away at incomes and savings. Officially, it stands at 7% to 8%, but for food it exceeds 20%, and for medicines it is nearly 18%. In many regions, inflation is even higher. Real wages are stagnating. At the same time, private debt is rising. Russian households have now taken out loans totaling over 30 trillion rubles (about $400bn), a historic high. The number of Russians spending more than half their income on loan repayments is growing. Default rates are rising. Many families are living on credit to finance their daily lives.
At first glance, the Russian labor market appears stable, but this is a distorted picture. The official unemployment rate stands at 3%. Yet this figure is misleading. Over 1.5 to 2 million men are missing from the labor force because they have been killed in action, mobilized, or have left Russia. Many companies are loudly complaining about labor shortages. Productivity is falling. Wages are rising in nominal terms, but not in real terms. Today’s labor market in Russia is marked by a brain drain.
The 2026 Russian federal budget is under pressure as never before since the start of the full-scale invasion of Ukraine. The budget deficit is soaring, with military costs expected to double the shortfall by the year’s end. Military spending will reach 12 to 13 trillion rubles, a third of the total budget. Oil and gas revenues are supported by the Iran war, but that won’t be enough to turn things around. The shadow fleet is losing ships. Putin’s liquidity is dwindling. The Russian National Wealth Fund has shrunk to under $60bn — less than half of what it was two years ago. The danger of a banking crisis is clearly looming in Russia; even within Putin’s inner circle, warnings are being heard loud and clear.
Putin is under pressure. He wants to finance his historic war while simultaneously keeping the population calm. These cannot both be achieved. That is his predicament.
That is another reason why he needs the St. Petersburg stage right now. What Putin is selling there as an “economic forum” is not an economy. It has always been, above all, an operation of overt and covert corruption. It is about maintaining well-oiled networks for political influence. And it is banal propaganda. “Russia in the international economy” and “economic opportunities” with Putin’s Russia are currently pure fiction.
Most major international companies have long since left Russia. Western investors are gone. The contracts and projects Putin is presenting these days are declarations of intent without substance. Many companies appearing in St. Petersburg are state front organizations. Others exist only on paper anyway. Putin’s stage in St. Petersburg is full, but his economy is empty.
In desperation, Putin is now relying on an offensive of international guests and paid influencers from Western countries. Dubious figures like the Tate brothers, accused of rape in Romania, suit Putin just as well as “ambassadors of values” as do German journalists who are on the Russian payroll anyway, and AfD politicians.
Russia invites them, pays them, leads them through staged photo and video opportunities, which soon appear across Western social media. This has nothing to do with the economy, but is intended to project an image outward and simulate normality in domestic propaganda. Putin’s Western influencers are the digital version of Potemkin villages.
But when, on the morning of the St. Petersburg Economic Forum, Ukrainian drones set oil tanks and refineries on the Baltic Sea ablaze, Putin can no longer filter out or redefine reality.
Putin tries to appear stronger than he is. He often succeeds, especially in the West. But his economic dilemma now presents an opportunity for Europe. Putin’s predicament is the key lever to finally put an end to the Kremlin’s violent imperial project. Not through illusions, deference, or romantic notions of mediation, and certainly not through the revival of arid statements about “Russia as a reliable partner.”
These myths have always been products of corruption, personal networks, and political influence. They have deliberately weakened Europe and strengthened Putin’s violent dictatorship. Today, the opposite is possible. Russia is vulnerable. Europe can be strong.
The task for Germany and Europe is clear: Keep up the pressure. Increase the pressure. Close loopholes. Stop shadow fleets. Dry up financial flows. Prevent technology inflows. Expose corruption networks. Unmask propaganda platforms. Make Russia’s social reality visible. Deliberately increase Putin’s costs. Block his options. Deepen his predicament. Putin’s system will not fall through insight. It will fall through overload. Europe can and must accelerate this overload to bring an end to Russia’s project of violence.
Nico Lange is a Senior Fellow at CEPA. He is also the founder and director of IRIS – Institute for Risk-Analysis and International Security. Lange teaches at the Chair of Military History at the University of Potsdam and at the Hertie School of Governance. He served as Chief of Staff at the German Ministry of Defense from 2019-2022.
Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions expressed on Europe’s Edge are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
