Potential Increase of Military-Security Costs in Russia to 40% of the Country's Budget

Bloomberg reports, following a study of the draft budget for 2025 by the Russian government, that Kremlin officials intend to allocate 6.2% of the country's GDP for military purposes next year. This decision means that military and security expenditures in Russia have tripled compared to the years before the war against Ukraine and will likely account for about 40% of the total government budget next year. According to the report, less than one-tenth of this amount is allocated for education and health. Military expenditures funded by the Russian government, which this year for the first time in the country's history exceeded 6% of total gross national income, will increase again. Bloomberg has reported that it possesses a copy of the draft budget for next year, which will soon be presented in the State Duma, the lower house of Russia's parliament. The budget bill envisions an increase in military-defense spending from 10.4 trillion rubles this year to 13.2 trillion rubles (equivalent to 142 billion dollars). Along with the costs of law enforcement and security forces, this budget will account for about 40% of the total government budget and more than the combined expenditures for education, health, social assistance, and national projects aimed at developing the economy. Vladimir Putin has recently identified increasing government spending to meet the needs of the military and the development of areas of Ukraine under Russian occupation as government priorities. According to Bloomberg, about 30% of the Russian government's budget next year is allocated for unspecified or classified purposes. In 2024, more than 11 trillion rubles were spent on undisclosed purposes, and this amount is expected to reach 13 trillion rubles in 2025. The report also indicates that the Russian government anticipates a decrease in revenue from oil and gas exports due to international hydrocarbon prices and the situation of Gazprom, the Russian giant that has historically been the main source of national budget funding but has suffered significant losses after halting gas exports to Europe. Meanwhile, it is expected that the oil and gas industry in Russia will provide 10.94 trillion rubles (118 billion dollars) for the government budget next year. According to the Oxford-based Energy Research Institute, the oil and gas industry has provided between 30% to 50% of total government revenues in different years. Western governments have made significant efforts to hinder Russia's revenues, but countries that the Kremlin refers to as 'friends,' primarily China and India, continue to buy oil and gas from Russia at substantial discounts but in large volumes. Additionally, the 'ghost fleet' delivers Russian oil and liquefied gas to customers worldwide, including circumventing sanctions to deliver to European clients. The Russian government expects the budget deficit to decrease next year; increased taxes and growth in non-oil revenues are expected to provide the necessary financial conditions to cover all costs. According to Bloomberg, the Russian government's budget, which is drafted for a three-year period, anticipates a reduction in military spending in 2026 and 2027. On the other hand, the budget approved last year also predicted a decrease in military spending in the second and third years; however, contrary to this, with the prolongation of the war, these expenses have increased again. Some experts believe that even if the war stops soon, Russia will still spend significant amounts on military-defense. The Russian bank VEB, in its recent analysis of the state and outlook of the Russian economy, has considered an increase in military spending in Russia until 2030. By the order of the President of Russia, the number of people serving in the country's armed forces has increased again and is expected to reach about 2.4 million, among whom 1.5 million are military personnel. A comprehensive analysis by the Carnegie Center concludes that with the end of the war (whether through a ceasefire or a lasting peace), Russia will have to incur significant costs for at least another eight years for the reconstruction of the army and the completion of arsenals. According to this analysis, launching production lines for military equipment in civilian factories, along with continued tax increases, is the main way for the Russian government to secure funding. It is anticipated that national projects previously announced by the Russian government will start later than scheduled. This situation has led many Middle Eastern experts to express skepticism about Russian investments in Iran.