On paper, amid a protracted war in Ukraine and an unprecedented wave of Western sanctions, Russia’s GDP is growing, average wages are rising, and macroeconomic indicators, at least those still published, suggest a system resilient if not thriving. But this facade is misleading. To grasp the true condition of the Russian economy in the wartime era, one must look beneath the national aggregates and focus on what the federal averages obscure: the deep regional and sectoral fractures across the country.
The Mirage of Centralized Growth
Russia’s economic and political architecture is hypercentralized. The lion’s share of economic and political life revolves around Moscow, and to a lesser extent, St. Petersburg. These cities function as showcase territories—well-funded, internationally connected, and largely insulated from the harshest domestic impacts of sanctions. Revenues derived from oil and gas exports continue to finance stability in these “federation’s storefronts,” masking vulnerabilities elsewhere.
However, beyond the borders of these globalized metropolises lies a mosaic of contrasting realities. Russia is not a monolith—it is a federation of nearly 90 regions, each with its own economic structure, demographic trends, and political significance. Natalia Zubarevich, professor of economic and social geography at Moscow State University, famously described this heterogeneity in her theory of “Four Russias”:
- Russia of the global cities (Moscow and St. Petersburg),
- Russia of large regional centers (million-plus cities),
- Russia of small towns and rural areas,
- and Russia of ethnic republics (e.g., Chechnya, Buryatia, Dagestan).
Each “Russia” operates under different economic conditions, with varying degrees of exposure to sanctions, labor market resilience, and public service provision. Understanding these distinctions is key to decoding the country’s seemingly paradoxical economic behavior during wartime.
Regional Budgets Under Strain
A clear example of the country’s fragmentation lies in regional budget performance in 2024–2025. According to statistics, by the first quarter of 2025, regional revenues rose only 8%, while expenditures surged by 16%. This growing budget gap is unsustainable. Crucially, the modest revenue growth is entirely nominal—adjusted for inflation (officially 10%), most regions are actually losing purchasing power.
Even Russia’s key local budget drivers—personal income tax (PIT) and corporate profit tax—are underperforming. PIT growth halved from 25% last year to 12% this year, reflecting the slowdown in wage inflation. Profit tax revenues rose by only 6%, compared to a 4% drop the previous year—again, not nearly enough to outpace inflation. This sluggish recovery was largely confined to regions hosting export-oriented industries and with significant production potential in terms of the military-industrial complex.
Meanwhile, fiscal support from the federal center is shrinking. Inter-budgetary transfers have fallen for the third consecutive year, with a 4% drop in Q1 2025. This squeeze hits particularly hard in poorer, less industrialized regions that rely more heavily on subsidies.
Regional Crises: From Kuzbass to Murmansk
Statistics draw attention to several regions now facing acute fiscal and economic distress. Among them:
Kemerovo Oblast (Kuzbass), a historically coal-dependent region, recorded a budget deficit of 20% in Q1 2025. Global coal prices have collapsed, and high domestic transport costs have rendered much of the region’s output unprofitable. Yet astonishingly, coal extraction volumes have not decreased.
Murmansk Oblast, heavily reliant on mining and processing, is seeing its industrial output fall for the third consecutive year. The slowdown has undermined both employment and budgetary stability.
Northwestern Russia more broadly is stagnating, weighed down by sanctions and a lack of major investment, with no significant wage growth or industrial expansion.
In contrast to Moscow and other “showcase” cities, these regions lack the buffers needed to absorb economic shocks—be they falling export revenues or diminishing fiscal transfers.
Sectoral Fault Lines: Oil, Gas, and Beyond
While Moscow’s financial health remains tied to oil and gas rent, even this foundation is cracking. Key extraction regions—Khanty-Mansiysk, Tatarstan, Samara, Krasnoyarsk—have all reported declining output. In Q1 2025, oil and gas extraction fell by 5–7% in these areas. As oil market experts point out, it’s not simply about demand or logistics; the core issue is payments. Sanctions have made processing international transactions exceedingly difficult, despite creative workaround attempts.
These payment bottlenecks affect not only producers but also tax flows. Most natural resource taxes and duties are denominated in rubles—when the ruble is strong, exporters receive fewer rubles per dollar or yuan earned, reducing their tax liabilities. As a result, even if export volumes remain stable, federal and regional revenues decline.
The Illusion of Wage Growth
Despite official statistics still showing wage growth in Russia, the momentum is clearly fading. At the start of 2024, nominal wages were rising at a brisk 18–19% annually, but by February 2025 that pace had slowed to just 14%—barely keeping ahead of inflation. At the same time, job vacancies are declining, and employers are becoming more cautious in their hiring. Even Rosstat’s data, typically restrained by political considerations, reflects a tightening labor market.
Yet behind these national averages lies a deeper, more persistent divide. The wage gap between Moscow and the rest of the country remains vast. A handful of exceptions stand out—either remote regions, where higher wages are effectively neutralized by soaring prices and isolation, or oil-rich territories, where the energy sector inflates local incomes. But for the overwhelming majority of Russia’s regions, pay levels lag far behind the capital, with no real signs of closing the gap.
More telling is the slowdown in consumption. Growth in retail sales of non-food goods—often a proxy for consumer optimism—has plunged from 7–8% in previous years to just 1% in real terms. Russians are buying fewer appliances, less furniture, and fewer vehicles. Credit has dried up, especially unsecured consumer lending. While Russia’s mortgage market remains formally large (20 trillion rubles in outstanding loans), new mortgage issuances are shrinking despite heavy reliance on subsidized programs like “family mortgages.”
War and the Unequal Geography of Recruitment
Perhaps the most socially consequential manifestation of economic inequality is the geographic pattern of military recruitment. Wealthier urban centers—Moscow, St. Petersburg, Kazan—have remained largely shielded from mass mobilization. By contrast, poorer rural regions and depressed towns have borne the brunt.
It is no coincidence. Where jobs are scarce, credit burdens are high, and state welfare is the only fallback, military service becomes a rational survival strategy. In some regions, joining the army is one of the few ways to secure a stable income or social benefits for one’s family. In more prosperous regions, on the other hand, such incentives carry less weight.
Even within regions, disparities are clear. Urban centers offer more opportunities and better wages, while rural peripheries face decline. Hence, even intra-regional differences explain the uneven burden of wartime mobilization. This very circumstance also explains the lack of public outcry over the rising number of Russian casualties in the war. The burden of these losses falls disproportionately on the poor, peripheral regions—places that the more prosperous regions and major cities largely choose to ignore, as long as their own populations remain unaffected.
The war has sharply intensified the already deep divides across Russia—geographic, economic, and social. While national GDP figures may still point to growth, they conceal a growing chasm between regions. In the absence of steady oil and gas revenues, many areas now face mounting fiscal pressure. Some are caught in downward spirals of shrinking investment, job losses, and demographic decline. Others are being pushed to militarize further, turning the armed forces into a primary source of income and social mobility for their residents. In today’s Russia, the war is not just a geopolitical conflict—it is a mechanism reshaping the country’s internal economic geography.
Understanding these regional and sectoral dynamics is crucial not only for evaluating Russia’s economic trajectory but also for anticipating its political stability. Behind the polished facade of Moscow and official statistics lies a federation increasingly fractured—socially, economically, and politically.
