Russia’s secretive financing system for its ongoing war against Ukraine is putting the country’s economy at great risk, according to a new investigation led by Craig Kennedy, a former executive at Bank of America and Morgan Stanley. By delving into Russia’s corporate debt patterns, Kennedy revealed a vast and hidden financial scheme that has seen Russian banks forced to lend vast sums to military contractors. This secret funding has created a precarious situation that is threatening to unravel Russia’s economy.
While Russia’s official defense budget is $126 billion for 2025, accounting for 32.5% of government spending, Kennedy’s investigation discovered that banks have been forced to lend an additional $210 to $250 billion to war-related companies since the invasion began in 2022. This secret spending, which is six times larger than Russia’s new borrowing, has been hidden in plain sight, and it could push Russia’s financial system into collapse.
At the onset of the war, Russia passed a law requiring banks to give loans to defence companies, including those in poor financial condition, at artificially low interest rates. This led to an extraordinary surge in corporate borrowing, rising by 71% to $415 billion, which now accounts for nearly a fifth of Russia’s GDP. Over 70% of this lending has gone to companies involved in war activities, putting the banking system at risk as many of these companies are unable to repay the loans.
The hidden debt is causing severe inflation in Russia, and the country’s central bank has had to raise interest rates to over 21% to try to control the damage. However, this has had negative effects on the broader economy, including major state companies like Gazprom, which now faces borrowing rates that exceed 20%. With an economy already weakened by declining oil revenues and inflation, Russia is at a breaking point.
By late 2025, the hidden war debt could result in a financial crisis. The Russian central bank has warned that this situation is a major threat to economic stability, and public calls to halt the forced lending schemes are growing. However, Russia’s government has yet to act, fearing that any acknowledgment of the financial crisis could weaken its position in international negotiations, including peace talks with Ukraine.
Despite Russia’s plans to continue hiding the full extent of the war costs, its economy is facing significant hurdles. With fewer reserves and high debt, Russia might not be able to keep up its war effort much longer. This gives Ukraine a unique advantage, as Moscow struggles to maintain the illusion of financial stability. The longer Russia delays seeking peace, the more vulnerable its economy becomes, and it risks entering a full-blown financial collapse.
The report suggests that Ukraine and its allies should maintain pressure on Russia, demonstrating that they can outlast Moscow’s resources. Furthermore, sanctions relief should be contingent on a full peace settlement, rather than short-term ceasefires, ensuring Russia cannot use financial bailout strategies to prolong the war.
Be First to Comment