- Former Russian deputy energy minister Vladimir Milov says open-source industrial data indicates slowing growth, weak profitability, and rising payment delays across Russia’s defense industry.
- The analysis links sanctions, regulated pricing, high borrowing costs, and reduced state spending growth to mounting financial pressure affecting long-term weapons production capacity.
Former Russian deputy energy minister Vladimir Milov has published an analysis assessing the current condition of Russia’s defense-industrial sector, concluding that production growth is slowing while financial pressures across military manufacturers are increasing.
The assessment, built on publicly available industrial statistics, corporate disclosures, and official statements, challenges the narrative that wartime spending has produced a stable and self-sustaining military economy.
Rapid expansion in weapons production during 2023 and 2024 is described as largely driven by extraordinary wartime budget injections rather than structural modernization. As government spending growth moderates and financial constraints accumulate, underlying weaknesses within the system are becoming more apparent. Sanctions pressure, expensive borrowing, regulated pricing, and weakening investment capacity are increasingly converging, limiting the sector’s ability to sustain earlier production momentum.
Since the start of the full-scale invasion of Ukraine, Russian authorities have reduced transparency surrounding defense production data, with many enterprises no longer publishing detailed reporting. Aggregated statistics released by Rosstat nevertheless allow indirect tracking of military-related output through industrial categories linked to defense manufacturing.
Three sectors stand out as key indicators: fabricated metal products associated with weapons and ammunition; other transport equipment covering armored vehicles and aircraft; and electronic and optical products tied to military electronics and targeting systems.
All three sectors expanded rapidly in 2023–2024. Growth slowed markedly during 2025, with weapons and electronics production reportedly falling to roughly half previous rates, while combat vehicle manufacturing also showed clear deceleration. By late 2025, electronics and optics growth had dropped to around 1% in December—the lowest level recorded since the invasion began—and weapons production briefly moved into negative territory during parts of the year.
Remarks attributed to First Deputy Prime Minister Denis Manturov indicate that recent output figures were largely the result of production backlogs formed earlier in the war rather than new investment cycles.
Sanctions emerge as a central constraint in the assessment. The defense industry is described as heavily affected by restricted access to technologies, components, and especially advanced machine tools. Numerically controlled manufacturing equipment is identified as a critical vulnerability because it enables the creation of new weapons production lines, while domestic alternatives remain limited. Efforts to replace Western equipment through alternative suppliers have not fully compensated for restricted access to advanced industrial technology.
Structural financial pressures are also linked to the design of Russia’s defense procurement system. Military goods supplied under the state defense order are produced under regulated prices approved by government officials rather than market pricing mechanisms. Allowable margins typically range between 5% and 10%, while observed inflation—estimated at 14.5% based on Russian Central Bank surveys—effectively erodes profitability.
“There is no free pricing for products supplied under the state defense order,” Milov said, adding that inflation “will simply eat any regulated profitability of 5–10%.”
Statements attributed to Rostec leadership further illustrate the issue, indicating that many defense enterprises operate with near-zero or negative profitability. Average profitability across Rostec, including civilian divisions and banking operations, stands at roughly 2–3%, suggesting even thinner margins within purely military production.
Financing arrangements add another layer of pressure. Defense contracts typically include only partial advance payments, with final funds transferred after acceptance procedures and budget approvals. The resulting delay forces companies and subcontractors to rely on commercial loans to maintain production. Borrowing costs exceeding 20% create severe strain when profit margins remain minimal, increasing repayment risks and contributing to mounting debt across supply chains.
Financial stress is also reflected in the performance of PSB, the state-backed bank closely tied to defense-sector lending. The bank reportedly recorded a 12-billion-ruble loss in the first half of 2025 after strong profits in earlier years, largely due to reserves created for potentially unrecoverable loans issued to defense enterprises. Government recapitalization followed, with two injections of 30 billion rubles each during 2025 intended to stabilize the balance sheet.
Corporate disclosures and legal disputes across aircraft manufacturing, engine production, and missile development sectors point to similar liquidity pressures. Lawsuits from suppliers over unpaid bills and growing payment delays suggest stress spreading beyond prime contractors into regional subcontractor networks. Business associations in Russia have increasingly identified non-payments as one of the primary risks facing large enterprises working under state contracts.
Labor and investment indicators show parallel changes. Wage growth in defense-linked industries has slowed after earlier wartime increases and now trails observed inflation levels, reducing real income gains for workers. Investment in electronics and optics production, previously expanding rapidly, reportedly turned negative during parts of 2025, reflecting declining reinvestment capacity.
Unlike Western defense manufacturers that balance military contracts with profitable civilian production, Russian conglomerates maintain limited diversification. Rostec previously set a goal of increasing civilian output to half of total production, yet reported levels remain near 29%, limiting alternative revenue sources capable of offsetting weak margins in regulated defense manufacturing.
Taken together, the assessment portrays Russia’s wartime industrial expansion as heavily dependent on exceptional state spending rather than durable economic mechanisms. Slowing budget growth, rising debt exposure, and constrained modernization capacity are increasingly shaping the operating environment even as factories continue running at high tempo.
The interaction between sanctions pressure, regulated pricing, expensive credit, and delayed payments forms a reinforcing cycle that weakens industrial resilience over time.
These trends matter operationally because sustained weapons production depends not only on factory output but on financing stability, equipment modernization, and reliable supplier payments. Constraints in those areas directly affect the ability of defense enterprises to maintain production levels and deliver military equipment consistently—factors closely monitored by defense and security observers assessing Russia’s long-term wartime production capacity.