ISW: Prediction Of A Revolution Has Caused Unease In The Kremlin

A VEB analyst revealed an uncomfortable truth about the Russian economy.

The Russian state-owned bank Vnesheconombank (VEB) has fired its chief economist Andrei Klepach. As analyzed by the Institute for the Study of War (ISW), this is linked to Klepach’s assessments, which contradict Russian dictator Vladimir Putin’s “theory of victory” in the war against Ukraine.

The economist presented his assessment of the economic and geopolitical challenges at the Nikitsky Club of the Moscow Exchange in May. According to his analysis, Russia’s war economy is stagnating due to high defense spending, tight monetary restrictions, sanctions, and Ukrainian strikes. He also spoke of a possible revolution in the country.

According to reports, VEB CEO Igor Shuvalov fired Klepach on August 16 after his assessments appeared in the media, citing a “call from above.”

The economist predicted that Russia could wage a war of attrition without losing, but risks a social crisis and further economic and technological lag behind the U.S., China, and Ukraine.

Klepach also cited Ukrainian attacks on Russia’s port, oil, chemical, and logistics infrastructure as a significant macroeconomic obstacle to the Russian Federation’s economic expansion. In addition, he highlighted the high key interest rate, which peaked at 21% in June 2025 and currently stands at 14%.

“The Kremlin continues to pressure the Central Bank to lower the key interest rate to ensure economic stability and expand the capital available to the Russian defense industry, despite persistent fiscal inflationary pressures,” the ISW emphasizes.

Analysts add that in June 2024, Putin defined his theory of victory in Ukraine as relying on a protracted war of attrition. At the same time, experts have already noted that it is becoming increasingly difficult for Russia to sustain this method of warfare, as casualty figures exceed the number of mobilized troops, the cost of the war is rising, and the Kremlin is exaggerating its successes on the front lines.

“ISW believes that the Russian military is systematically misinforming Putin about the situation on the front lines, partly due to a culture of deception prevalent within the Russian armed forces, which ‘military correspondents’ refer to as ‘embellished reports.’ “Putin is likely better informed about Russia’s economic problems than about the military situation, but he is just as determined to create the appearance of economic stability, despite evidence of Russia’s current economic problems,” the report notes.

At the same time, analysts cite “substantial evidence” that the economist’s assessment corresponds to reality. They say that the Russian government has implemented suboptimal economic policies to support the war in Ukraine, resulting in a host of current economic problems in Russia, namely: ever-increasing and unstable military spending, rising inflation, a significant labor shortage, and a reduction in the Russian Federation’s sovereign wealth fund, which poses complex challenges for Russia’s monetary and macroeconomic policies.

“The Russian economy is unlikely to collapse quickly without additional serious shocks, but the deterioration of Russia’s economic situation increases the domestic costs that Putin will have to face, requiring even greater sacrifices from the Russian people for the sake of his failed war,” the analysts concluded.

It is worth recalling that, according to economist Klepach, economic problems will lead Russia to a “social crisis”—and “at a time when no one is particularly expecting it.”

“But let me remind you, no one expected the February Revolution either. Lenin wrote in December 1916 that ‘we won’t live to see it,’ but he did live to see it just a few months later. The situation in the Soviet Union in 1991—we had been heading toward it for a long time and consistently, and everyone understood that we were heading toward a crisis, but there was no fatal inevitability that the Union would collapse,” Klepach said.

“I believe that Russia will not fall apart, but I am almost certain that we will face a social crisis. Economically, we will not collapse, but our lag behind will continue to grow, with all the ensuing consequences,” he concluded.

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