Putin’s Wartime Economy Forces 209,000 Russian Small Businesses to Shut in Just 3 Months

Russia’s consumer economy is coming under growing strain as high wartime spending, sanctions-driven inflation and internet shutdowns linked to Ukrainian drone attacks pressure businesses, causing a sharp rise in business closures in 2026 due to high borrowing costs, weak consumer demand and rising operating costs.

Data from a Russian business intelligence and due diligence platform, Kontur.Focus, cited by Forbes.ru, showed that about 209,000 small and medium-sized enterprises (SMEs) shut down across Russia between January and March 2026, an increase of nearly 9% compared with the same period a year earlier.

At the start of 2026, Russia had around 6.9 million Small and Medium Enterprises (SMEs) in operation; however, experts cited by Forbes.ru said closures were accelerating amid worsening economic conditions.

The sectors facing the greatest pressure include retail, food service, beauty salons and clothing chains, as businesses struggle with declining purchasing power among consumers, rising taxes and persistently high interest rates.

Shopping malls across Russia are also said to have been experiencing lower customer traffic, while online marketplaces continued to draw consumers away from traditional stores.

Russia’s fashion retail industry is one of the hardest-hit sectors. Olga Popkova, an economist and managing partner at the communications agency Goldman Agency, has projected that up to 40% of clothing stores in Russia could close during 2026 if current trends continue.

At least 13 fashion brands were either preparing to leave the market entirely or significantly reduce their operations, according to the report.

Among the companies affected, Russian footwear and apparel retailer Zenden reportedly closed 130 of its 230 stores as part of a major downsizing effort. Children’s clothing company Orby was preparing bankruptcy proceedings for two legal entities, while fashion chain Modis had also reportedly filed for bankruptcy.

Business owners interviewed by Forbes.ru said the operating environment had fundamentally changed from the conditions in which many companies originally expanded. Rising financing costs, shrinking margins and changing consumer habits were forcing firms to rethink traditional business models.

Analysts cited in the report said businesses dependent on physical retail locations were especially vulnerable as consumers increasingly shifted toward cheaper online alternatives and reduced discretionary spending.

The report argued that many companies built around pre-2022 consumer patterns were finding it increasingly difficult to remain profitable in Russia’s evolving economic landscape.

While the shift to online alternatives can be attributed to changing behavioural patterns in society, the high borrowing costs and weakening consumer demand that are basically the drivers of Russia’s evolving economic landscape are largely tied to the surge in wartime military expenditure alongside the strain of international sanctions imposed due to the conflict in Ukraine.

Since the start of the conflict, Russia’s economy has become increasingly dependent on wartime state spending, particularly in defence manufacturing and military-related industries. That spending initially helped support growth, but it also fueled inflationary pressures, prompting Russia’s central bank to sharply raise interest rates to cool the economy.

The bank’s key rate climbed as high as 21% in 2025 before easing slightly, remaining at elevated levels that analysts say have made borrowing expensive for businesses and consumers alike.

At the same time, Western sanctions, rising taxes and persistent inflation have weakened household purchasing power and slowed consumer spending. Russia’s government recently downgraded its 2026 economic growth forecast to 0.4% from 1.3%, while officials acknowledged that growth driven by military expenditure was fading.

“Economic dynamics are cyclical. After a period of high growth, ​there is always a correction, often accompanied by structural transformation. This is a normal stage for the economy,” Russia’s Deputy Prime Minister Alexander Novak said in an interview with Vedomosti daily.

He further stressed that the economy is developing in an environment of “unprecedented pressure from sanctions.”

So, the declining household purchasing power has also adversely affected the businesses dependent on discretionary consumer spending like retailers, restaurants and fashion chains, as households cut back on non-essential purchases.

Adding to these economic pressures are the internet shutdowns being implemented by the Russian security apparatus in response to Ukraine’s drone attacks that are disrupting businesses and daily life in Russia.

The first major internet shutdowns in Russia were introduced in the Moscow region in May 2025 during events marking the 80th anniversary of Victory Day, with authorities later expanding the practice to other regions while citing the need to protect against Ukrainian drone attacks.

In March, large-scale mobile internet disruptions were again reported in Moscow and St. Petersburg shortly after legislation came into force requiring telecom operators to suspend services upon requests from Russia’s Federal Security Service (FSB).

Russian officials have defended these repeated internet shutdowns as necessary security measures against what they refer to as terrorist attacks, particularly ahead of major public events and in large cities, including Moscow.

President Vladimir Putin, for instance, said in April that the restrictions were needed to prevent terrorist threats, which “unfortunately, we sometimes overlook,” while acknowledging public frustration over disruptions to communications and digital services.

The restrictions have expanded significantly in 2026, with outages affecting banking services, taxi apps, navigation systems, online payments and messaging platforms used by millions of Russians and businesses. Ahead of Russia’s Victory Day celebrations in May, Reuters reporters in Moscow found widespread mobile internet outages across the capital, while operators and banks warned customers about continuing connectivity problems.

The growing controls are hitting small businesses particularly hard. Per the media reports, approximately 2.9 million small firms and more than 14 million self-employed Russians depend on online messaging and digital platforms for sales and customer communication. Russia’s digital commerce market reached approximately $153.74 billion in 2025, underscoring the scale of the disruption caused by internet blackouts and messaging restrictions.

Business owners cited by Reuters said interruptions to Telegram and other messaging platforms had complicated customer orders, delayed deliveries and damaged sales, particularly after Western social media platforms such as Instagram and Facebook were restricted in Russia following the start of the war in Ukraine.

Experts cited by the state-aligned Russian media outlets say that the use of mobile internet shutdowns has increased the interception rate of Ukrainian drones by Russia’s anti-drone apparatus, by increasing the time available for security agencies to detect incoming drones by roughly 30%.

Igor Bederov, an expert at the Internet Development Institute – a Russian autonomous non-profit organisation, sponsored by the state with the help of grants on a contractual basis – explains that the drone navigates not only by GPS but also by Wi-Fi networks and the base stations themselves.

“Geolocation is determined by cellular base stations. Therefore, jamming both mobile and internet signals can hinder drone guidance,” Bederov was cited as saying by Russia’s Pskov News Agency. 

However, economists warn that the disruptions due to these internet shutdowns are compounding the challenges already facing Russia’s private sector, particularly businesses reliant on digital payments, online advertising and consumer-facing internet services.

The restrictions have also fueled growing public frustration. Research cited by Russian communications consultancy KROS found that internet restrictions in 2026 generated public anxiety levels twice as high as concerns surrounding the coronavirus pandemic in 2020.

Tanmay Kadam is a geopolitical observer based in India. He has experience working as a Defense and International Affairs journalist for EurAsian Times. He can be contacted at tanmaykadam700@gmail.com.