Vladimir Putin is confronting a deepening cash shortage as Russia experiences a wave of bank withdrawals that could double the outflow seen in 2022, the year the war in Ukraine began.
What is happening?
Data from the Central Bank of Russia show that in the first half of August Russians pulled out $3.4 billion (286.4 billion rubles) from their accounts. That follows $7.3 billion withdrawn in July and $4.5 billion in June.
"Drones are flying. Things are burning down. Nervousness is growing. And people's everyday wisdom may be kicking in that they need to have cash under their pillow and not somewhere in banks where it may never be returned," a former finance official told the Washington Post.
The outflow is not a sudden panic but a steady exodus that, if it continues, will nearly double the $24.7 billion pace recorded in 2022.
Why does it matter?
Four years after the invasion began, the Russian budget is sinking into deeper deficits. The sovereign wealth fund is almost exhausted, tax hikes are squeezing consumers already hit by high inflation, and the Ministry of Finance has halted domestic bond auctions because of soaring borrowing costs and weak demand.
The finance ministry's deficit reached $76 billion at the end of July, and the government's main source of domestic borrowing, bond auctions, has been suspended.
Banking executives warn that many lenders lack the cash to buy government bonds. Sberbank senior executive Taras Skvortsov told Russian radio that "many banks don't have cash on hand to buy government bonds."
With deposits fleeing, the liquidity crunch threatens the Kremlin's ability to fund the war. The leader of the Communist Party has called for the mobilisation of 130 trillion rubles held in bank accounts, while the finance ministry drafts legislation that could tap $40 billion in pension savings held in privately managed funds.
"If the government needs cash, Putin will just do a grab for assets. He doesn't care," an associate of a Russian billionaire told the Washington Post.
Earlier this year, officials warned Putin that a financial crisis could hit by summer. A state-backed think-tank, the Center for Macroeconomic Analysis and Short-Term Forecasting, warned in December that a banking crisis could materialise by October if loan troubles worsen and depositors keep pulling out funds.
What could happen next?
Beyond the financial strain, the Kremlin appears to be preparing a broader military mobilisation. Sources told the Wall Street Journal that the armed forces are drafting plans for a wider conscription, but may delay any announcement until after next month's parliamentary elections to avoid political backlash.
Previous mobilisation in September 2022 triggered a mass exodus of men to neighbouring states such as Georgia and Kazakhstan. Rumours of a new call-up have already increased cross-border traffic and lifted property prices in Georgia and Armenia, according to local agents.
If the cash shortage deepens, the state may resort to further asset seizures, it already confiscated $51.5 billion of oligarch assets last year, and could force the mobilisation of pension funds or other private savings to keep the war machine running.
Analysts say the combination of a strained banking sector, a depleted sovereign fund and a costly war creates a fragile economic foundation that could crumble under additional sanctions or a sharp drop in oil revenues.