ANALYSIS: An 80-billion deficit: The deadly arithmetic of Putin’s war

What does this amount actually represent?

An additional four to five trillion rubles—which, at the exchange rate from the summer of 2026, amounts to approximately 40 to 50 billion dollars in additional military spending for the year. To put this figure in perspective: it is roughly equivalent to the total annual defense budget of Spain or Poland. Added to Russia’s already massive military spending—which, according to various estimates, accounted for about 6 to 7% of GDP before this increase—this boost brings Russia’s war effort to levels not seen since the Cold War.

This budgetary choice reveals a fundamental strategic decision by Putin: he is banking on a protracted war, betting on his country’s economic endurance being superior to that of the West. If Western democracies grow weary of supporting Ukraine before the Russian economy collapses, Putin can hope to win by attrition what he cannot win militarily. This strategy of endurance is all the more plausible because it relies on political control systems that are more tolerant of economic sacrifices than liberal democracies.

Russian Government Bonds in Free Fall

The reaction of Russian financial markets to plans to increase war spending speaks volumes. According to reports in the Russian press on June 22, 2026, Russian government bonds plummeted following the announcement of plans to increase the military budget, with yields reaching approximately 15%. This yield level is extremely high and reflects a significant risk premium that investors are demanding to hold Russian government debt.

Yields of 15% on sovereign bonds signal that markets view the risk of default as significant, or at the very least that future inflation will be high enough to erode the real value of these bonds. For the Russian government, financing the deficit at such high rates is extremely costly: interest expenses are piling up, creating a vicious cycle in which today’s debt ends up financing yesterday’s interest rather than tomorrow’s investments.

Sovereign bonds yielding 15%: this is a sign that the market no longer trusts the Russian government’s long-term creditworthiness. This is not a truth that Kremlin propaganda can hide indefinitely. The markets have a brutal way of imposing reality even on dictatorships.

A term that says it all

The Kiel Institute, one of Europe’s most renowned economic research institutes, has introduced the concept of “structural exhaustion” into its analysis of the Russian economy. This term is not insignificant: it describes an economy that is not merely facing cyclical difficulties that can be corrected through economic policy adjustments, but one that is suffering from a deterioration of its very fundamentals—human capital, productive investment, and industrial base—under the prolonged impact of war and sanctions.

Macroeconomic data confirm this assessment. Russia’s GDP in the first quarter of 2026 declined by 0.2% according to data cited by the Foreign Affairs Forum on June 23, 2026, and the IMF has revised its annual growth forecast downward to 0.8%. These figures, which may seem modest in absolute terms, represent a significant deterioration in the context of a war economy that was supposed to be overheating due to military spending. They reveal an economy that is consuming its capital without replenishing it.

The False Signals of Military Growth

The Russian economy posted positive growth rates during the early years of the war, mainly due to the surge in military spending that stimulated industrial production in the defense sectors. This phenomenon had led some analysts to downplay the impact of sanctions and speak of the “resilience” of the Russian economy. The Kiel Institute and the June 22, 2026, issue of The Economist offer a crucial nuance: this growth was largely artificial, fueled by unproductive military spending that consumed the country’s economic capital without creating sustainable wealth.

A comparison with historical war economies is instructive. The USSR maintained the appearance of economic power well into the late 1980s, thanks to misleading statistics and an intensive mobilization of resources in the military-industrial complex. But beneath the surface, the fundamentals were deteriorating: consumption of physical capital without replacement, innovation deficits in civilian sectors, and the depletion of natural resources that were scarcely being replenished. Putin’s Russia is following a similar trajectory.

“Structural depletion” of the Russian economy: this term from the Kiel Institute is what I would call an honest diagnosis. It is neither a cry of victory (“The Russian economy is collapsing!”) nor a condescending downplay (“Putin has the means to hold on”). The reality lies somewhere in between: slow deterioration, without immediate collapse, but with no way out.

“Problems, but No Collapse”

The June 22, 2026, issue of The Economist offered a particularly balanced analysis of the Russian war economy with its headline: “The Russian war economy has problems but is not going to collapse.” This nuance is important and intellectually honest. To claim that the Russian economy will collapse in the short term would likely be inaccurate—Russia still has reserves, significant hydrocarbon revenues (even if reduced by sanctions), and a state willing to impose economic repression on the population to sustain the war effort.

But “will not collapse” does not mean “is doing well.” The West, which is waiting for a spectacular collapse of the Russian economy to change its strategy, may be in for a long wait. The deterioration is real and cumulative, but it is slow. What should guide Western policy is not the expectation of a miraculous collapse, but the pursuit of long-term pressure—maintaining and strengthening sanctions, and providing continued support to Ukraine—which accelerates this deterioration without the expectation of immediate, spectacular results.

Duration as a Strategic Factor

The real strategic question raised by economic analysis is not “Will the Russian economy collapse?” but “Who will hold out the longest?” Russia can sustain its war-fighting capacity for years to come by accepting a gradual decline in living standards, growing macroeconomic imbalances, and the depletion of human capital. The West can support Ukraine indefinitely—if the political will is there—without facing the same economic pressures.

But “political will” is precisely the uncertain variable. If Western democracies grow weary of supporting Ukraine before Russia’s economic decline forces Putin to negotiate, Russia’s strategy of endurance will have succeeded. This is Putin’s gamble: not to win militarily, but to survive economically until the Western coalition fractures under pressure from its own public opinion.

Time is Putin’s strategic weapon. He has forty years of experience in power, no electoral constraints, and a population accustomed to economic sacrifices through decades of authoritarianism. Facing him are democracies with four-year electoral cycles and a public that is growing impatient. Patience is a weapon, and Putin has more of it than we do.

The 21st European Sanctions Package and Its Implications

On June 27, 2026, the Finnish press reported that the European Union was proposing a 21st package of sanctions against Russia. This figure—twenty-one successive packages since 2022—illustrates both the persistence of Western efforts to apply economic pressure and the limits of their immediate effectiveness. If twenty packages have not forced Putin to negotiate, why would the twenty-first?

The honest answer is that sanctions have a cumulative and delayed effect. Each additional package closes new loopholes, broadens the scope of sanctioned entities, and makes it more difficult for Russia to access the technologies, components, and financing that its war economy needs. The effect is not immediate, but it is real. Euromaidan Press reported on June 26, 2026, that the EU was maintaining its “comprehensive economic wall” against Russia through 2027, covering trade, banking, energy, and cryptocurrencies.

The Baltic States’ Oil Embargo and Pressure on Moscow

The Baltic states are actively pushing for an acceleration and strengthening of the oil embargo against Russia. The Kyiv Post of June 27, 2026, reported on their pressure on the EU to tighten restrictions. These countries, which understand better than anyone the strategic importance of depriving Moscow of its oil revenues, view energy as Russia’s economic Achilles’ heel. Oil revenues directly finance the war—cutting off these revenues means choking off the Russian war machine at its source.

But a complete oil embargo remains politically difficult within the EU. Some member states, notably Hungary, have structural dependencies on Russian hydrocarbons and have blocked or slowed down more drastic measures. This internal fragmentation of the EU is one of the most serious limitations of Western sanctions policy—and one of Putin’s most valuable assets.

Twenty-one rounds of sanctions in four years: Europe has made a considerable effort. But Orbán’s Hungary remains in the Union and regularly blocks the most restrictive measures. This paradox—sanctioning Russia while allowing Budapest to act as a loophole—is one of the most troubling contradictions in current European policy.

An Assessment from Kyiv

On June 26, 2026, Zelensky’s sanctions advisor stated that the Russian economy had reached a “stalemate”—a term that suggests not a collapse but an inability to generate the growth and resources needed to sustain the war effort indefinitely. This assessment from Kyiv is consistent with analyses by the Kiel Institute and The Economist: no spectacular collapse, but a structural deterioration that is gradually reducing the regime’s economic room to maneuver.

The term “deadlock” is strategically significant. It suggests that economic pressure has reached a level where Russia can no longer freely navigate between its options: it cannot simultaneously maintain the military effort, sustain domestic consumption, invest in economic modernization, and manage the budget deficit. It must make painful choices. So far, Putin has always chosen the military effort—at the expense of everything else.

What “deadlock” Does Not Mean

Intellectual honesty requires clarifying what this economic “impasse” does not mean. It does not mean that Russia is incapable of continuing the war tomorrow or in six months. It does not mean that Putin will negotiate because his economy is suffering—he can inflict further suffering on his people before considering that option. Nor does it mean that the sanctions have definitively “won”: the effects of long-term economic pressure are cumulative, not linear.

What “deadlock” means is that current economic trajectories are unsustainable over the next several years. Russia is burning through its future to sustain the present—this is a metaphorical but accurate way of describing what is happening. It is drawing on its sovereign wealth fund, underinvesting in its physical and human capital, and accumulating macroeconomic imbalances that will come due with compound interest as soon as the war ends.

“The Russian economy has reached an impasse”—this assessment by Zelensky’s advisor should not be interpreted as an imminent victory. It is an indicator that the strategy of pressure is working, albeit slowly. “Slowly” is the key word. Western patience is as much a weapon as 155mm shells.

Deficit Monetization and Its Consequences

Faced with a budget deficit exceeding $80 billion, the Russian government has several options: cut non-military spending, raise taxes, borrow on the markets, or monetize the deficit—that is, finance it by creating money. The first options have obvious political limitations. The last—monetization—is inflationary.

Inflation in Russia has reached significant levels since 2022, eroding the population’s purchasing power despite bonuses paid to soldiers’ families and wage increases in certain sectors. This inflation is a form of hidden tax: it redistributes wealth from ordinary households to the state by eroding the value of savings and real wages. It is a resource that authoritarian regimes traditionally use to finance wars without directly increasing visible taxation.

The Effects on the Real Standard of Living

Reliable data on the standard of living in Russia is difficult to obtain—the regime tightly controls official statistics and punishes media outlets that report negative news about the economy. But the available evidence—discussions on Russian social media, accounts from independent journalists in exile, and data compiled by researchers such as The Moscow Times (based outside Russia)—suggests a real decline in living standards, particularly in regions far from major urban centers.

The cost of imported goods has risen significantly due to sanctions and the ruble’s decline against non-Russian foreign currencies. Electronics, automobiles, and certain medications have become either unavailable or extremely expensive. This decline in consumption is socially and politically significant in a regime that has partly based its legitimacy on the improved standard of living seen in the 2000s and 2010s.

The Russian people are paying the price for Putin’s war, often without being fully aware of it, thanks to propaganda that portrays the hardships as the fault of the hostile West. But economic reality always eventually breaks through official narratives. The question is how long it will take.

The defense sector is booming, while the rest of the economy is in recession

Russia’s war economy is creating profound sectoral distortions. Arms factories are operating in multiple shifts, offering high wages to attract skilled workers. Some defense-related industrial regions are even experiencing a local economic “overheating”—full employment, rising wages, and sustained commercial activity. This “war boom” has been used by Kremlin propagandists to paint a picture of economic dynamism.

But this concentration of resources in the military sector is draining other sectors of their skilled workforce and investments. Agriculture, information technology, financial services, and healthcare—all are suffering from an exodus of talent to arms factories or the military. This distortion is a form of investment in destruction rather than production, and it undermines the Russian economy’s long-term productive capacity.

The Brain Drain as Long-Term Damage

The exodus of hundreds of thousands of skilled Russians—engineers, computer scientists, doctors, entrepreneurs—who have left Russia since 2022 is one of the war’s most difficult-to-quantify yet potentially most lasting economic damages. These departures represent a loss of human capital that Russia cannot quickly replace, as it takes years to train a highly qualified engineer or doctor.

This brain drain is exacerbated by the regime’s repressive measures—internet censorship, the criminalization of opposition to the war, and forced military mobilization—which have driven many educated Russians to choose exile rather than participate in a system they reject. For the postwar Russian economy, regardless of the conflict’s outcome, this loss of human capital will be a heavy burden on its capacity for reconstruction and innovation.

The Russian engineers living in Berlin, the doctors practicing in Tbilisi, the entrepreneurs who have relaunched their startups in Vilnius—they will not return easily, regardless of how the political situation in Russia evolves. The loss of human capital is perhaps the most lasting punishment that Putin’s war inflicts on his own country.

Internal European Divisions Over Individual Sanctions

On June 25, 2026, the English-language Ukrainian Pravda reported that two EU countries oppose a travel ban on Russian nationals. This report illustrates the complexity of European sanctions policy: even regarding measures that might seem to be a matter of consensus—restricting the freedom of movement of citizens of a country waging a war of aggression—divergences persist within the Alliance.

The arguments of those opposed to this measure are logical: collectively penalizing all Russians for decisions made by their government that they did not choose is morally problematic; Russians opposed to Putin’s regime are fleeing precisely to Europe and deserve to be welcomed; closing the borders pushes Russians toward China or other countries less favorable to the West. These arguments deserve to be taken seriously.

The Unity of Sanctions as a Strategic Issue

Regardless of one’s position on the substance of the Russian visa issue, the fragmentation of European sanctions policy is strategically costly. Every exception, every visible disagreement within the EU, provides Russian propaganda with arguments about the “contradictions” within the Western camp and fuels Moscow’s hope that the coalition will eventually disintegrate. The cohesion of sanctions is therefore a strategic value in and of itself, regardless of the merits of each specific measure.

The reality is that perfect unanimity in an alliance of 27 countries with divergent interests is an illusion. What can be aimed for is a sufficient level of cohesion to ensure that cracks remain minor and that the collective message to Moscow—“we will not back down”—remains credible. Internal tensions are manageable; public and dramatic rifts are not.

Maintaining the coherence of European sanctions is a constant exercise in political balancing. It is imperfect, it is slow, and it is frustrating. But it is also remarkable that 27 countries with such divergent interests have maintained coordinated economic pressure on Russia for more than four years. Not to acknowledge this would be unfair.

Parallels with the Collapse of the Soviet Union

The economic history of the USSR in the 1980s offers troubling parallels with the current situation in Russia. The Soviet economy supported a defense effort accounting for 15 to 20 percent of GDP—a burden that stifled civilian innovation, exhausted skilled workers, and created structural imbalances that the 1985–1986 drop in oil prices had rendered unsustainable. The end result is well known: the economic and then political collapse of the USSR in 1991.

Putin’s Russia is not the USSR—its economy is smaller, less centrally planned, and more integrated (albeit partially) into global markets. But the mechanisms of imbalance are similar: disproportionate military spending, underinvestment in the civilian sector, brain drain, and the accumulation of social tensions. The question is not whether the same causes will produce the same effects—history does not repeat itself exactly—but whether they create a trajectory of deterioration serious enough to eventually force Russian policymakers to reorient their priorities.

Differences from the USSR That Complicate the Analogy

The Soviet analogy has significant limitations. Russia in 2026 has a substantial private sector, access to financial markets through intermediaries not subject to sanctions, and an energy sector that remains an exporter despite restrictions. It also benefits from discreet economic support from China and other countries that have not joined the Western sanctions.

These factors prolong Russia’s resilience and complicate predictions about the timeline of a potential collapse. They do not alter the direction of the economic trajectory—toward structural deterioration—but they do delay its outcome. The West’s strategic patience, backed by sustained sanctions and robust support for Ukraine, remains the most effective response to this reality.

I am fascinated by the Soviet analogy, but I am wary of my own fascination. Historical analogies are useful as interpretive frameworks but dangerous as predictions. Russia is not the USSR, and Putin is not Brezhnev. But the economic mechanisms of a war economy have their own logic that transcends regimes.

The Prolonged Status Quo Scenario

The most likely medium-term scenario for the Russian economy is one of a prolonged status quo under increasing pressure. Russia continues to finance the war by gradually impoverishing non-military sectors, accumulating macroeconomic imbalances, and drawing on its strategic reserves. There will be no spectacular collapse in the short term, but rather a steady deterioration that gradually reduces the regime’s room for maneuver.

In this scenario, the most effective Western strategy is armed patience: maintaining sanctions, strengthening support for Ukraine, and waiting for the imbalances to accumulate until they force a policy shift in Moscow—whether that shift comes from Putin himself in a moment of pragmatism, from his inner circle calculating that the costs outweigh the benefits, or from social pressure forcing a reorientation of priorities.

What the $80 Billion Deficit Means for Peace

Does the budget deficit of more than $80 billion mean that Russia will soon be forced into peace by its economic difficulties? No, not in the short term. But it does mean that every additional month of war exacerbates structural imbalances, narrows future options, and further jeopardizes Russia’s economic future. It is a form of pressure that builds up even if it does not immediately translate into political concessions.

For Ukraine and its allies, this deficit is a strategic resource to be exploited: every sanction that remains in place, every arms delivery that forces Russia to spend more to compensate, and every Western investment in Ukraine’s defensive capabilities contributes to intensifying this economic pressure. Economic warfare and military warfare are two sides of the same strategy to support Zelenskyy and Ukraine.

An 80-billion deficit won’t stop Putin tomorrow. But it means that his war is costing Russia more and more. And every euro in sanctions, every shell delivered to Ukraine, every defense contract signed in Ankara helps widen that deficit. Economic warfare is also a war, and it must be waged with as much determination as military warfare.

Capital Flight and the Exodus of Russia’s Economic Elites

Since the full-scale invasion of Ukraine began in 2022, a significant economic phenomenon has unfolded in Russia: the exodus of a large portion of its economic and technological elites. According to various estimates, more than 500,000 Russian nationals left the country in the weeks following the invasion, including a significant proportion of skilled workers, entrepreneurs, and engineers. This drain on human capital is having a lasting impact on the Russian economy’s capacity for innovation and growth.

Among the oligarchs, the situation is more complex. While some have sought to distance themselves from the regime—either publicly or behind the scenes—most have opted for discretion and submission. The suspicious deaths of several prominent figures in the energy and finance sectors in 2022 and 2023 sent an unequivocal message: dissent, even tacit, is risky. Russia’s economic elite is held hostage by a regime that needs its resources to finance the war and will tolerate no opposition.

Sanctions and Their Impact on the Russian Elite: A Mixed Picture

Western sanctions were explicitly aimed at targeting the Russian economic elite to create internal pressure on the Kremlin. Asset freezes, travel bans, and measures targeting oligarchs close to Putin—all of these measures have had a real impact on individual wealth. Yachts seized in Mediterranean and Caribbean ports, and real estate frozen in France, the United Kingdom, and Switzerland represent tens of billions of euros in frozen assets.

But this individual impact has not produced the intended political effect: no credible internal pressure has emerged within the Russian elite to force Putin to cease hostilities. Since Khodorkovsky, Russian oligarchs have learned that confronting the Kremlin means risking not only one’s fortune but also one’s freedom and life. Individual economic sanctions, however painful they may be, are not enough to break a culture of fear that has been maintained for two decades. The macroeconomic impact of sanctions is more significant than their impact on individual behavior.

Russian oligarchs have always fascinated me with their ability to amass fortunes in a predatory system and then complain about it from Monaco or London. But they have never had the courage of their convictions. The Putin regime has perfectly calibrated fear so that none of them will ever pose a real counterweight to power. The sanctions targeting them are justified—but they do nothing to change the course of the war.

Bypass Routes and Bridge Countries

A crucial aspect of the economic war against Russia is the circumvention of sanctions via third countries. Turkey, Armenia, Kazakhstan, the United Arab Emirates, Georgia, and other states have seen their trade with Russia skyrocket since 2022. Dual-use goods, electronic components, and military equipment are transiting through these countries to circumvent Western restrictions. This circumvention significantly reduces the effectiveness of sanctions, particularly for strategic equipment needed by the Russian defense industry.

Investigations by journalists and independent organizations have documented complex supply chains through which Western-manufactured components—semiconductors, electronic equipment, and specialty materials—end up in Russian weapons recovered in Ukraine. This reality illustrates the limitations of unilateral sanctions in an interconnected global economy and compels Western governments to exercise ever-closer scrutiny of trade flows and to exert increased diplomatic pressure on intermediary countries.

Russia’s Growing Dependence on China: A Major Strategic Shift

The circumvention of sanctions has a major strategic corollary: Russia’s pivot toward China. Sino-Russian trade reached record levels in 2023 and 2024, with China becoming Russia’s leading trading partner and absorbing a growing share of its hydrocarbon exports, which European markets had abandoned. This relationship of growing interdependence is creating a new geopolitical dynamic: Russia is increasingly dependent on a partner that views it as a supplier of natural resources and a second-tier ally.

For Western analysts, this development is a double-edged sword. On the one hand, Russia’s dependence on China reduces Putin’s room for maneuver on the international stage—Xi Jinping is not an unconditional ally but a calculating partner who defends his own interests. On the other hand, China provides Russia with an economic lifeline that extends its ability to sustain the war effort. This is the geopolitics of toxic interdependence: two authoritarian regimes bound by interest, not by trust.

Russia, buckling under sanctions but holding on thanks to China—that sums up the current economic situation. Putin has traded dependence on Europe for dependence on Beijing. He thinks he’s won. Above all, he’s switched masters. And Xi Jinping knows exactly how to make the most of this opportunity.

The Inexorable Logic of Numbers

Dictatorships have the ability to deny economic realities for a long time—through media control, manipulated statistics, and the suppression of dissent. But numbers have the remarkable quality of eventually asserting themselves, even in regimes most impervious to reality. The 80 billion deficit, bonds yielding 15%, GDP in a mild recession, and indebted regions—these figures are not political fabrications. They reflect an economic reality that exists independently of Kremlin propaganda.

The deadly arithmetic of Putin’s war is not fatal to his regime in the short term. It is, however, fatal in the medium term to the imperial ambitions that drove it. A country that is structurally impoverishing itself by financing a war of conquest gradually loses the material capacity to sustain those ambitions. This is what the West—through sanctions, support for Ukraine, and the decisions of the Ankara summit—must continue to enforce.

Zelensky deserves better than a convenient wait

Russia’s economic decline will only translate into victory for Ukraine if the West maintains pressure long enough for the two forms of pressure—military and economic—to reinforce one another. Zelensky and his people cannot hold out indefinitely on the sole basis of promises of eternal support. They need weapons, ammunition, funding, and clear signals that the West is in this war for the long haul.

Russia’s 80-billion deficit is good news for Ukraine’s defenders. But good economic news is no substitute for sound political decisions by the West. The Ankara summit is an opportunity to make those decisions—and to send Moscow the message that economic arithmetic and Western political resolve are aligned in the same direction: against Putin’s war.

By Maxime Marquette, columnist

The figures on the Russian economy tell a story that Putin doesn’t want his people to hear. A yawning deficit, persistent inflation, an economy increasingly dependent on a single partner and a single resource. The math is relentless. It cannot be replaced by propaganda indefinitely. The question is not whether the Russian economy will eventually collapse—it is when. And that timeline depends in part on us: every sanction maintained, every dollar of support for Ukraine, every defense contract signed is an accelerator.