OP-ED: Russia’s Deficit Skyrockets: Putin Is Financing His War on Credit

A Mechanism for Pain Transfer

The Russian fiscal model is highly centralized: resources flow to Moscow, and the regions receive transfers determined by the central government. Since 2022, this model has created unprecedented tensions: the regions have been forced to co-finance direct military expenditures—mobilization bonuses, local equipment, and support for soldiers’ families—without their budgets being proportionally compensated.

Data reported by the dn.gov.ua portal on June 22, 2026, shows that Russian regions are drowning in debt that far exceeds their fiscal capacity. Regional governors find themselves in a state of technocratic bankruptcy: they must maintain public services, co-finance the war, and manage a workforce depleted by military mobilizations—all with budgets that do not cover their expenses.

Regional Economic Mobilization and Its Limits

Russia has attempted to offset these pressures by allowing regions to issue their own bonds—a form of regional debt that is theoretically backed by a federal guarantee but which adds to the system’s total debt. These regional bond issuances find buyers among Russian state-owned banks—creating a circular financing loop that analysts at the Kiel Institute described as early as June 23, 2026, as “structural exhaustion.”

This depletion is not only financial. It is also human: the regions most affected by mobilizations—rural regions with ethnic minority populations, often among the poorest in the Federation—are losing their active male workforce. The men go to the front; the women and the elderly remain. The productive capacity of these regions declines. And when the soldiers return—if they return—they find a local economy drained of life.

Russian regions are being sacrificed twice over: by the conscription of their men and by the drain on their budgets. This is the classic mechanism of an empire that finances its wars from its periphery. The Roman Empire used the same method. History tells us what happened next.

Why Russia Isn’t Collapsing—Yet

One crucial point must be made, and I don’t want to gloss over it: neither the Kiel Institute nor The Economist is predicting an imminent Russian economic collapse. The Kiel Institute speaks of “structural exhaustion”—a slow process, not a knockout blow. On June 22, 2026, The Economist ran a headline stating that “Russia’s war economy has problems but isn’t going to collapse.” These are reputable institutions that I cite with respect.

Russia has structural strengths that are delaying the moment of truth: still-substantial foreign exchange reserves (even if partially frozen by sanctions), relatively low public debt as a proportion of GDP before the war, a defense industry operating at full capacity and employing millions of people, and a political regime that can impose sacrifices on its population without risking a democratic transition.

What “not collapsing” really means

But “not collapsing” does not mean “functioning well.” Russia’s GDP for the first quarter of 2026 is negative at -0.2%. The IMF has revised its annual growth forecast to 0.8%—a significant downward revision. The economy is officially growing, but all of this growth is concentrated in the military sector. The civilian economy—consumption, private investment, services—is contracting.

It is a war economy in the most literal sense: an economy that runs to wage war, not to provide for its citizens. This model may last for years. But it leads to gradual impoverishment, the deterioration of civilian infrastructure, and a buildup of frustrations that cannot be contained indefinitely, even by an authoritarian regime.

“Not collapsing” is the lowest bar one can set for an economy. Putin’s Russia in 2026: it is not collapsing. That is the bottom line. It is not an achievement. It is survival. And ordinary Russians know the difference between the two better than any economist.

The European Proposal of June 27

The European Union proposed a 21st package of sanctions against Russia, announced on June 27, 2026. This new package primarily targets the “ghost fleet” of oil tankers that circumvents official embargoes, as well as entities in third countries that facilitate Russian access to controlled technologies. This is a direct response to the circumvention tactics Russia has employed since 2022 to maintain its energy exports.

The ghost fleet has become a symbol of the limitations of first-generation sanctions: if you sanction Russian oil on Western markets, the tankers are re-registered under flags of convenience, sail without international insurance, and deliver to customers who agree not to verify the origin. This system works, but at an increasing cost—ghost tankers face higher freight rates, longer routes, and a greater risk of technical incidents.

The Baltic States Want a Total Embargo

The Baltic states are pushing to go well beyond the 21st package. Their goal is a total embargo on Russian oil, including via the pipelines that still supply certain EU members in Central Europe. Resistance from Hungary and certain Central European countries that still depend on these pipelines is slowing down this option.

But the Baltic states have an irrefutable fundamental argument: as long as Russian oil can flow to Europe—even via a roundabout route—Russia continues to benefit from revenues that finance its war. The principle that one cannot simultaneously condemn the war and finance its budget is of absolute moral clarity. The difficulty is practical and political, not ethical.

The Baltic states possess the moral clarity that geography has taught them. They live next to the monster. Their impatience with European compromises is legitimate, and I share it. The question is not whether a total embargo is just—it is. The question is when Europe will have the courage to impose it.

15%: The Price of Market Distrust

The yield on Russian government bonds, at around 15%, is not just a financial indicator—it’s a signal of confidence. When markets lend to Germany at 2–3% and to Russia at 15%, it is a collective statement that Russia poses a risk five times greater. This risk encompasses several dimensions: default risk, the risk of ruble devaluation, the risk of new sanctions, and the risk of political instability.

These high yields have direct consequences for the government’s ability to borrow. Every additional percentage point in yield translates to billions of rubles in extra interest expenses in a budget already under pressure. It’s a vicious cycle: the higher the deficit, the higher the risk premium demanded by investors, the higher the interest expenses, and the wider the deficit grows.

The Ruble Under Structural Pressure

The ruble has suffered repeated devaluations since 2022. The Russian government uses capital controls to limit the outflow of foreign currency, but these controls themselves create economic distortions. Russian companies that need to import materials cannot freely access foreign currency. Individuals who wish to save in stable currencies—dollars, euros, yuan—face increasing restrictions.

This pressure on the ruble directly fuels inflation: imports cost more in devalued rubles. And for an economy like Russia’s—which, despite its proclaimed self-sufficiency, still depends on significant imports for industrial equipment, medicines, and electronics—this imported inflation is a permanent shock, not a temporary anomaly.

The ruble is sliding. Yields are rising. The deficit is widening. This is the trifecta of fiscal unsustainability—the same dynamic that preceded Russia’s 1998 financial collapse. The conditions are not identical. But the signs are similar.

Russian Statistics as a Propaganda Tool

Official Russian economic statistics are produced by Rosstat, the federal statistics agency, which is under government control. Since 2022, Rosstat has changed its calculation methods, delayed the release of certain data, and refused to make public information that was previously available. This growing lack of transparency is a sign in itself: data that leaks out—via independent sources such as The Moscow Times or private financial analysts—is consistently less favorable than the official figures.

Analysts attempting to piece together a true picture of the Russian economy cross-reference several sources: data from Russia’s trading partners (who publish their own import and export statistics), satellite imagery of industrial activity, maritime traffic data to track “ghost” oil tankers, and surveys of Russian companies that have left the country. This shadow economy is underperforming compared to the official economy. And it paints a bleak picture.

Corruption as a Crisis Multiplier

Systemic corruption in Russia amplifies the effects of the economic crisis. War funds are embezzled at every level of the military-industrial complex—from arms contracts to the procurement of equipment for soldiers. Defense officials overcharge for orders, middlemen profit from circumventing sanctions, and oligarchs close to the Kremlin enrich themselves through reconstruction projects in occupied territories. This corruption is not an exception—it is the system’s normal mode of operation.

Corruption has direct consequences for Russian military effectiveness. Soldiers receive expired body armor because officials chose to pocket the difference between the market price and the price paid. Night-vision equipment arrives at the front in poor condition. Food rations are supplied at inflated prices by contractors with close ties to the government. This is a war in which the economic predation of the Russian elites directly weakens military capabilities—and budget deficits also reflect this reality.

Russian corruption is the hidden tax on the war. Every ruble embezzled by an oligarch or a corrupt officer is a ruble that doesn’t pay for a shell, a vest, or a ration. It is perhaps the most effective form of economic sanction—it comes from within.

The Limits of Economic Forecasting in Times of War

International economic institutions—the IMF, the World Bank, and research institutes—publish forecasts for the Russian economy with unusually wide margins of uncertainty. The reason is simple: Russia publishes less data, the data it does publish is less reliable, and traditional economic models do not work well in a partially centrally planned wartime economy. The IMF’s growth figure of 0.8% masks a wide range of possible outcomes, ranging from sharply negative to slightly positive.

The Kiel Institute, which analyzes the Russian economy with particular thoroughness, uses the term “structural exhaustion” to describe a dynamic that aggregate GDP figures fail to capture: the gradual deterioration of the Russian economy’s long-term productive foundations—a brain drain, plummeting investment, and growing dependence on Chinese imports for industrial goods. These deteriorations are invisible in the short term but decisive over a 5- to 10-year horizon.

The Scenario of Prolonged Maintenance and Its Conditions

The scenario in which Russia maintains its war economy for an extended period—five years, ten years—requires specific conditions: oil prices maintained above $70 per barrel; China continuing to buy at discounted prices without reducing its purchases; India maintaining its imports of Russian oil despite U.S. pressure; and the absence of any major internal shock—political, military, or economic. Each of these conditions is uncertain.

Western sanctions are specifically designed to erode these conditions one by one. The embargo on “ghost tankers” targets export volumes. Price caps target profit margins. Technology restrictions target the capacity for industrial modernization. The combined effect, over a three– to five-year horizon, creates mounting pressure that even Russia’s structural strengths cannot absorb indefinitely. This is the strategy of calculated attrition—and as of June 2026, it is still in full swing.

The Russian economy is at war with itself just as much as it is financing a war against Ukraine. Predatory practices, corruption, the brain drain, and lost human capital—all of this is digging a chasm that oil revenues are filling today but will not be able to fill indefinitely.

The History of Debt-Financed Wars

Economic history teaches a simple and brutal lesson: wars financed by debt and money printing always end up triggering a crisis. The form and timing vary—hyperinflation, forced devaluation, debt restructuring, political collapse—but the mechanism remains the same. Putin is no exception to this rule. He delays it; he temporarily circumvents it with oil revenues, Chinese aid, and the suppression of economic dissent. But he does not eliminate it.

The 80-billion deficit, the additional 4 to 5 trillion rubles planned, the 15% interest rates, the regions drowning in debt, the negative GDP in the first quarter—each of these signals is a message that the markets and economists are sending to the regime. For now, Putin can ignore these messages. But debt must always be repaid. In rubles, in blood, or in political power. Often in that order.

What the West Must Do as the Bill Grows

The rational strategy for the West, as Russia accumulates its war debts, is to maintain relentless pressure. Sanctions must remain in place—at least until 2027, as decided by the EU. Military support for Ukraine must continue so that the costs of the war for Russia remain high. And Ukrainian strikes on oil production infrastructure—refineries, storage facilities, and terminals—must be politically supported, as they directly target the source of revenue that allows Putin to finance his war debt.

The war on credit that Putin is waging does not come for free. It will be paid for—by Russia, by its people, or by his successors. The West must ensure that the bill arrives as soon as possible, at the highest possible cost, and that Ukraine is still standing to see it settled.

A war fought on credit always ends up being paid for—in rubles, in blood, or in political power. Putin is betting that the West will pay its bill before he does. The West must make the opposite bet—and have the patience to see it through.

Signed, Maxime Marquette, columnist