Putin ready to fund war at cost of Russia’s economy

1. The first key conclusion – Russia’s new budget signals intentions to continue the war.

The logic is simple: there is no need to raise taxes, increase fiscal pressure, or cut funding for civilian sectors if the war were expected to end. The Russian Ministry of Finance explicitly links the expansion of the tax base to the need to fund the war.

Thus, Putin does not plan to stop the war in 2026. On the contrary, he is further militarizing the economy, increasing military spending, and digging deeper into Russians’ pockets to finance aggression.

2. The war and sanctions continue to damage Russia’s economy

Oil and gas revenues have been steadily declining since the start of the year. In the first half of 2025, the average drop exceeded 20%, and by August, the decline surpassed 35%.

As a result, Russia’s budget deficit in 2025 will reach about $60 billion. By comparison, in 2021 Russia had a surplus — revenues exceeded expenditures by nearly $7 billion. Previously, shortfalls were covered by reserves and additional tax pressure on large businesses, but now even that is insufficient.

3. The Russian budget does not account for increased sanctions

The baseline scenario of the 2026 budget does not assume an increase in sanctions pressure. The reasons are both subjective and objective.

Subjective factor – the new U.S. administration. Since the start of its term, it has not introduced any new sanctions packages against Russia. The EU adopts sanctions, but their effectiveness is lower due to weak enforcement and limited application. U.S. sanctions are stronger because they also target those helping Russia circumvent them, with the Treasury overseeing compliance. The greatest effect comes from a combination of European and American sanctions. In 2025, such synchronization did not occur.

As a result, no significant new sanctions have been imposed, and Russia has already adapted to the old ones – circumvention schemes are established and practiced. This has already been taken into account in the budget.

However, if the Group of Seven strengthens its sanctions policy and enforcement, Russia’s economy will plummet again. Since the budget assumes this will not happen, the economic blow could be even more severe.

Last week, Donald Trump repeatedly stated that Russia’s economy is collapsing. The published draft budget confirms this. It also confirms that Putin does not plan to end the war. He is ready to finance it at any cost, even at the expense of destroying his own economy.

If Western countries find the courage to strengthen sanctions and enforce them, including against countries that help Russia circumvent them, Putin will have far more reasons to think about saving Russia from internal collapse rather than how to wage war against Ukraine.

Source

About the author. Mykola Kniazhytskyi, journalist, Member of the Ukrainian Parliament.

The editorial team does not always share the opinions expressed by blog or column authors.