Russia's economy has reached dead end, Zelenskyy's sanctions adviser says

According to him, the main factor determining the current state of the Russian economy is the reduction of its source of financing, namely, oil and gas revenues.

From January through May, these revenues in the Russian budget remained 30% lower than a year earlier. Even favorable external conditions and temporary price spikes did not help.

"Indeed, the blockade of the Strait of Hormuz triggered a surge in global prices and increased Russia's export revenues to more than $20 billion per month. However, as soon as shipping began to recover, this effect disappeared immediately," Vlasiuk said.

MarineTraffic data show that tankers have already started moving actively: while not a single vessel passed through the strait on June 17, by June 22, 10 tankers had departed, and 11 had entered, and on June 25, as many as 17 tankers left the Persian Gulf.

Such an unblocking of logistics immediately triggered a decline in oil prices, easing tensions in the market. As of June 26, the price of Russia's Urals crude had stabilized at $58.83.

In the 2026 budget, the Kremlin had assumed a price of $59 per barrel, but that proved to be overly optimistic.

The budget deficit for the first half of 2026 reached 6 trillion rubles (approximately $76 billion), exceeding the entire annual plan by 60%.

Military spending has effectively displaced all other priorities: in the first quarter, it reached 5.9 trillion rubles (approximately $75 billion), accounting for 48% of the state budget, and overall, it may increase to 18 trillion rubles (approximately $229 billion) this year. About 75% of tax revenues are being directed toward defense.

To cover these gaps, Russia is borrowing more and more expensively within the country. Domestic public debt has already increased to 32.4 trillion rubles (approximately $413 billion), and the issuance of federal loan bonds increased by 54% year-on-year, while there is no strong demand (the most recent auction was even canceled).

Yields have already risen to about 16%. The fact that the state is forced to borrow at such high interest rates signals a serious shortage of liquidity and high risks that are being priced in even by the domestic market. International sanctions make it impossible to turn to external sources of borrowing.

"All this indicates that the Russian economy has effectively reached a dead end. The war is being financed solely by depleting domestic resources and destroying the civilian sector, while financial stability in the regions is rapidly eroding — 56 regions of Russia are already running budget deficits," Vlasiuk said.

He stressed that the Kremlin is still keeping its war machine running, but is doing so at the cost of irreversible destruction of its own financial system.

"Under these conditions, further restricting oil revenues is the most effective instrument for driving the aggressor's economy toward inevitable collapse. The only way to stabilize the economy is to stop spending on the war," the Presidential Commissioner for Sanctions Policy added.

Russia's economy

Russia is rapidly increasing its public debt because of rising spending on the war against Ukraine. This is putting at risk one of the main strengths of the Russian economy, which Russian President Vladimir Putin had boasted about for years.

Domestic borrowing in Russia is expected to increase again this year, as the Kremlin's war machine requires additional funding.

Preliminary estimates indicate that military spending in 2026 could exceed the planned level by 4–5 trillion rubles (approximately $51–64 billion). This is nearly 40% higher than the government's initial estimates.

In addition, the Russian economy continues to slow amid regular Ukrainian drone strikes on Russia's military, fuel, and industrial infrastructure.

Moreover, Russia's fuel shortage is deepening and, according to media reports, has already affected 70 regions of the country.