Russia's military budget hits limits amid Ukraine-US peace talks — Bloomberg
Illustrative photo: Russia struggles to maintain its economy (Getty Images)
Russia faces increasingly serious financial difficulties in funding its war against Ukraine. Amid ongoing peace talks, this narrows the Kremlin's ability to prolong the war without economic consequences, Bloomberg reports.
According to the sources, the Russian government is preparing for the budget deficit to exceed planned levels if military spending rises again. Moscow is currently seeking up to 1.2 trillion rubles in additional revenue to keep the deficit within the targeted 1.6% of GDP.
The situation is being compounded by falling energy export revenues, ongoing sanctions pressure, and a stronger ruble, all of which reduce budget income from oil and gas.
The price of Russia's Urals crude remains below the level assumed in the budget, while the ruble exchange rate is significantly stronger than forecast. Under these conditions, oil and gas revenues could fall more than 2 trillion rubles short of expectations, deepening the deficit.
Although Russia's budget deficit remains relatively moderate on paper, the Kremlin was forced to sharply revise fiscal indicators last year. The funding gap is being covered through record levels of domestic borrowing, which is becoming increasingly expensive.
Despite mounting economic pressure, the Kremlin has shown no willingness to soften its territorial demands in negotiations over Ukraine. Russia continues to demand that Ukraine cede the Donbas region.
At the same time, the sources note that the combination of budget constraints, sanctions, and uncertain prospects for energy revenues is gradually weakening Russia's position and narrowing the "window of opportunity" for Russian President Vladimir Putin to continue the war without serious domestic economic consequences.
According to economists and Ukrainian intelligence, 2025 has overall been the worst year for Russian trade in the past decade. Hundreds of thousands of Russians have been declared completely insolvent, production is declining across nearly all sectors except defense, and even military output is showing very modest growth.
Also, Russia's economy ended 2025 with catastrophic results. Oil export revenues fell by about 20% compared with 2024 due to lower global energy prices.
Assets in Russia's National Wealth Fund, which the government uses to offset shortfalls in oil and gas revenues, could be fully depleted by the end of 2026 if oil prices remain low.
To plug budget gaps, Russia has sharply increased gold exports to China, while the country's reserve holdings have fallen to their lowest levels in recent years.
