OPINION: Russia's deficit explodes: Putin is financing his war on credit

OPINION: Russia's deficit explodes: Putin is financing his war on credit

Introduction: the numbers Moscow can no longer hide

$80 billion in the red

Some numbers tell the truth better than any speech. Russia's budget deficit has exceeded $80 billion in 2026. Not according to hostile Western analysts. According to data compiled by United24 Media on June 23, 2026, cross-referenced with undeniable market signals: Russian government bonds have collapsed, pushing yields to approximately 15%. When creditors demand 15% to lend to a state, that state has a very serious credibility problem.

Moscow continues to proclaim the «stability» and «resilience» of its economy. The Kremlin regularly produces carefully filtered statistics to demonstrate that sanctions «are not working» and that Russia is adapting admirably. At the same time, the government is preparing an increase in war spending of 4 to 5 additional trillion rubles in 2026 — a sum that must be found somewhere, in a budget already deep in the red.

The war as a ruble vacuum

The war in Ukraine, in its financial dimensions, functions as a ruble vacuum. Soldiers' salaries, bonuses to families of the dead, accelerated weapons procurement, reconstruction of destroyed equipment, support to occupied regions, sanctions circumvention — all of this costs hundreds of billions. And revenues are stagnating: oil sold at massive discounts to China and India, sanctions closing the most profitable export markets, civilian industry cannibalized by the military effort.

Zelensky's sanctions adviser said the right word on June 26, 2026: «dead end». This is not an immediate collapse. It is something more insidious — an economic system that can still function, but that is progressively losing its capacity to absorb additional shocks. And every refinery that burns, every additional embargo, every sanctions package is one more shock.

The additional 4 to 5 trillion rubles: where will Moscow find the money?

Three financing options — all painful

Bloomberg reported on June 23, 2026 that Russia plans to increase its war spending by 4 to 5 additional trillion rubles in 2026. For a federal budget already running a deficit of $80 billion, this increase imposes impossible choices. There are essentially three ways to finance such a surplus: borrow on the markets, cut civilian spending, or monetize the debt by printing rubles.

Russian bond markets are partially closed — foreign investors have been gone since 2022, and domestic investors demand 15% yields to accept this sovereign risk. Cutting social spending — pensions, healthcare, education — is politically dangerous in a regime whose popular legitimacy is already weakened by military losses. Printing rubles, finally, generates inflation — a phenomenon that ordinary Russians feel directly in their grocery bills and energy costs.

The silent inflation devouring Russian savings

Inflation is the hidden tax of Russia's war. While the government announces «wage increases» for defense industry workers, inflation eats away at the purchasing power of those with no link to the military machine. Independent data on real inflation in Russia is hard to obtain, but private estimates put it well above official figures, particularly for imported goods.

The Russian Central Bank maintains extremely high benchmark rates to try to contain this inflation — around 16 to 18% in 2026. Rates that high strangle business lending, slow private investment, and push small and medium enterprises toward insolvency. The Russian civilian economy is thus sacrificed twice over: once through the taxes that finance the war, and once through the interest rates that kill business financing.

Russia's regions drowning in debt

A pain-transfer mechanism

Russia's fiscal model is highly centralized: resources flow up to Moscow, and regions receive transfers decided by the center. Since 2022, this model has created unprecedented tensions: regions have been forced to co-finance direct military expenses — mobilization bonuses, local equipment, support to soldiers' families — without their budgets being compensated proportionally.

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

Regional economic mobilization and its limits

Russia has tried to compensate for these pressures by allowing regions to issue their own bonds — a form of regional debt theoretically backed by the federal guarantee, but which adds to the total debt of the system. These regional bond issuances find takers among Russian state banks — creating a circular financing loop that analysts at the Kiel Institute were already calling «structural exhaustion» as of June 23, 2026.

This exhaustion is not only financial. It is also human: the regions most affected by mobilizations — rural regions, ethnically minority areas, often among the poorest in the Federation — are losing their active male workforce. Men leave for the front, women and the elderly remain. The productive capacity of these regions declines. And when soldiers return — if they return — they find a depleted local economy.

The Kiel Institute and The Economist: the collapse that never comes

Why Russia is not collapsing — yet

An essential nuance is warranted, and I will not hide it: neither the Kiel Institute nor The Economist foresees an imminent Russian economic collapse. The Kiel Institute speaks of «structural exhaustion» — a slow process, not a knockout blow. The Economist headlined on June 22, 2026 that «Russia's war economy has problems but is not about to crash». These are serious institutions I cite with respect.

Russia has structural assets that delay the moment of reckoning: still-substantial foreign exchange reserves (even if partially frozen by sanctions), a relatively low public debt-to-GDP ratio before the war, a defense industry running at full capacity and employing millions, and a political regime that can impose sacrifices on its population without risking a democratic change of government.

What «not collapsing» actually means

But «not collapsing» does not mean «performing well». Russia's GDP in the first quarter of 2026 is negative at -0.2%. The IMF has revised its annual growth forecast down to 0.8% — a significant downward revision. The economy officially grows, but all of that growth is concentrated in the military sector. The civilian economy — consumption, private investment, services — is contracting.

This is a war economy in the most literal sense: an economy running to make war, not to sustain its citizens. This model can last for years. But it generates progressive impoverishment, degradation of civilian infrastructure, and an accumulation of frustrations that cannot be contained indefinitely, even by an authoritarian regime.

The 21st sanctions package: tightening the stranglehold further

The European proposal of June 27

The European Union proposed a 21st sanctions package against Russia, announced on June 27, 2026. This new package primarily targets the shadow fleet of tankers circumventing official embargoes, as well as entities in third countries facilitating Russian access to controlled technologies. It is a direct response to the workarounds Russia has put in place since 2022 to maintain its energy exports.

The shadow fleet has become the symbol of the limits of first-generation sanctions: sanction Russian oil on Western markets, and the tankers get bought up under flags of convenience, sail without international insurance, and deliver to clients willing not to verify the origin. This system works, but at growing cost — shadow tankers carry higher freight rates, longer routes, and greater risk of technical incidents.

The Baltic states want total embargo

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

But the Baltic states have an irrefutable core argument: as long as Russian oil can reach Europe by any route, Russia continues to draw revenues that finance its war. The principle that one cannot simultaneously condemn a war and finance its budget is one of absolute moral clarity. The difficulty is practical and political, not ethical.

What bond yields say about Russia's trajectory

15%: the price of market defiance

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

These elevated yields have direct consequences on the state's borrowing capacity. Every additional percentage point of yield means billions of additional rubles in interest charges on an already-strained budget. It is a vicious cycle: the higher the deficit, the larger the risk premium demanded by investors, the higher the interest costs, the deeper the deficit grows.

The ruble under structural pressure

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

This pressure on the ruble feeds directly into inflation: imports cost more in devalued rubles. And for an economy like Russia's that, despite its proclaimed autarky, still depends on significant imports for industrial equipment, medicines, electronics — this imported inflation is a permanent shock, not a passing anomaly.

The shadow economy: Russia behind the curtain of official figures

Russian statistics as a propaganda tool

Russia's official economic statistics are produced by Rosstat, the federal statistics office, which is under government control. Since 2022, Rosstat has modified its calculation methodologies, delayed the publication of certain data, and refused to make public information that was previously accessible. This growing opacity is itself a signal: the data that leaks out — through independent sources like The Moscow Times or private financial analysts — is systematically less flattering than the official figures.

Analysts attempting to reconstruct an accurate picture of the Russian economy cross-reference multiple sources: data from Russia's trading partners (who publish their own import and export statistics), satellite readings of industrial activity, maritime traffic data to track shadow tankers, and surveys of Russian companies that have left the country. This shadow economy underperforms the official economy. And it says the picture is dark.

Corruption as a crisis multiplier

Systemic corruption amplifies the effects of the economic crisis. War funds are siphoned off at every level of the military-industrial chain — from arms contracts to equipment purchases for soldiers. Defense officials overbill orders, intermediaries capture rents from sanctions circumvention, oligarchs close to the Kremlin enrich themselves on reconstructions in occupied territories. This corruption is not an exception — it is the normal mode of operation of the system.

Corruption has direct consequences on Russian military effectiveness. Soldiers receive expired bulletproof vests because officials preferred to pocket the difference between 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 close to power. This is a war where the economic predation of Russian elites directly weakens military capabilities — and budget deficits reflect that reality too.

What the IMF and the Kiel Institute do not say out loud

The limits of economic forecasting in wartime

International economic institutions — the IMF, the World Bank, research institutes — publish forecasts for the Russian economy with unusually wide uncertainty margins. The reason is simple: Russia publishes less data, the data published is less reliable, and classical economic models perform poorly in a war economy with partially centralized planning. The IMF's 0.8% growth figures hide a range of possible outcomes spanning from strongly negative to slightly positive.

The Kiel Institute, which analyzes the Russian economy with particular rigor, uses the term «structural exhaustion» to describe a dynamic that aggregate GDP figures do not capture: the progressive degradation of Russia's long-term productive foundations — human capital in flight, investment in free fall, growing dependence on Chinese imports for industrial goods. These degradations are invisible in the short term but decisive over a 5 to 10 year horizon.

The prolonged-maintenance scenario and its conditions

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

Western sanctions are aimed precisely at eroding these conditions one by one. The tanker embargo attacks export volumes. Price caps attack margins. Technology restrictions attack industrial modernization capacity. The combined effect, over a three-to-five year horizon, creates growing pressure that even Russia's structural assets will not be able to absorb indefinitely. This is the strategy of calculated exhaustion — and in June 2026, it is still on course.

Conclusion: the war on credit always gets paid back

The history of debt-financed wars

Economic history teaches one simple, brutal lesson: wars financed by debt and money printing always eventually generate a crisis. The form and timeline vary — hyperinflation, forced devaluation, debt restructuring, political collapse — but the mechanism is invariant. Putin does not escape this rule. He delays it, temporarily circumvents it with oil revenues, with Chinese assistance, with the repression of economic dissent. But he does not abolish it.

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

What the West must do while the bill grows

The rational strategy for the West, while Russia accumulates its war debts, is to maintain pressure without letup. Sanctions must hold — at least until 2027 as the EU has decided. Military support to Ukraine must continue so that the costs of war for Russia remain high. And Ukrainian strikes on oil production infrastructure — refineries, depots, terminals — must be politically supported, because they directly target the revenue source that allows Putin to finance his war debt.

The war on credit that Putin is waging is not free. It will be paid — by Russia, by its population, or by its 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.

By Maxime Marquette, columnist

Columnist's transparency note

My positions and my economic sources

I am Maxime Marquette, a geopolitics columnist. I am not an economist. My analysis of the Russian economy is based on expert sources that I cite and trust, but I acknowledge the limits of my competence in advanced macroeconomics. I recommend that readers interested in a more technical economic analysis consult the publications of the Kiel Institute and The Economist.

The economic data comes from sources dated June 22 to 27, 2026: United24 Media, Bloomberg via Ground News, Kiel Institute/Foreign Affairs Forum, The Economist, RBC-Ukraine, Daily Finland, Kyiv Post. These sources are cited with their URLs in the Sources section.

What I do not know

I do not know exactly when — or whether — economic pressure on Russia will reach a decisive threshold. Putin's regime has shown a capacity for economic resilience that has regularly surprised analysts since 2022. It is possible that my reading is too optimistic about the speed at which sanctions will produce a decisive political effect. I also cannot rule out that countries like China or India compensate for most of the Western economic pressure.

I openly acknowledge this uncertainty. It does not change my conviction that maintaining sanctions is the right strategy — but it should keep everyone humble about expected timelines.

Sources

Primary sources

United24 Media — Russia's budget deficit tops $80 billion despite Kremlin stability claims — June 23, 2026

Ground News / Bloomberg — Russia: war spending increase of 4–5 trillion rubles in 2026 — June 23, 2026

RBC-Ukraine — Zelensky's sanctions adviser: Russian economy has reached a dead end — June 26, 2026

Daily Finland — EU proposes 21st sanctions package against Russia — June 27, 2026

Secondary sources

Foreign Affairs Forum / Kiel Institute — Russian economy: structural exhaustion, Q1 GDP -0.2%, IMF revised to 0.8% — June 23, 2026

The Economist — Russia's war economy has problems but is not about to crash — June 22, 2026

dn.gov.ua — Russian regions drowning in debt because of the war — June 22, 2026

Kyiv Post — Baltic states press EU on Russian oil embargo, sanctions extended one year — June 27, 2026