Even officially, the Russian authorities acknowledge the risk of exceeding the planned expenditures this year and are scrambling to find up to 1.2 trillion rubles in additional revenues to cover the “hole” in finances. This is equivalent to about 0.5% of GDP over the already revised deficit.
Thus, Russia’s military budget enters a zone of increased risk amid a prolonged war and the Kremlin’s economic calculation failures.
Funding the combat operations is becoming increasingly difficult due to falling energy revenues, a strengthened ruble, and a growing budget deficit.
The initial budget plans proved unrealistic: instead of a 0.5% deficit, the government was forced to raise the target to 2.6% of GDP and sharply cut spending at the end of the year. Sanctions and price pressure on Russian oil worsen the situation.
The budget was based on a Urals price of $59 per barrel and an exchange rate of over 92 rubles per dollar, but in reality, oil is trading around $55, and the ruble is significantly stronger (partly for psychological reasons, as a ruble collapse triggers panic, which the regime tries to avoid).
Under such conditions, oil and gas revenues may fall from the expected 8.9 trillion to approximately 6.75 trillion rubles, creating an additional deficit of nearly 2.2 trillion rubles.
To patch the budget, the state is increasingly growing its debt, placing record volumes of expensive OFZs. This underscores the vulnerability of the financial model of the war: even with a formally “moderate” deficit, Russia is forced to live on debt and depleting reserves. The Kremlin does not expect a real breakthrough in negotiations and continues to insist on territorial demands which have no chance of international recognition.
Prolonging the war means further budget exhaustion, while the economic resource to finance it is quickly shrinking.
Meanwhile, Western analysts note a slowdown in the Russian advance: the bulldozer is running out of steam.
This means that the path to peace is increased pressure on Russia, limiting its trade, and suffocating it with sanctions.
“Mature” diplomacy should be addressing precisely these issues. And then more will follow.
