The pressures have not produced an immediate financial crisis. But the combination of rising state borrowing, elevated inflation and weaker growth is making it more difficult for Moscow to maintain high defense spending while also supporting the broader civilian economy.

Russia recorded a federal budget deficit of about 6.46 trillion rubles, or 2.8% of gross domestic product, during the first seven months of 2026, according to preliminary Finance Ministry data. That was well above the 1.6% deficit originally planned for the full year. President Vladimir Putin has said the deficit remains manageable and emphasized Russia’s relatively low government-debt burden.

The gap nevertheless illustrates how quickly wartime spending has altered the government’s fiscal position.

Military spending puts pressure on the budget

Russia has maintained exceptionally high government spending since launching its full-scale invasion of Ukraine in 2022. Defense-related procurement has been a major driver of expenditure, while the government has also expanded subsidies and other support for strategically important industries.

Earlier government budget data showed that federal spending could reach about 45.1 trillion rubles in 2026, compared with 44.1 trillion rubles in the budget law. That would leave a projected deficit of about 4.83 trillion rubles, substantially above the original 3.79 trillion-ruble target.

The higher spending comes as Russia attempts to preserve military production and maintain domestic economic activity at the same time.

That balance is becoming more expensive.

Borrowing is becoming a larger part of the financing equation

With the budget deficit expanding, Moscow has increasingly relied on domestic borrowing rather than drawing entirely on accumulated reserves.

The liquid portion of Russia’s National Wealth Fund has declined substantially since the beginning of the war, reducing one of the government’s traditional buffers against falling energy revenues and unexpected fiscal demands. Analysts at the Centre for Eastern Studies reported that the liquid assets had fallen by more than half after four years of war.

Borrowing, however, comes with a significant cost.

Russia’s central bank has kept interest rates high to contain inflationary pressures. On Sept. 11, the Bank of Russia held its key rate at 14%, saying price pressures had increased significantly during the preceding months. Annual inflation stood at 6.3% as of Sept. 7, while the central bank estimated underlying price growth at an annualized 5% to 6%.

High interest rates raise financing costs for businesses and the government. They can also discourage private investment at a time when Russia needs additional productive capacity outside the defense sector.

Growth has slowed as wartime stimulus loses force

Russia’s economy expanded rapidly during the earlier stages of the wartime spending surge, supported by defense orders, government expenditure and rising wages.

That momentum has weakened.

The Bank of Russia said economic activity was still growing at a moderate pace in the third quarter, but consumer demand was slowing. It also said labor-market tightness was gradually easing.

The central bank’s assessment reflects an economy that remains active but is operating under increasingly difficult monetary and fiscal conditions.

The pressure is also visible in business financing. High borrowing costs make investment more expensive for companies that do not benefit directly from state defense contracts, creating a wider divide between military-linked industries and parts of the civilian economy.

Oil revenues remain an important buffer

Energy exports continue to provide Russia with a crucial source of government revenue.

That has helped Moscow avoid the kind of immediate fiscal crisis that might otherwise accompany a rapidly expanding deficit. Putin said Sept. 17 that Russia expected higher oil prices to increase oil and gas revenues in the coming months and said additional income could help replenish the National Wealth Fund. He also said the government expected the economy to grow by up to 1% in 2026.

The dependence on energy revenue, however, leaves the fiscal outlook sensitive to oil prices and export conditions.

Russia has also faced continuing restrictions on access to Western technology and investment because of sanctions imposed after the invasion of Ukraine. Those constraints can weigh on productivity and long-term investment even when the government has sufficient revenue to maintain current spending.

No immediate collapse, but pressure is accumulating

The current picture is therefore more complicated than either a claim of economic collapse or a claim that Russia faces no meaningful financial problems.

The government continues to pay for the war, and the economy continues to function. Russia retains access to substantial energy revenues, domestic financial institutions and state-controlled economic resources. Putin has publicly argued that the country can manage its deficit without creating a critical threat to economic stability.

At the same time, the fiscal deficit is substantially above its original target, reserve buffers have weakened, interest rates remain high and inflation is still above the central bank’s target.

Those pressures constrain the government’s choices.

The Bank of Russia has warned that fiscal policy is an important factor in monetary-policy decisions. Its current baseline assumes a gradual reduction in the structural primary budget deficit toward zero by 2029, but the central bank said a larger structural deficit could require tighter monetary policy than currently anticipated.

For now, Russia’s wartime economic model continues to function through a combination of military-driven demand, energy income, taxation, borrowing and state intervention.

The emerging question is not whether that model has already failed. It is how much fiscal and monetary pressure can accumulate before the costs of sustaining the war begin to impose more visible constraints on the rest of the economy.

Reporting Credit: Ministry of Finance of the Russian Federation — federal budget deficit and fiscal data; Bank of Russia — key interest rate, inflation, economic activity and monetary-policy assessment; Russian government — 2026–27 fiscal and economic projections.

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The decree covers facilities in the energy, industrial, communications, transportation and logistics sectors. It gives the Kremlin another mechanism to pressure private companies as repeated Ukrainian attacks disrupt parts of Russia’s economy.

This report is based on reporting by The Associated Press.

Kremlin Expands Authority Over Critical Infrastructure

The Kremlin has not specified how widely the new authority will be used. Presidential spokesperson Dmitry Peskov said some business owners were not doing enough to protect their facilities, including against drone attacks.

Deputy Prime Minister Denis Manturov said the measure does not constitute nationalization or transfer ownership of private companies to the state.

Instead, he described it as a mechanism allowing the government to participate temporarily in managing individual enterprises when security or recovery problems require intervention.

Manturov said the measure would be applied selectively rather than across the economy, with decisions made at the highest level.

The decree nevertheless creates a new source of pressure for companies whose facilities are repeatedly damaged or whose owners are considered too slow to strengthen defenses or restore operations.

Refinery Attacks Increase Pressure on Businesses

The policy follows months of Ukrainian drone strikes against Russian infrastructure, particularly oil refineries.

Repeated attacks have disrupted operations and increased the financial burden on companies already operating under the economic pressures created by the war.

Russian political analyst Abbas Gallyamov said the measure could pressure owners of repeatedly targeted refineries to spend more on repairs and protection despite the continuing risk of attacks.

Chris Weafer, chief executive of Macro-Advisory Ltd. Consultancy, said the Kremlin appeared to be pushing businesses to assume greater responsibility for protecting their facilities rather than relying entirely on the government.

That approach could reduce additional demands on the Russian budget. The war has already increased government spending, while Moscow has raised taxes and increased domestic borrowing as it manages its budget deficit.

However, state intervention could also create additional financial obligations if the government assumes responsibility for facilities that private companies cannot secure or repair.

Ukraine Reports Further Refinery Strikes

Ukraine’s General Staff said Tuesday that Ukrainian forces struck the Afipsky oil refinery in Russia’s Krasnodar region overnight, causing a fire.

Krasnodar Gov. Veniamin Kondratyev also reported a fire at an oil refinery in Afipsky.

A separate Ukrainian attack damaged the Novoshakhtinsk oil refinery in Russia’s Rostov region and halted its operations, according to Rostov Gov. Yuri Slyusar.

Ukraine’s General Staff said Afipsky had been targeted eight times in the previous year and Novoshakhtinsk four times.

The repeated attacks highlight the difficulty of protecting Russia’s large network of infrastructure. The country’s geographic scale makes comprehensive defense against drones difficult, increasing pressure on operators to strengthen security around individual facilities.

Moscow Pushes Businesses to Strengthen Defenses

Putin has called for stronger air defenses and closer coordination among military, law-enforcement and civilian authorities.

He has also urged state-owned enterprises and private companies to participate in protecting critical infrastructure.

The government has taken similar steps in other sectors. Russia has offered financial assistance to Wildberries, a major online retailer whose warehouses and sellers have been affected by Ukrainian attacks. The Finance Ministry proposed extending deadlines for tax and insurance payments for the company and its sellers.

Russian lawmakers also approved measures in May allowing the Central Bank, state-controlled Sberbank and other financial-services companies to install air-defense systems at their facilities.

The latest decree goes further by creating the possibility of temporary state management when private operators fail to adequately protect or restore critical facilities.

A New Tool for Kremlin Intervention

The decree reflects a broader shift in how Russia is managing the economic consequences of the war.

Private companies remain responsible for operating their facilities, but the government is increasingly demanding that they help absorb the security risks created by Ukrainian attacks.

The practical significance of Putin’s new authority will depend on how often it is used and which companies are subjected to state intervention.

If applied selectively, it could serve primarily as a warning to infrastructure owners to increase spending on security and repairs. If used more broadly, however, it could expand the state’s role in managing strategically important parts of Russia’s private economy.

For businesses operating critical infrastructure, the message is increasingly clear: failure to protect or restore facilities damaged by Ukrainian attacks could bring not only financial losses but also direct government intervention.

Reporting Credit: Journos News World Desk, based on reporting by The Associated Press.

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The Associated Press reported that the shortages have emerged despite Russia’s status as one of the world’s largest energy producers. The supply disruptions have affected motorists across multiple regions, with local authorities responding by imposing purchase limits and taking emergency measures to manage long waiting lines at service stations.

Russian President Vladimir Putin acknowledged the difficulties during televised remarks, saying motorists and businesses continued to face challenges obtaining fuel. While he described the shortages as temporary and not critical, reports from several regions indicated that queues at gas stations persisted and some fuel grades remained difficult to obtain.

Ukrainian strikes disrupt refining capacity

According to an Associated Press review, Ukraine has launched more than 50 reported attacks on Russian oil refineries, storage depots, terminals, and other energy infrastructure since late March, including facilities in the illegally annexed Crimean Peninsula. Some installations have reportedly been struck multiple times.

Oil market analyst Gary Peach of Energy Intelligence told the Associated Press that Russia’s crude oil refining output fell to approximately 3.95 million barrels per day in June, about 25% below the level recorded a year earlier. He described the scale of refinery outages as unusually severe.

Gasoline production also declined significantly, falling to around 850,000 barrels per day from roughly 1.03 million barrels during the same period last year, according to the report.

Chris Weafer, chief executive of Macro-Advisory Ltd., estimated that roughly one-third of Russia’s refining capacity is currently offline. He said the estimate is based on oil industry sources and anecdotal evidence because refinery operators do not publicly disclose the full extent of damage sustained during attacks.

Pressure extends beyond targeted regions

The supply disruption has spread well beyond areas directly affected by Ukrainian strikes. Fuel rationing or purchase limits have been reported across more than half of Russia’s regions, while some gas station operators have imposed restrictions on individual purchases.

Authorities have attributed part of the pressure to panic buying and urged consumers to purchase fuel only when necessary. The government has also restricted exports of gasoline and aviation fuel while considering additional limits on diesel exports.

Kremlin spokesman Dmitry Peskov said Russia was discussing possible fuel imports with several countries as part of efforts to stabilize domestic supplies and reduce panic buying.

Economic impact reaches Siberia

The shortages have affected regions thousands of kilometers from damaged refineries, including parts of Siberia.

Business owner Viktor Shkurenko said limits on gasoline purchases in the Omsk region came unexpectedly because the area hosts one of Siberia’s largest oil refineries and had not been directly targeted by Ukrainian attacks. Although his businesses had not yet encountered refueling problems, he expressed concern about the broader impact on commercial operations.

Media reports from the Zabayakalye region indicated that fuel shortages disrupted some public services, including waste collection and bus operations. In Irkutsk, city authorities raised public transport fares, citing higher fuel costs, while portable toilets were placed near crowded filling stations to accommodate motorists waiting in lengthy lines.

Pavel Kharitonenko, acting head of the Irkutsk branch of the opposition Yabloko party, told the Associated Press he had stopped driving because obtaining fuel had become increasingly difficult.

Repairs expected to take months

Analysts said restoring damaged refining capacity is likely to be a lengthy process because many facilities require specialized equipment that is often sourced from abroad. International sanctions have complicated access to replacement components, making repairs more difficult and expensive.

Peach said some refineries may not return to their previous operating levels during the summer because of the scale of the damage. He also suggested that repairing certain facilities may prove impractical while they remain vulnerable to additional attacks.

Weafer estimated that repairs to the Moscow Oil Refinery, which previously supplied about 40% of the capital’s fuel needs, could require at least three months. Even if no further infrastructure is damaged, he said fuel shortages are likely to continue through much of the summer as agricultural demand increases and authorities work to redistribute available supplies across Russia.

The developments highlight how Ukraine’s long-range drone campaign has increasingly targeted Russia’s domestic energy infrastructure, creating logistical and economic pressures that extend beyond the battlefield while Russian authorities attempt to stabilize fuel supplies during the peak summer demand period.

Tags: Russia, Ukraine, Europe, Fuel Shortage, Oil Refineries, Drone Attacks, Vladimir Putin, Crimea, Energy Infrastructure, Russian Economy, Gasoline, Energy Security

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