Just how high of a price is Vladimir Putin willing to pay for a win in Ukraine? This month marks the fourth anniversary of Russia’s 2022 invasion, and the costs of its war of choice have become staggering in both human and economic terms. But for the Kremlin, the toll of continued aggression is about to get steeper still.
Back in December, Russia’s government for the first time revealed the true cost of the war. Introducing the country’s national defense budget, Defense Minister Andrey Belousov announced that the projected war bill for 2025 was 5.1 percent of total GDP, or roughly 11 trillion rubles ($135 billion). Next year, analysts say, that price tag could be steeper still—potentially in excess of $170 billion.
So far, Russia has relied heavily on oil revenue to sustain its war machine. But the war’s ballooning expenditures have been mirrored by a marked downturn in Russian energy sales—a dynamic that is increasingly making the Ukraine war an unaffordable misadventure for Moscow.
The reason has to do in part with the current, oversaturated state of the global energy market. This dynamic has multiple causes, from state-backed capacity expansion in China to new output from emerging exporters such as Brazil and Indonesia. But its effects are very real—and potentially ruinous for Russia, which has seen its oil revenue decline sharply.
That decline is placing growing strain on the country’s budget. Analysts now predict that, by the end of this year, Russia’s budget deficit could be as much as triple official projections. A leading factor is a decline in Indian oil purchases; once a major consumer, New Delhi has slashed its oil purchases from Russia by 30 percent in response to mounting pressure from the Trump administration.
The effects have been pronounced. Recently released Russian government data points to energy revenue for January at just $5.13 billion, the lowest monthly tally since July of 2020. All told, analysts are now projecting revenue losses of around 3 trillion rubles ($229 billion) in 2026.
To compensate, the Kremlin will be forced to eat into its fiscal reserves. But those are now in increasingly short supply. A year ago, The Wall Street Journal estimated that Russia had already burned through some-two thirds of the liquid assets in its National Wealth Fund. (Back in 2022, the Fund totaled $113 billion, or 6.5 percent of national GDP). Today, the situation is far worse; the Fund is now believed to contain just 4.1 trillion rubles, or $53 billion, in unspent assets—with most of the remainder in gold and foreign currencies that are costly to liquidate and make available to the state.
Perhaps these increasingly adverse economic conditions will finally force the Kremlin to blink. But for Russia, the war on Ukraine has never simply been about dollars and cents. Rather, as both Russia’s president and assorted Kremlin insiders have made abundantly clear, the subjugation of Ukraine is a prerequisite for the type of imperial revival they believe their country is destined to achieve.
Russia’s desire for conflict can’t be expected to dim. The only thing that can be changed is whether it has the necessary resources to prosecute its war of choice.
Earlier this month, the European Union passed its latest sanctions package—the twentieth since the February 2022 full-scale invasion. The new measures seek to tighten enforcement and close loopholes Russia had previously exploited, including by imposing a full ban on maritime services for Russian crude and outlining new steps by which to target Russia’s “shadow fleet” of oil tankers.
But the real change-maker will invariably be Washington. Last fall, U.S. sanctions pressure forced Indian (and Chinese) refiners to suspend a share of their imports of Russian oil in order to maintain access to the U.S. market. More pressure of this sort on Russia’s remaining energy partners is likely to produce similar results—and an even bigger impact.
President Donald Trump has now set out a June deadline for the end of the war, and the White House expects Moscow and Kyiv to reach some sort of settlement. The operative question is whether Russia’s economic calculus can truly be changed by then.
About the Author:
Ilan Berman is senior vice president of the American Foreign Policy Council in Washington, D.C.
