Revenue

The Ministry of Finance’s position here looks sound: the pace of revenue collection ensures that the targets set in the Budget Law will be met by the end of the year. Oil and gas revenue is below target – the Ministry of Finance may receive RUB 500–700 billion less than planned – but other revenue is growing rapidly. VAT revenue (domestic and import VAT combined), for example, has increased by 25 percent compared with last year. The reasons for this include the increase in the VAT rate from 20 to 22 percent, the extension of VAT to medium-sized businesses,1¹ the detection of tax avoidance schemes, inflation, and rouble depreciation. Revenue is unlikely to exceed the target by a large margin, but this is not necessary: an additional RUB 100–200 billion in revenue would not change the budget situation.

Expenditure

Expenditure continues to rise. It was clear from the outset that this increase could not be limited to 2.6 percent, as set out in the Budget Law, which assumed military spending would decline in nominal terms without adjusting for inflation. In the first seven months of 2026, expenditure was 14.5 percent higher than in the same period last year. If this rate of increase continues until the end of the year, expenditure will exceed the planned level by RUB 5 trillion.

The same estimate can be obtained by assuming that expenditure in the first seven months of this year will account for the same share of annual expenditure as the first seven months of last year – just over 58 percent (this trajectory is shown by the dashed line in the chart above).

If the Ministry of Finance’s statements that expenditure is being brought forward this year relative to last year are correct, the amount by which actual expenditure exceeds the planned level may be slightly smaller. However, there are no grounds to expect spending to overshoot the target by less than RUB 4 trillion.

The deficit

In the first seven months of the year, the budget deficit exceeded the full-year target by RUB 2.7 trillion, reaching RUB 6.5 trillion. Over the next four months (August–November), the budget may record a small surplus – last year, the surplus over these four months was RUB 346 billion (in 2023 and 2024, it was as high as RUB 1.8 trillion and RUB 1.1 trillion, respectively). However, a deficit in December is inevitable. How large will it be? If the Ministry of Finance’s statements on spending being brought forward are correct, it will be around RUB 1 trillion; if not, around RUB 1.5 trillion. The full-year deficit will therefore amount to RUB 7–7.5 trillion, and this is where the main uncertainty lies.

Over the first seven months of the year, the Ministry of Finance raised RUB 2.3 trillion on the debt market through the issuance of federal government bonds. Almost RUB 460 billion was withdrawn from the National Wealth Fund, around RUB 200 billion came from the sale of nationalized assets, and the remaining deficit of RUB 3.5 trillion was financed by drawing down federal budget funds held in bank accounts and other financial instruments.

The question is how the government will finance the deficit in the remaining months of the year. One option is to increase borrowing on the debt market, although the Central Bank’s tight monetary policy may make this more difficult. If market demand for new issues of federal government bonds (OFZs) proves insufficient, the Ministry of Finance will have to force state-owned banks to buy them. The least likely scenario is a further drawing down of available federal budget funds, of which just over RUB 4.5 trillion remains.

The budget’s ‘margin of safety’ (i.e. National Wealth Fund assets and other financial reserves) is likely to shrink significantly by the end of the year: it stood at around RUB 13 trillion at the beginning of the year and is now around RUB 8 trillion. But this also means that the government will probably be able to finance its planned expenditure next year as well.

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A public opinion survey conducted for NEST during the final ten days of June indicates a deterioration in assessments of the state of the Russian economy. Compared with previous surveys, these assessments have shifted from moderately positive to neutral. When asked about the state of the economy in June, half of respondents (51 percent) still chose the response ‘so-so’. However, the shares with positive and negative assessments are now equal (22 percent each), whereas just two months earlier, the share of positive assessments was 1.5 times that of negative assessments.

Russians report a marked deterioration in the economy in recent months. When asked how the situation had changed over the past three months, almost half of respondents (49 percent, compared with 36 percent in both April and February) replied that it had ‘slightly worsened’ or ‘worsened significantly’. The share of those who reported an improvement declined from 18 percent in both February and April to 12 percent in June.

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The evidence suggests that Russians assess the state of the economy primarily on the basis of information from external sources rather than on their own experience or changes in their households' financial situation. Responses to the question about how the cost of living affects respondents’ households remained unchanged compared with previous surveys. Around 30 percent selected each of the first three options – that it places a ‘severe’ or ‘moderate’ financial burden on the household, or that financial difficulties could arise if the cost of living continues to increase – while around 10 percent said that it was not a concern.

Similarly, the increase in negative assessments of the economy has been accompanied by less pronounced changes in assessments of the government’s performance, although the shift towards disapproval is nonetheless evident. Just under half of respondents continue to believe that the government’s economic policy priorities are correct, while slightly more than one-third take the opposite view. However, the share who think the government’s priorities are correct has declined slightly, while the share who do not has increased. As a result, the gap between the two positions has narrowed noticeably: whereas in April the distribution was 48 percent to 33 percent, by June it had shifted to 45 percent to 37 percent. The share of respondents who believe the government’s actions create more problems than benefits increased from 33 percent to 37 percent. Meanwhile, the share of those who take the opposite view declined from 15 percent to 12 percent.

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Another important question, included for the first time, produced a striking result: three-quarters of Russians believe that the war (the questionnaire used the official term ‘special military operation’) is worsening the state of the Russian economy, with 51 percent of respondents saying that it is ‘worsening it significantly’. Only 12 percent said the war is improving the state of the economy, and just 3 percent said it is ‘improving it significantly’.

Given that more than three-quarters of Russians think that the war has had a negative effect on the economy, it is unsurprising that this view predominates across all survey groups – broken down by age and gender, occupation, education level, place of residence, and trust in different sources of information – making any discussion of those who say it has had a positive effect highly qualified. Relatively greater optimism about the war’s impact on the economy (defined as a positive assessment by at least 18 per cent of respondents, 150% of the average for the sample as a whole) is found among those who believe that the country is moving in the right direction, respondents who did not complete secondary education (18 per cent of whom say the war has had a positive effect on the economy), and those who place the greatest trust in television and the print media (19 per cent ). Even among pensioners and people of retirement age – traditionally supporters of Putin – optimism does not exceed 15 percent.

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In addition, it is noteworthy that the level of optimism is markedly higher in Moscow and large cities (with populations of more than 500,000), at 15 percent, than in small towns and rural areas, where it is 10 percent.

This gap between assessments of the government’s priorities and performance, on the one hand, and of the war’s impact on the economy, on the other, can be explained in two ways. Either Russians believe that ‘we did not start it’ and therefore do not hold the government responsible for the war’s negative effect on the economy, or they understand that this is ‘Putin’s war’, that it must be distinguished from government policy, and that the government should not be held responsible for its consequences.

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Methodology

The nationwide survey was conducted through face-to-face interviews during the final ten days of June 2026 using a representative sample of Russia’s urban and rural population. The sample comprised 1,610 respondents aged 18 and over. The margin of error for a sample, at a 95 percent confidence level, does not exceed:

• 3.4 percent for indicators close to 50 percent;

• 2.9 percent for indicators close to 25 percent / 75 percent;

• 2.0 percent for indicators close to 10 percent / 90 percent;

• 1.5 percent for indicators close to 5 percent / 95 percent.

Where are we?

For decades, nuclear power was widely viewed as an essentially Western phenomenon, shaped by American innovation, French industrial discipline, and Japanese precision. Reactors built in the West symbolized modernity, control, and scientific mastery. Even though the Soviet Union aggressively promoted nuclear power at home and across its sphere of influence, this barely affected the broader narrative.

Today, if a fast-growing country in Asia, Africa, or the Middle East wants a nuclear power plant – financed, staffed, regulated, and delivered on a timetable that political leaders can defend – it often turns first to Moscow. Leadership in the field of nuclear exports has shifted, quietly but decisively, away from the West.

As of today, the IAEA PRIS database shows 72 reactors under construction worldwide. Excluding China (where 35 of them are located) and Russia (with another 5), this leaves 32 reactors under construction elsewhere in the world. Of these, about 16 are being built by Rosatom, which, via its subsidiary Atomstroyexport, effectively dominates the international reactor construction industry, with no Western competitor in sight.

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Russia’s dominance is not an accident. It is the result of a deliberate strategy which originated between 2006 and 2008, when Rosatom became the last Soviet-era ministry to be reorganized as a corporation, bringing together almost all the industrial companies and many of the research centers in the nuclear sector, both military and civilian. Its mandate was explicit: to preserve the dual-use scientific capability inherited from the USSR, revive domestic construction, and dominate the global export market.

The strategy succeeded and even exceeded its goals. Rosatom now holds the world’s largest foreign order book, with active projects in Bangladesh, Belarus, China, Egypt, Hungary, India, Iran, Türkiye, and Uzbekistan, and aims to draw two-thirds of its revenue from abroad by 2030.

But what makes the corporation strategically significant is the kind of influence it generates. Russia’s nuclear sector has become one of Moscow’s most effective foreign policy instruments, and arguably the only major one that has broadened its reach since the full-scale invasion of Ukraine in 2022.

Rosatom offers a deal which no Western vendor can match: a reactor, decades of operational support, and sovereign financing covering 80 to 100 percent of project cost, repayable over 30 years and backed by the Russian state itself. In return, Russia acquires structural leverage. A reactor commits the host country to a 60- to 80-year relationship covering fuel supply from Rosatom’s subsidiary TVEL,1 technical services, regulatory training, spare parts, and waste management. Switching fuel suppliers requires reactor re-certification; alternative service providers are largely unavailable. These dependencies are difficult and costly to reverse, and they typically outlast the government that signed the original contract. Before the US company Westinghouse was ready to sign a contract with Ukraine’s Energoatom to replace Russian nuclear fuel, it took almost 15 years to overcome all the practical difficulties. Similar contracts were subsequently signed in the Czech Republic, Slovakia, Bulgaria, and Finland.

Rosatom’s strategy results in a form of influence that draws countries closer to Russia, resembling the exercise of ‘soft power’ but operating through an entirely different mechanism. Henry Farrell and Abraham Newman have called this ‘weaponized interdependence’: power exercised through control of critical nodes in long-term infrastructural and supply relationships, where the cost of exit is prohibitive. Nuclear cooperation creates long-term institutional dependence. It places Russian engineers, managers, trainers, and officials in key positions within the host country’s energy sector and policymaking bodies. It also gives Moscow sustained influence over decisions related to electricity pricing, grid development, industrial policy, and energy security. In addition, participation in nuclear projects reinforces Russia’s image as a technologically capable and reliable strategic partner.

This analysis does not cover Rosatom’s achievements in producing the world’s only small modular reactor (SMR) designs currently in serial production, with a capacity ranging from 165 to 315 MW (the RITM-200 and RITM-400). Currently, eight such reactors are installed on Russian nuclear-powered icebreakers, with another 10 in production. Since 2020, the floating NPP/SMR Akademik Lomonosov, with a previous-generation reactor, the KLT-40C, has been operating in Russia, and Rosatom plans to launch three floating NPP/SMRs by 2031. In 2024, Rosatom signed a contract to build a 330-MW NPP in Uzbekistan with six 55-MW reactors. In 2025, the contract was revised to increase the NPP capacity to 2110 MW, with two VVER-1000 units and two RITM-200 M units. The completion of the first unit is scheduled for late 2029.

How Rosatom has outcompeted the West

Rosatom’s VVER reactors are technically reliable and widely deployed internationally. VVER units have operated outside Russia since the 1970s, including at Finland’s Loviisa plant, which has maintained a strong safety and performance record under a Western regulatory framework. The newest iteration, the VVER-1200, incorporates passive safety features broadly comparable to those of other Gen III+ reactor designs.

However, Western competitors also possess advanced reactor technologies and extensive operational experience. Westinghouse’s AP1000 reactor incorporates advanced passive safety systems, while the French company EDF has strong operational expertise in managing large reactor fleets.

Rosatom’s advantage lies elsewhere: in its ability to integrate technologically reliable reactors into a broader export model combining vertically integrated project delivery, state-backed financing, and long-term political support.

Integrated delivery model and build-own-operate structure

Unlike most Western nuclear vendors, Rosatom can combine reactor design, construction, fuel delivery, financing, servicing, and long-term operational support under a single state-backed umbrella.

Western nuclear projects are often delivered through complex consortia involving multiple contractors, utilities, financing institutions, and subcontractors. This fragmentation can seriously complicate coordination, particularly when projects face delays or cost overruns. Finland’s Olkiluoto 3 illustrates the risks of complex consortium-based delivery mechanisms. The project, led by Areva and Siemens for the Finnish nuclear power company TVO (Teollisuuden Voima Oyj), experienced major delays, cost overruns, regulatory complications, and prolonged contractual disputes between the parties. Rosatom’s vertically integrated structure enables the coordination of design, construction, fuel services, and financing within a single system, reducing implementation risks.

The build-own-operate (BOO) structure is one of the key mechanisms behind this model. It entails that Rosatom exports not only reactor technology but also financing and long-term operational support, recovering costs through electricity sales. In 2014, the International Atomic Energy Agency (IAEA) noted that new nuclear projects increasingly rely on integrated financing structures, including vendor financing and build-own-operate (BOO) models. It cited the Akkuyu project in Türkiye – developed by Rosatom under a BOO arrangement – as a leading example.

Western vendors have offered turnkey plants before – France’s Framatome built the Koeberg nuclear power plant in South Africa on a similar basis between 1976 and 1985 – but the BOO model goes further, shifting long-term operational risk onto the vendor. This is a meaningfully different proposition from the traditional Western export model, in which the host country, a utility company, or a local consortium bears more of the burden and then seeks financing from export credit agencies, banks, or governments. The Russian model is therefore uniquely attractive to countries that lack investment capital, institutional capacity, or nuclear expertise.

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State-backed financing

A central element of this model is financing. Nuclear power plants require extremely high upfront capital investment – a single VVER-1200 unit typically costs around $6 billion – along with long construction timelines and repayment periods extending over several decades. In many emerging markets, these conditions make it difficult to finance projects solely through commercial lending.

As a result, Rosatom’s competitiveness is tied less to reactor cost itself than to the financing structure it employs. The Russian state absorbs risks and defers returns that Western vendors or lenders would pass on to the host country much earlier.

Russia supports overseas nuclear projects through sovereign credit, vendor financing, and intergovernmental arrangements that reduce (if not eliminate) financial pressure on the host country. The IAEA has noted that such financing structures can make large-scale nuclear projects financially viable where commercial financing alone would be insufficient.

Most Western nuclear vendors operate under different constraints. They typically rely on private financing, export-credit agencies, consortium structures, and commercially driven risk assessments. Western governments are also more constrained by frameworks such as the OECD Arrangement on Officially Supported Export Credits, which was designed to limit subsidy competition and discipline state-backed financing. Russia – like China – operates outside these restrictions.

This matters most in markets where domestic capital is scarce and borrowing costs are high.2 The case of Bangladesh’s Rooppur nuclear power project illustrates the point. Dhaka considered several international options during the planning process, but Rosatom’s proposal – backed by a Russian state credit line covering most of the project cost – proved decisive. Western vendors were unable or unwilling to offer comparable financing terms.

Political support

Rosatom also benefits from the Russian state’s willingness to operate in markets and political environments that Western firms regard as too uncertain, politically sensitive, or commercially risky. This gives the company access to projects that competitors may avoid altogether.

In practice, Rosatom enters these markets with broad institutional backing from the Russian state. Nuclear projects are often embedded within broader interstate relationships that involve diplomatic engagement, intergovernmental agreements, regulatory cooperation, and long-term technical training. Russian universities and technical academies train foreign engineers, operators, and regulators.

This gives Rosatom a level of institutional access and long-term political presence that most commercial vendors struggle to achieve.

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The limits of Rosatom’s model

The same features that make Rosatom competitive also create vulnerabilities and long-term constraints.

The first constraint is capital. Nuclear projects are exceptionally expensive and require financing commitments over several decades. As Rosatom expands across multiple emerging markets, Russia must either absorb growing financial risk or find ways to distribute it more broadly. Wartime spending, sanctions-related adjustment costs, and wider domestic industrial demands on the Russian state budget intensify these pressures.

The second limit is execution capacity. Rosatom’s project pipeline is large, but signing agreements is easier than delivering reactors on time and at scale. Even within Russia, Rosatom has faced significant delays on complex domestic projects, including the BN-800 fast reactor at Beloyarsk, whose construction ran roughly a decade behind schedule. Similar pressures can emerge internationally.

Another constraint is client-country risk. Rosatom’s future growth is increasingly concentrated in emerging markets, particularly in the Global South, which are frequently characterized by political volatility, fiscal constraints, currency instability, and weaker regulatory institutions. The more Rosatom expands in such environments, the greater its exposure to long-term sovereign and political risk becomes. Changes of government, legislation, regulation, or ownership structure can delay projects, force renegotiations, or reduce expected returns. This means that Rosatom’s export portfolio may become increasingly difficult to manage on a predictable commercial basis.

At the same time, the Kremlin does not assess the value of Rosatom’s export activity in purely commercial terms. Like many large state-owned corporations in Russia and China, it pursues broader strategic and geopolitical objectives more than financial gains. Market share, political influence, and the establishment of a long-term Russian presence may therefore matter as much, if not more, than pure profitability.

Sanctions and geopolitical exposure represent an additional constraint. Rosatom has remained insulated from the effects of sanctions, unlike most Russian companies, because nuclear supply chains are difficult to replace and many countries continue to depend on Russian uranium, enrichment services, and existing reactor partnerships. There are still no direct sanctions on Rosatom itself, and the US ban on Russian uranium imports includes waivers which extend until 2028.

However, Western sanctions and the war in Ukraine have made Rosatom’s international operations politically sensitive. Financial transactions have become more complicated, logistics have become less predictable, and long-term dependence on Russian nuclear infrastructure has become increasingly controversial. The freezing of roughly $2 billion linked to the Akkuyu project by JPMorgan, delays in Bangladeshi loan repayments, and Finland’s cancellation of the Hanhikivi‑1 project illustrate these pressures.

Finally, Rosatom’s export model depends heavily on long-term trust in Russia as a strategic partner. Governments may still sign agreements with Rosatom, particularly where financing alternatives are limited, but political opposition and public pressure may make such partnerships harder to sustain over time.

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Signs of competition from the West

For years, Western nuclear vendors approached reactor exports primarily as commercial projects, while Rosatom treated them as instruments of state policy. This gave Russia a significant advantage in financing, project delivery, and political coordination. Western governments are now beginning to adapt.

Westinghouse (US)

Westinghouse remains one of the most technologically sophisticated nuclear vendors in the world. Its AP1000 reactor is widely regarded as an advanced Generation III+ design, incorporating passive safety systems and a modular construction philosophy intended to simplify operation and improve safety performance.

Yet Westinghouse’s export credibility was severely damaged by the first US projects to use the AP1000 reactor. Units 3 and 4 at the Vogtle power plant in Georgia experienced major delays and cost overruns, with the final costs far exceeding initial estimates and commercial operation delayed for years. In nuclear export markets, such failures matter. Customers evaluate not only reactor design, but also whether a vendor can deliver projects on time and within a politically manageable budget.

At the same time, the American approach to nuclear exports has begun to change. For years, US vendors largely depended on private financing and fragmented institutional support. More recently, Washington has moved towards a more explicitly strategic approach, including stronger export-financing support and closer coordination of overseas nuclear projects.

Poland’s planned AP1000 project illustrates this shift. Westinghouse has emphasized the role of US government-backed financing and the government’s broader political support in the project’s development. This could reflect a recognition in Washington that reactor technology alone is insufficient without financing, industrial coordination, and long-term state backing.

EDF (France)

France, too, seems to understand that financing cannot remain an afterthought.

EDF, the French state-owned nuclear champion, operates the world’s largest nuclear reactor fleet and is highly experienced in operations and maintenance. For countries seeking partnership with a European supplier, EDF carries the prestige of French nuclear expertise and the reassurance of a firm rooted in a long-established civil nuclear sector.

However, EDF’s export position has been complicated by the performance of its European Pressurized Reactor (EPR) program. The Flamanville‑3 reactor in northern France – intended as the flagship domestic demonstration project for the EPR design – was originally expected to enter operation in 2012 at an estimated cost of roughly €3 billion. The reactor was eventually connected to the grid only in the mid-2020s, after costs had risen to more than €13 billion. EDF’s other EPR projects, including Olkiluoto‑3 in Finland and Hinkley Point C in the UK, have also experienced major delays and significant cost overruns. In export markets, this has weakened confidence in EDF’s ability to deliver large nuclear projects on predictable timelines and budgets.

Since financing has become a growing problem for EDF, in 2025, France adopted zero-interest loans and other support mechanisms for six new EDF reactors, highlighting the financial pressure surrounding even domestic nuclear projects. EDF later created an advisory body to help potential clients secure financing for overseas projects. This reflects growing recognition in France that financing support must now be integrated into EDF’s export model. Yet it took another 12 months for the European Commission to initiate an in-depth investigation into France’s decision to subsidize reactor construction, which could take 12 to 18 months or more.

Western governments’ growing willingness to adopt the same tools that have long given Russia a structural advantage in nuclear exports poses a significant challenge for Rosatom. If Western vendors can match Rosatom’s state-backed financing and integrated export model while offering higher governance standards, a stronger safety culture, and greater political alignment with Western institutions, Russia’s advantage may narrow over time.

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Genuine competition from the East

Although Western vendors are beginning to close some of the gap, Rosatom now faces increasingly credible competition from Asian nuclear exporters.

The rise of South Korea

Korea Hydro & Nuclear Power (KHNP), part of the South Korean state power group KEPCO, has recently become an important player with a credible export record. Its flagship project is the Barakah nuclear power plant in the UAE, where four Korean-designed APR1400 units entered commercial operation between 2021 and 2024. KHNP has demonstrated that it can deliver the full nuclear package: design, manufacturing, construction, commissioning, and operation.

KHNP’s second major breakthrough is in Europe. In 2024–2025, it was chosen over EDF to build two APR1000 units worth about $18.6 billion at Dukovany in the Czech Republic, with construction planned to begin in 2029. The Czech project is important because it gives KHNP a foothold inside the EU, not just in emerging nuclear markets. KHNP is also a contractor in Egypt, building turbine islands for four Russian-designed VVER-1200 units at El-Dabaa.

KHNP’s competitive advantages are very practical. First, it has a large domestic operating base and extensive experience: South Korea has 26 working reactors, producing roughly one-third of the country’s electricity. Second, the Korean nuclear industry offers standardized, evolutionary pressurized-water reactors – the APR1400 and export-adapted APR1000 – rather than first-of-a-kind experimental designs. The APR1400 has received US Nuclear Regulatory Commission design certification, while the APR1000 has obtained European Utility Requirements certification, both of which are useful credentials in regulated markets.

KHNP’s core selling point is delivery discipline: the South Korean industry is generally seen as cheaper, faster, and more integrated than Western competitors, but more politically acceptable than Rosatom. KHNP can mobilize a disciplined national supply chain – engineering, heavy manufacturing, construction, financing support, training, and long-term operation – in a single package. This makes it especially attractive to countries that want nuclear power but lack domestic nuclear-construction capacity.

However, KHNP is not fully free of geopolitical and legal constraints. Its technological lineage has led to disputes with Westinghouse, which argued that KHNP/KEPCO reactor exports were subject to US nuclear technology export rules. A US court dismissed Westinghouse’s case in 2023, and in January 2025, Westinghouse, KEPCO, and KHNP announced a global settlement of their IP dispute. Under the settlement, KHNP must pay Westinghouse licensing and services fees for exported reactors and is restricted from bidding in some markets, including North America, most of the EU, the UK, Japan, and Ukraine, with the Czech project excepted. Still, KHNP is now a serious third pole in the export market: less dominant than Rosatom, less politically entrenched than US and French vendors, but often more credible on cost and execution.

China on the horizon

The future of Rosatom’s global position may also depend heavily on the trajectory of China’s nuclear industry.

Over recent decades, China’s nuclear strategy has passed through three stages: import and learn, absorb and localize, then standardize and scale. A major turning point came with Qinshan‑1, the first Chinese-designed nuclear reactor, which entered commercial operation in 1994.

Today, China operates 61 reactors and has 39 more under construction, giving it by far the world’s largest active nuclear construction program. In April 2025, Beijing approved another ten reactor units, continuing a pace of roughly 10–11 approvals per year.

Large light-water reactors remain the backbone of China’s current nuclear buildout. Two designs dominate: the Hualong One, China’s main indigenous Generation III reactor family, and the CAP1000/CAP1400 series, derived from the localization and scaling of Westinghouse’s AP1000 technology.3 Rather than prioritizing experimental systems too early, Beijing first built industrial capacity around proven reactor designs and then used this manufacturing base to expand into more advanced technologies.

China has since developed the Hualong One reactor into both a domestic standard and an export product, with units already in service in Pakistan. In 2023, China also brought the world’s first commercial high-temperature gas-cooled reactor (HTGR) at Shidaowan into operation – a notable milestone for fourth-generation nuclear technology. At the same time, China is advancing large-scale modular construction techniques. During the construction of the Lianjiang nuclear plant, China deployed modules weighing more than 1,000 tonnes, reflecting the scale of its manufacturing and construction capacity. Beijing is also continuing the development of the CFR-600 fast-reactor program as part of its long-term ambition to establish a closed nuclear fuel cycle.

Although Beijing has promoted a ‘Nuclear Silk Road,’ exporting nuclear power plants is considerably more difficult than expanding domestic construction. So far, Pakistan remains the only major overseas purchaser of the Hualong One reactor. The Karachi K‑2 and K‑3 units were completed and entered commercial operation less than six years after construction began, demonstrating China’s capabilities.

However, Pakistan is a special case. China maintains unusually close strategic ties with Islamabad, while most Western suppliers are effectively absent from the Pakistani market because Pakistan remains outside the Nuclear Non-Proliferation Treaty (NPT) and is largely excluded from global nuclear trade.

Outside Pakistan, Chinese reactor exports remain limited. The UK’s Bradwell B project, once expected to showcase the Hualong One reactor under a Western regulatory framework, has effectively stalled amid security concerns and political tensions. Other prospective projects in Latin America and the Middle East have also progressed slowly.

Argentina illustrates the challenge. China signed an agreement worth approximately $8 billion to use the Hualong One reactor in the Atucha III nuclear project in 2022, but the project has remained vulnerable to Argentina’s chronic fiscal instability, debt problems, and shifting economic policies.

China’s limited export footprint, nevertheless, should not obscure its underlying strengths: reactor designs, the ability to construct them quickly and in large numbers, competitive pricing driven by scale, and close integration between nuclear construction, infrastructure financing, and broader industrial policy linked to the Belt and Road Initiative. These capabilities have not yet resulted in a large overseas reactor portfolio, but we have seen how quickly China can develop them and win global markets, as in solar power and electric vehicles.

Rosatom currently retains a significant first-mover advantage in nuclear exports. But in the long term, China may become the only country capable of replicating the Russian model at a comparable geopolitical scale and with greater industrial capacity.

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What is at stake?

Rosatom’s importance to Russia extends far beyond reactor exports themselves. Nuclear projects create relationships that last for decades and tie partner countries to Russian financing, fuel supplies, technical standards, regulatory cooperation, and engineering expertise. Unlike many other forms of infrastructure, nuclear power plants are difficult and costly to replace once they are built.

This gives Moscow a form of long-term structural influence that few other sectors of the Russian economy can still generate internationally. Nuclear cooperation embeds Russian institutions, companies, and specialists into the energy infrastructure and policymaking forums of other states. In practice, this creates durable channels of political contact and economic dependence that often outlast individual governments and political cycles.

Rosatom’s success also reflects a broader shift in the nature of geopolitical influence. In the nuclear sector, power depends less on technological superiority than on the ability to finance, build, operate, and sustain complex infrastructure over long periods. Russia understood this earlier than many Western competitors and has built an export model around it.

At the same time, this model is not without limits. Financial pressure, geopolitical exposure, sanctions, execution risks, and growing competition from both Western vendors and China may gradually narrow Rosatom’s advantages. China, in particular, is developing industrial and financial capacity that could eventually support a competing export model on a far greater scale.

For now, however, Rosatom remains one of the few Russian institutions capable of converting industrial capacity into sustained geopolitical influence. Its record demonstrates that infrastructure can function not only as an economic asset, but also as a long-term instrument of state power.

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In early June, the St Petersburg International Economic Forum (SPIEF) took place – an event that traditionally serves as the platform for Vladimir Putin’s main annual address on economic issues. Often described as ‘Russia’s Davos’, the forum brings together thousands of the country’s most important businesspeople and companies. Failure to attend is widely seen as an open demonstration of opposition to the Kremlin.

This year, Putin’s speech risked being a flop. Since the beginning of 2026, the economy has been showing signs of decline. During the first five months of the year, expected annual GDP growth fell to 0.4 percent, while the budget deficit exceeded planned levels by 2.3 trillion roubles, or 1 percent of GDP. The situation was eased by an almost twofold increase in oil and gas revenues in May, driven by the war in Iran and the closure of the Strait of Hormuz. Inflation also slowed, and in some periods, consumer prices even declined.

However, the latter was the result of the Central Bank’s extreme caution in lowering its key interest rate. While this has slowed price growth, it has also contributed to economic contraction and increased pressure on investors and businesses. Moreover, a halt in economic decline does not mean the beginning of growth. Even if the government relaxes its deficit targets, it will be extremely difficult for the Kremlin to maintain control of the situation by the end of the year.

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A return to 2024

According to Rosstat’s preliminary estimate, Russia’s GDP declined by 0.2 percent in the first quarter of 2026 compared with the same period in 2025. This implies that the Russian economy contracted by 6.4 percent (annualized) relative to the fourth quarter of the previous year.

If Rosstat’s estimate is taken at face value, it suggests that the Russian economy has fallen back to the level of mid-2024 or, more precisely, has been treading water for the past two years. This is not particularly surprising. Around that time, the Ministry of Finance stopped providing monetary financing for military production from accumulated reserves,1 while independent experts began to argue that the growth potential of the policy of military Keynesianism had been exhausted.2 At the same time, official statistics began to record stagnation in civilian industrial sectors.

Rosstat’s estimates are typically revised upwards in subsequent releases, so it may yet emerge that the current downturn was considerably less severe than it first appeared. This is indirectly supported by comments from Economic Development Minister Maksim Reshetnikov at the recent St Petersburg International Economic Forum, where he spoke of a revival in economic activity in April.

In its updated forecast, the Ministry of Economic Development lowered its projection of GDP growth for the current year from 1.5 percent to 0.4 percent. At the same time, the Bank of Russia left its forecast unchanged, maintaining the view that the economy could recover in the second half of the year, with GDP growth of 0.5–1.5 percent. For Russian GDP to increase by 1 percent in 2026 compared with its 2025 level, growth over the remaining three quarters of the year would need to average around 4 percent annualized. This appears unlikely, as such growth rates were recorded consistently only during the period of rapid expansion in military spending from mid-2022 to early 2024.

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The key rate: the Central Bank’s caution and its cost for the economy

The Bank of Russia publishes its schedule of key rate meetings at the beginning of each year. The intervals between meetings vary, ranging from five to eight weeks. The most recent meeting took place on 24 April, and the next is scheduled for 19 June.

At the April meeting, the Bank decided to reduce the key rate by 0.5 percentage points, to 14.5 percent. This cautious step was justified by a forecast of rising inflationary risks amid external uncertainty. Such a position gave little reason to expect significant changes at the next meeting on 19 June. However, the assessment of inflationary risks proved inaccurate. During the following four weeks, Rosstat recorded exceptionally low rates of price growth. Deflation of 0.02 percent per week was reported twice, while in two other weeks prices rose by just 0.07 percent. As a result, cumulative inflation over the first five months of the year was noticeably lower than in the previous year, despite the increase in the VAT rate from 20 percent to 22 percent on 1 January, which undoubtedly contributed to the acceleration of price increases.

Such inflation dynamics are unusual for Russia. Traditionally, the rate of price growth increases somewhat in May compared with April, while seasonal deflation begins in July or August. The reason for the sharp slowdown in inflation is clear: the Central Bank has maintained excessively high real interest rates for too long, inevitably suppressing demand.

The Bank of Russia has consistently lagged behind developments when making decisions on changes to the key rate. This is clearly illustrated in the chart below, where the key rate data is shifted forward by nine months: a change in the rate in January, for example, affects inflation dynamics in October. Senior officials at the Bank of Russia regularly refer to such a lag as the minimum period between a rate adjustment and its effect on inflation. Consequently, the current level of the key rate will shape inflation dynamics at the beginning of next year. If the Bank of Russia’s stated objective of reducing inflation to 5 percent by the end of 2026 is achieved, the key rate will remain at around 10 percent. This would undoubtedly place substantial pressure on investment and business activity, hindering economic recovery.

If inflation remains at its current low rate over the next two weeks, there is nothing to prevent the Bank of Russia’s Board of Directors from deciding at its next meeting to cut the key rate by 1–1.5 percentage points, bringing it down to 13–13.5 percent per annum. All that would be required is a degree of determination and willingness to act. If this does not happen and the rate is reduced by the customary 0.5 percentage points, the likelihood of a faster decline in inflation and a more rapid economic contraction will increase significantly.

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Credit: Demand is not growing

In theory, when a central bank begins to combat inflation by raising interest rates, households become more inclined to save, while demand for credit declines. This, in turn, reduces aggregate demand and helps to restrain accelerating price growth. But how does this work in practice, particularly in Russia?

Regarding household savings, developments in Russia have followed the textbook pattern. While changes in the Central Bank’s key rate affect inflation only with a considerable lag, their impact on household saving behavior becomes visible much more quickly. The chart below clearly shows that Russian households began rapidly increasing their bank deposits from mid-2023, when the Bank of Russia launched its cycle of interest rate increases. This process continued until the spring of 2025, when banks began gradually lowering deposit rates, which was reflected in a decline in the weighted average deposit rate.

However, the picture is less clear regarding the economy’s demand for credit. At first glance, it appears that corporate demand for borrowing in Russia responds only weakly to changes in the Central Bank’s rate, except during the period when the Bank of Russia’s rate stood at 21 percent. At that point, growth in lending came to a halt. However, as soon as the CBR began cutting rates, lending volumes returned to their previous levels.

At the same time, inflation must be considered. Since the beginning of 2021 – the chart’s starting point – the cumulative GDP deflator has reached 75 percent. For reasons that remain unclear, Rosstat does not publish chain deflators (that is, measures of price growth in the economy relative to the previous period, such as the second quarter compared with the first). Therefore, the Consumer Price Index (CPI) was used to adjust for inflation.

Admittedly, CPI dynamics and the GDP deflator can differ substantially over short periods. However, given that cumulative consumer price growth in Russia since 2021 has amounted to 55 percent, this substitution is unlikely to exaggerate the negative picture.

When adjusted in this way, the dynamics of corporate credit demand show more clearly the effect of the Bank of Russia’s increase in the key rate to 21 percent. This is reflected in the decline in total corporate indebtedness, which lasted several months during the first half of 2025. The second wave of declining indebtedness, observed at the beginning of the current year, can be linked to expectations of a rapid reduction in the key rate that failed to materialize, as well as to the deterioration of Russia’s overall economic conditions at the start of the year.

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Demand for credit from households (excluding housing loans) has behaved entirely in line with economic theory. It has been declining for the past nine quarters, with no signs of a reversal.

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The budget: the Ministry of Finance is counting on normalization

In May, Russia’s oil and gas revenues increased significantly for the first time since the beginning of the year. This was primarily due to the April oil price of USD 94.9 per barrel, more than double the first-quarter average (USD 42 per barrel). In addition, the removal of the threat of secondary sanctions against countries purchasing Russian oil had a positive effect.

In total, the Russian Ministry of Finance received RUB 1.08 trillion (USD 15 billion) from oil and gas production and exports in May.3 Of this amount, 35 percent (USD 5.2 billion) was paid back to producers as compensation for restraining growth in domestic petrol prices and for the costs of modernizing oil refineries.

The export price of Russian oil announced by the Ministry of Economic Development for May (USD 85.62 per barrel) exceeds the level assumed in the budget (USD 59 per barrel) by 27 percent at the current exchange rate. This means that in June, the Russian Treasury will continue to offset the shortfall in oil and gas revenues recorded earlier in the year.

Total federal budget revenues in May were 12 percent lower than in the previous two months. This was due to the large number of public holidays and the tax payment calendar, under which additional tax payments for the first quarter are made in April. However, the decline in revenues did not lead to a larger deficit. Budget expenditure in May fell by more than 23 percent compared with the average level recorded between January and April, and the monthly deficit amounted to just RUB 133 billion. The Ministry of Finance had attributed the substantial deficits of previous months to the advance financing of government procurement. It now appears that this process has been completed.

Speaking at the SPIEF, Vladimir Putin stated that this year’s budget deficit would be the same as last year’s – 2.6 percent of GDP. It is possible that the president misspoke, as the planned budget deficit for 2026 stands at 1.6 percent of GDP. If, however, Putin’s statement was not a slip of the tongue, one may expect the deficit target for the current year to be revised upwards by RUB 2.3 trillion (just under USD 32 billion).

Such a revision would need to be reflected in a higher annual expenditure ceiling. This would be consistent with the Russian Ministry of Finance’s expectations for increased military spending, which were presented to Putin in February. At that time, he was advised to reduce non-military expenditure in order to avoid exceeding the planned budget deficit. Today, that proposal appears to have been set aside, with the Ministry of Finance instead promising that the deficit will not exceed last year’s level.

To fulfill such a commitment, the Ministry of Finance would have to keep expenditure broadly in line with incoming revenues during the remaining seven months of the year. This is because the budget deficit for the first five months of the year has already reached 2.6 percent of GDP, or RUB 6 trillion, leaving a margin for further expansion of only RUB 100 billion – 1.7 percent of the deficit accumulated during the first five months of the year. Keeping expenditure in line with revenue for the rest of the year would be extremely difficult, particularly given the high expenditure typically recorded in December.

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Pro-Kremlin economists against Rosstat

April’s data on industrial production dynamics reduced the differences between the assessments of the economic situation at the beginning of the year by the Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF) and the HSE Development Center. On the other hand, they further widened the gap between Rosstat’s estimates and those of the CMASF.

In its review, the CMASF openly accused Rosstat’s experts of incompetence, without specifying whether it considered this deliberate or accidental:

‘Such a substantial discrepancy between Rosstat and the CMASF in assessing the direction of output dynamics after seasonal adjustment is due to the fact that, since the beginning of 2026, Rosstat has not ensured consistency between chain indices (month-on-month) and indices relative to the corresponding period of the previous year.’

When tracking changes in a given indicator, a statistical agency may either compare it with the same period of the previous year – for example, April 2026 with April 2025 – or compare the first quarter of the current year with the first quarter of the previous year. This is known as a base index. Alternatively, it may compare the indicator with the immediately preceding period – for example, April 2026 with March 2026, or the first quarter of 2026 with the fourth quarter of 2025. This is known as a chain index. Each approach has its advantages and disadvantages.

The first approach, the base index, captures dynamics over a longer period and therefore reduces the influence of short-term fluctuations. However, it does not reflect the most recent trends. For example, if an indicator rose by 10 percent in the first quarter and then declined by 1 percent in each of the following three quarters, the final result would still show ‘growth of 7 percent ’. In practice, however, the more accurate description would be a sustained decline over three consecutive quarters.

The second approach, the chain index, by contrast, clearly captures short-term changes. However, to obtain a picture over a longer period, the observer must multiply together the required number of indices – three to obtain a quarterly estimate or twelve to obtain an annual one. This is why they are known as ‘chain’ indices: the desired measure can be derived from the chain of sequential observations.

Both approaches should, in principle, produce the same result over a one-year horizon. Multiplying twelve monthly chain indices yields the annual outcome – that is, a comparison with the same period of the previous year, or the base index.

The CMASF argues that such consistency is absent in Rosstat’s data and that multiplying the chain indices produces a significantly higher estimate than the corresponding base index:

‘While Rosstat reported an index relative to the corresponding period of the previous year of 101.9 per cent in April, the product of the twelve chain growth rates equals 106.1 per cent.’

According to the CMASF, this means that Rosstat is substantially overstating short-term growth rates – in this case, that of industrial production. These short-term indicators appear to attract the greatest attention from Russia’s leaders, who, evidently, are not particularly familiar with the methodology used to calculate them.

In this respect, the divergence between the CMASF’s and the HSE Development Center’s assessments at the beginning of the year of industrial performance, excluding the defense-industrial complex, was temporary in nature. It reflected differences in the methods used to adjust for seasonality and calendar effects. By April, however, the two think tanks’ data on industrial dynamics had converged.

In April, the Russian industry produced no major surprises. The military sector continued to expand, supported by wartime spending. Civilian industry, meanwhile, continued to contract under the combined pressure of weakening demand and high interest rates.

A notable development in April was the impact of Ukrainian strikes on Russian oil refineries. Combined with scheduled seasonal maintenance shutdowns, these attacks led to a decline in oil refining volumes of more than 9 percent compared with April of the previous year.

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Among other factors, the following should be noted:

• The end of the decline in oil and coal production that emerged in February–March. The reason for this was the closure of the Strait of Hormuz during the US-Iran War, which effectively suspended the enforcement of US sanctions on purchases of Russian oil.

• The continued recovery of the automotive industry: output increased by 1.5 percent compared with March, following average monthly growth of 2.1 percent during the first quarter. Full recovery remains distant, however. Production in April amounted to 82 percent of the average monthly level recorded in 2024 and only 63 percent of the 2021 level.

• A slight contraction in chemical production, some facilities of which were also targeted by Ukrainian strikes. Output in April declined by 1 percent compared with March.

• An end to growth in the food industry, which in previous months had been driven by temporary factors. An early Orthodox Easter affected demand for certain food products, while the increase in export duties on sunflower oil from 1 April encouraged additional production and exports ahead of the change.

• A pause in the decline of most major construction materials industries and modest growth in ferrous metallurgy (+0.6 percent compared with March). It is, however, too early to speak of a sustained recovery. Output remains 10–20 percent below the average monthly level of 2024. The short-term improvement appears to have been driven by unusually warm weather, which allowed construction work to begin earlier than usual. No durable factors supporting a broader revival of investment activity in the economy are yet evident.

Drone attacks have not disrupted petroleum product exports

An analysis of reporting by the Russian Ministry of Energy confirms an earlier hypothesis that Ukrainian strikes on Russian oil infrastructure have been ineffective in exerting pressure on petroleum product exports.4 Over the past two years, export volumes have remained within a range of 250,000–350,000 tonnes per day, while petrol exports specifically have remained at around 50,000 tonnes per day.

Russia’s annual petrol consumption is approximately 40 million tonnes. At the same time, total petrol inventories (held at refineries and storage facilities) amount to around 1.8 million tonnes, equivalent to two to three weeks of domestic consumption. Under these conditions, even a complete one-month shutdown of Russia’s largest refinery – Gazprom Neft’s Omsk Refinery, which produces about 4.8 million tonnes of petrol per year5⁵ – would reduce output by only 0.4 million tonnes. Such a shortfall could easily be offset by existing inventories.

A refinery shutdown could, of course, lead to temporary petrol shortages in nearby regions. However, identifying alternative suppliers and arranging deliveries is unlikely to take more than a few days.

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The beginning of 2026 marked a turning point in Russia’s economic trajectory. The steady growth of around 4 percent per year, which began in mid-2023, gave way to stagnation and, to some extent, even decline. This shift is bound to affect Russians’ living standards. However, official statistics do not allow for an adequate assessment of its impact, as they do not provide data on changes in living standards broken down by place of residence, income level, or age. To help address this gap, the NEST Centre is conducting a series of its own surveys in Russia. The first two took place in February and April 2026 and focused on perceptions of the economic situation and the government’s performance.

The survey results show that Russians are generally dissatisfied with the state of the economy and the government’s economic policy. At the same time, this dissatisfaction is not giving rise to protest. Moderately negative views predominate, while the share of strongly negative assessments remains limited. Overall, public perceptions of the economy are comparable to those observed during the COVID-19 pandemic and the period of the 2018 pension reform.

Growing dissatisfaction and safe responses

Almost half of the respondents (between 40 and 50 percent across different groups) described the state of the Russian economy as ‘so-so’. Most of the rest assessed it as generally good. Positive and negative assessments were distributed in roughly a 60:40 ratio.

The most favorable assessments of the state of the economy came from respondents aged 18–24 (positive-to-negative ratio of 82:18), residents of Moscow (67:33), higher-income respondents (74:26), and consumers of traditional media (television, radio, and newspapers). The least favorable assessments came from respondents with a low standard of living (34:66), those aged 45–65 (55:45), and viewers of YouTube channels (33:67).

Respondents were more negative when assessing changes in the economy over the previous three months. 37 percent believed the situation had not changed, while 18 percent were convinced it had improved somewhat or significantly. By contrast, 36 percent believed that it had deteriorated somewhat or significantly.

Views across different demographic groups broadly followed the same pattern as assessments of the economy’s overall condition. Younger respondents, Muscovites, higher-income individuals, and audiences of state media tended to hold more positive views. Less affluent respondents, those aged 45–65, and viewers of YouTube channels tended to hold more negative views.

Surveys did not reveal strong criticism of the government’s economic priorities among Russians. By a margin of 59:41, respondents judged the Russian government’s economic policy priorities to be either entirely or mostly correct rather than entirely or mostly incorrect. 19 percent were unable to answer.

These assessments stand in marked contrast to respondents’ evaluations of the government’s actual performance. When asked, ‘Do you think the Russian government’s economic policies create more problems, or do they bring substantial positive results?’, respondents gave considerably more negative assessments.

Among those willing to provide an opinion (81 percent of respondents), 40 percent chose the answer that ‘the government’s economic policies create more problems, with few positive results’. A further 41 percent selected the moderately negative option that they ‘create some problems, which will be offset by positive changes in the future’. Only 19 percent believed that the government’s policies ‘bring substantial positive results, with only a few problems’.

As with other questions, younger respondents (by a ratio of 71:29), residents of Moscow (64:36), and consumers of traditional media expressed considerably more positive views. The most negative assessments once again came from respondents with low incomes (45% positive to 55% negative). They were the only group in which negative evaluations predominated in responses to this question.

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This divergence between assessments of the authorities’ intentions and priorities, on the one hand, and the results of their economic policy, on the other, can be explained in two ways. Firstly, respondents may believe that the government is choosing the right objectives but is unable to achieve them. Secondly, it is entirely possible that some respondents chose what they believed was the ‘correct answer’ to an overly direct question, a pattern often observed in Russian surveys. Responses to subsequent questions in the survey point towards the latter explanation.

When the discussion shifts to the impact of government policies on respondents’ personal circumstances, the share of those unable to provide an answer falls to just 5 percent, while assessments of the government become noticeably more critical. The ratio of respondents who believe that the government ‘creates new problems [for them and their families]’ to those who believe that the authorities ‘help to solve economic problems’ is 7:3.

At the same time, it should be noted that more than half of those who expressed an opinion (51 percent) stated that government policies ‘do not affect the quality of life’ of their families in any way.

The only group more likely to have a positive than a negative view of the impact of government policies on their family’s economic problems was young people aged 18–24 (by 52% to 48%). The most negative assessments came from respondents with low incomes and those aged 45–65, among whom the ratio of positive to negative responses was 20:80. Muscovites, who were relatively optimistic on other questions, assessed the government’s policies just as negatively as the overall sample in this case (by 28% to 72%).

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The wealthy are more loyal, the poor more critical

Better-off Russians tend to assess the authorities’ economic policies more positively. Among respondents who could afford an unexpected expense of 40,000 roubles (approximately US$533), 27 percent said that the government helps them to address their families’ economic problems, while 20 percent believed that the authorities create new problems for their families.

Among respondents whose savings would not cover such an expense, the corresponding figures were 8 percent and 37 percent, respectively.

The share of respondents who believed that government policies have no impact on addressing their families’ problems was broadly similar across all groups, ranging from 47 to 52 percent.

The survey data support the well-established argument that inflation affects lower-income groups far more severely. Although inflation in Russia has been declining gradually over the past two years, only 16 percent of respondents who identified the high cost of living as a problem believe that the government is dealing with it successfully (‘completely’ or ‘mostly successful’). By contrast, 75 percent assess the government’s management of inflation negatively (‘completely’ or ‘mostly unsuccessful’).

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Among respondents who are not concerned about the cost of living, 68 percent assess the government’s performance positively, while 21 percent do so negatively.

The intermediate response categories – ‘financial difficulties create a limited burden’ and ‘there are no problems at present, but they may arise if the cost of living continues to increase’ – account for 35 percent and 54 percent of respondents, respectively. Just under a quarter of respondents (24 percent) assess the authorities’ performance in curbing inflation very negatively. This is an unusually low figure, given that rising prices have traditionally been the issue of greatest concern to Russians. In the most recent Levada Center surveys on the subject, 58 percent of respondents identified inflation as the most acute problem facing the country.

The distribution of responses when assessing the government’s success in addressing broader economic problems, combatting inflation, and improving the healthcare and education systems was remarkably similar. Questions concerning the government’s overall economic performance, inflation, and the development of education were characterized by a relatively high share of respondents who were unable to provide an answer (19 percent). This is likely because respondents do not directly encounter problems in these areas, unlike issues affecting their families or the healthcare system.

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Discomfort without protest

The survey results indicate that Russians are experiencing some discomfort due to the deterioration of the overall economic situation and do not regard the government’s policy in this area as successful. At the same time, their overall level of concern remains relatively low, and their responses do not point to a rise in opposition to the regime.

A long-running series of surveys conducted by the Levada Center shows a sharp decline in assessments of Russia’s economic situation at the end of last year (the most recent survey was carried out in January 2026). The decline is comparable to that observed during the COVID-19 pandemic. However, by historical standards – for example, compared with the period from 2000 to 2020, let alone the 1990s – Russians’ assessment of the economy remains relatively high.

Another series of surveys, conducted by VTsIOM, shows a substantial decline in assessments of the authorities’ economic policy, comparable to the second half of 2018, when the increase in the pension age was announced. Yet, once again, the absolute level of these assessments remains high by historical standards.

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It can be stated with a high degree of confidence that the Russian economy has not yet reached the lowest point of its current trajectory. At present, there are no signs of an economic recovery. The situation is likely to deteriorate gradually; economic difficulties will become increasingly noticeable to the population, and this will probably be reflected in public opinion.

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Methodology

The nationwide surveys were conducted during the final ten days of February and April 2026 using a representative sample of Russia’s urban and rural population. The sample comprised 1,604 respondents aged 18 and over across 137 localities in 50 federal subjects of the Russian Federation.

The surveys were conducted through face-to-face interviews. The dataset was weighted by gender, age, and level of education for each locality type (large cities, medium-sized cities, small towns, and rural areas) within each federal district separately, in accordance with Rosstat data.

The margin of error for a sample of 1,600 respondents, at a 95 per cent confidence level, does not exceed:

• 3.4 per cent for indicators close to 50 per cent;

• 2.9 per cent for indicators close to 25 per cent / 75 per cent;

• 2.0 per cent for indicators close to 10 per cent / 90 per cent;

• 1.5 per cent for indicators close to 5 per cent / 95 per cent.

In mid-May, Vladimir Putin paid an official visit to Beijing, in part to accelerate agreements on the construction of the Power of Siberia 2 gas pipeline, which has been under discussion since 2023. This time, the Russian president’s negotiating position was arguably the strongest it has been in recent years: the closure of the Strait of Hormuz and the destruction of a substantial share of Qatar’s liquefied natural gas (LNG) production capacity have put the stability of gas supplies worldwide at risk. Yet although both sides reported significant progress in the negotiations and in resolving key issues, including the pipeline route and construction arrangements, the situation has, in essence, remained unchanged. The timeline for the start of construction, the commencement of gas deliveries, and the gas price all remain unresolved. The problem lies in the mismatch between the parties’ expectations: China has no intention of purchasing Russian gas in volumes or at prices acceptable to Russia.

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Why is Power of Siberia 2 important for the Kremlin?

Power of Siberia 2 became a project of critical importance for the Kremlin after Russia lost most of its share of the European gas market as a result of the war in Ukraine and the sanctions that followed. Gazprom, Russia’s monopolist exporter of pipeline gas, earned three-quarters of its revenue from sales to the EU. Since these sales ceased, the company’s financial position has remained unstable. Its positive financial results are largely driven by earnings from subsidiaries, which are not involved in gas production.

Beyond restoring sales, Gazprom is equally interested in resuming production on the Yamal Peninsula in north-western Siberia. Gas from this region was previously exported to Europe, and Gazprom invested tens of billions of dollars in developing the fields there. A significant share of these investments was financed through loans that still need to be repaid.

In addition, Power of Siberia 2 has symbolic significance for the Kremlin as part of Russia’s ‘pivot to the East’. The pipeline would demonstrate that export routes are being redirected, revenues are being restored, and the energy industry is recovering from the loss of European markets.

The idea of supplying Russian gas to China was first raised during Putin’s visit to Beijing in 2006, when he promised to build two gas pipelines from Eastern and Western Siberia within five years, with a combined capacity of 80 billion cubic meters (bcm) per year. For comparison, Russia’s total pipeline gas exports to countries outside the CIS at the time amounted to 161 bcm annually.

The eastern pipeline was later named Power of Siberia, and the contract for its construction was signed in 2014. The gas supplied through it is produced at the Kovykta field in Irkutsk Region and the Chayanda field in Yakutia. Discussions of the western route from Yamal through Mongolia, originally known as the Altai project, were put on hold. China showed little interest in it, focusing instead on the Power of Siberia pipeline, which enabled it to supply gas to the country’s north-eastern regions, far from its main LNG import terminals.

Power of Siberia 2: The missing link in Russia–China gas trade

The project returned to the agenda only in March 2023, when Xi Jinping visited Moscow. During the visit, the two sides agreed on the main parameters of a deal to construct the Power of Siberia 2 pipeline, including planned gas deliveries of 50 bcm per year.

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How much gas does China need today?

By the mid-2020s, China had substantially increased its domestic gas production, from 27 bcm in 2000 to 260 bcm in 2025. Alongside conventional production, it actively expanded output from shale gas, tight gas, coalbed methane, and coal-measure gas resources. In 2025, these alternative sources accounted for 47 percent of China’s total gas production.

However, the needs of the Chinese economy grew even faster. To meet rising demand, the country invested heavily in infrastructure to import both LNG and pipeline gas from Central Asia, primarily Turkmenistan.

In the early 2020s, however, China revised its energy strategy. The rapid expansion of nuclear power and renewable energy at home, disruptions to global supply chains, and the European gas crisis – triggered first by the reduction of Russian gas supplies from mid-2021 and then by the invasion of Ukraine – led to a sharp rise in LNG prices and prompted Beijing to reassess the role of natural gas. Rather than serving as the ‘foundation for future growth in energy consumption’, gas came to be viewed as a ‘transitional’ energy source, with future demand dependent not only on overall consumption growth but also on the pace of expansion of alternative energy sources.

In 2024–2025, China consumed around 430 bcm of gas annually. Slightly more than 60 percent was provided by domestic production, while imports were split roughly equally between LNG and pipeline gas. In addition to Russia and Central Asia, which account for broadly similar shares of pipeline imports, China also receives 5–6 percent of its imports of pipeline gas from Myanmar.

At first glance, this import structure may appear somewhat irrational, as pipeline gas is significantly cheaper than LNG. China purchases gas from Central Asia at approximately $200–260 per thousand cubic meters, while Russian gas costs around $240–280 per thousand cubic meters. (Central Asian supplies are cheaper in part because China finances pipeline construction.) By contrast, LNG prices can range from $250–300 to $1,000 or more per thousand cubic meters, depending on market conditions.

It is evident that China is deliberately pursuing a policy of maximum diversification and balance among its sources of supply. Beijing has no intention of becoming as dependent on Russian gas as Europe once was.

How much gas will China need tomorrow?

China began construction of the first Power of Siberia pipeline on its territory in mid-2015, while Russia began work in early 2016. The pipeline, which cost Gazprom at least RUB 1.1 trillion ($17.5 billion), was launched in early December 2019. It reached its design capacity of 38 bcm per year in December 2024. Thus, more than ten years passed between the signing of all the necessary agreements and the pipeline reaching full capacity.

The timeline for Power of Siberia 2 may be shorter, as the Yamal fields have already been developed, and production there can be increased relatively quickly. Even so, it is realistic to assume that the process will take at least six years. As a result, any assessment of China’s future gas needs should focus on the balance of supply and demand for gas around 2035.

According to forecasts from the Chinese state-owned oil and gas company Sinopec, gas consumption in China will plateau between 2035 and 2040 at around 620 bcm per year. This would represent an increase of 190 bcm from current levels. Domestic gas production is expected to reach approximately 300 bcm annually, covering less than one quarter of the projected increase in demand. Consequently, China will need to import an additional 150 bcm of gas each year.

If current import patterns are maintained, roughly one quarter of this additional volume – around 45 bcm – could be supplied by pipeline gas from Russia1. This is close to the planned capacity of Power of Siberia 2. However, another pipeline linking Russia and China across the Ussuri River, with a capacity of 12 bcm per year, is due to enter service in 2027. In addition, by 2031, the capacity of the first Power of Siberia pipeline is expected to increase by 6 bcm annually, reaching 44 bcm.

This means that either China must agree to increase the share of Russian gas in its import mix, or Gazprom will have to accept a twofold reduction in the capacity of Power of Siberia 2, which would make the project highly inefficient.

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Why is Power of Siberia 2 of little interest to Beijing?

For Beijing, Russian gas is useful, but not indispensable. Following the price shock of 2021–2022, China signed a series of long-term LNG supply agreements, and today its contract portfolio is sufficient to meet demand growth at least until 2030. Many Chinese contracts for LNG imports from the United States are flexible and allow cargoes to be resold abroad if domestic demand is lower than expected. In this way, China is building a supply portfolio that enables it to respond flexibly to changing market conditions.

LNG can be resold or used as leverage in negotiations with other suppliers. Pipeline gas imports from Russia do not offer the same flexibility: supplies move from a single seller to a single buyer along a single route, reducing the attractiveness of such a deal for Beijing.

This is precisely why negotiations over Power of Siberia 2 have proved so difficult. Russia wants a long-term contract to export large volumes of gas at prices that would justify the construction of a massive pipeline, expected to stretch for around 6,700 kilometers, and to partially compensate Gazprom for losses resulting from the decline in exports to Europe.

Beijing, by contrast, has little interest in guaranteeing that Gazprom will receive revenues close to those it once earned in the European market, given that Russia now has no alternative buyers. Even today, China purchases Russian gas at prices 39 percent lower than those paid by the few remaining European consumers. During the May negotiations, the Chinese side reportedly indicated its wish to buy Russian gas at only half the current price, a level that would leave Gazprom with virtually no profit margin.

Yesterday’s gas in tomorrow’s energy system

In essence, Russia is trying to sell yesterday’s gas into tomorrow’s energy system. China’s energy sector is developing rapidly and becoming increasingly flexible and diversified. Solar, wind, hydroelectric, and nuclear power are reducing the need for gas-fired electricity generation. Natural gas remains important for heating, the chemical industry, transport, and meeting electricity demand during periods of peak consumption. However, demand for gas is unlikely to be stable. This was evident in 2025, when China’s LNG imports fell by 11 percent; they are expected to remain below 2024 levels this year. According to analysts, this reflects weaker demand, high LNG prices at the beginning of the year, and the growing share of energy derived from alternative sources.

Beijing may speak of a strategic partnership with Moscow, but it apparently does not extend to the energy sector. Moscow believes that geopolitical considerations should compel China to buy Russian gas. Beijing is convinced that the same considerations entitle it to a discount. In business negotiations, a party that holds underutilized assets is generally at a disadvantage when negotiating with one that can turn to alternative suppliers.

Does this mean that Power of Siberia 2 will never be built? Most likely, not in its currently proposed form. The situation could change either if Chinese gas consumption were to rise sharply, or if the global LNG market were to experience a major disruption that deprived Beijing of alternative sources of supply. Under certain circumstances, the Kremlin may agree to a sufficiently low price and offer flexible supply volumes. However, this would represent an acknowledgement of weakness rather than the success of Russia’s ‘pivot to the East’.

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The Ministry of Finance’s assessment of federal budget execution over the first four months paints an even bleaker picture than it did a month ago: the year-to-date deficit has now reached nearly 5.9 trillion rubles, which is 60 percent higher than its annual level set by law. The numbers look alarming—but they do not mean the Kremlin’s financial machine has finally stalled.

1. A budget deficit itself does not mean that the Ministry of Finance has no money. It merely indicates that the government finances its expenditures not through collected revenues, but by some other means (borrowing, use of reserves, privatization). Conditions are favorable for the Ministry of Finance—the Bank of Russia’s steady reduction of the key rate is boosting demand for government debt, for which, prior to the latest rate cut in April, the Ministry of Finance was prepared to pay between 14.5% and 15% per annum. Over four months, the treasury received 1.7 trillion rubles net from the placement of OFZs, accounting for 45% of the annual deficit. The fact that debt service will consume an increasing portion of the budget does not seem to concern the Minister of Finance today.

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2. Revenue collection is running 3–4 percentage points behind the pace of recent years; in four months, the Ministry of Finance managed to collect 29 percent of the annual target (in the previous two years, this figure was 32–33 percent). However, on the one hand, starting in the second quarter, the increased VAT and income tax rates will take full effect; on the other hand, for at least the next two months (May–June), the treasury will receive a “war premium,” (additional oil-related revenues due to the higher oil prices) which will make the tax collection picture look more respectable.

Something similar happened in 2023, when, after four months, the treasury had received less than 27 percent of annual revenue, but starting in August, budget revenues rose sharply as the dollar exchange rate moved above the 100-ruble mark. Some analysts focus on the year-on-year decline in oil and gas revenues, but this comparison obscures more than it reveals—it does nothing to help analyze this year’s budget. Moreover, this decline is easily explained: the average tax price of oil in the first four months of last year was nearly $63, compared to $50 this year; the average dollar exchange rate at the beginning of last year was 90 rubles, this year it is 78 rubles. The compounding effect of these two shifts—oil prices down roughly 20% and the ruble stronger by about 13%—implies a 30%-plus decline in ruble-denominated oil revenue, which is more or less exactly what we see in the data.

3. If by the end of the year the Ministry of Finance is able to collect the full amount of oil and gas revenues planned for the year (I discussed the likelihood of such a scenario a couple of days ago), then to meet the annual revenue target in the remaining eight months of the year, the treasury will need to generate non-oil and gas revenues averaging 2.75 trillion rubles per month, which is 17% higher than the level at the start of the year. In the previous two years, this growth rate was 15% and 13%. On the one hand, raising tax rates will undoubtedly help the budget; on the other hand, falling inflation and the recession will work against this.

4. The real challenge lies on the expenditure side. Over the past four months, the Ministry of Finance has funded nearly 40% of the annual plan (in 2023–2025, this ranged from 31.9% to 35.4%); on average, this has amounted to 4.4 trillion rubles per month. If the annual budget is not exceeded on the expenditure side, monthly spending for the remainder of the year should amount to 3.3 trillion, i.e., a quarter less; if we take into account the “December bonus”, the traditional end-of-year spending surge (typically 50% above the monthly average), then spending in the coming months should not exceed 70% of the average spending level for January–February. Ambitious.

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MY CONCLUSIONS (every reader is free to draw their own or use a third party’s guidance):

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At what oil price will the Russian budget be able to collect its projected oil and gas revenues this year? This question has been asked frequently lately. Estimates vary widely, ranging from $100 to $120 per barrel, which strikes me as too high. My estimate is $76 per barrel on average through the end of the year, provided—and I emphasize this—that the current ruble exchange rate (75.5/dollar) remains unchanged.

1. The budget’s projected oil and gas revenues for this year total 8.9 trillion; just under 2.3 trillion has been collected over four months, meaning another 6.6 trillion needs to be collected by the end of the year to meet the target.

2. There are four main components of oil and gas revenues: the Natural Resources Extraction Tax (NRET/NDPI) and the Additional Revenue Tax (ART) on oil; NRET and the export duty on gas; and refinery rebates. For the NRET on oil and refinery rebates, simple regressions work quite well (I used the period 2023–2026)—their values depend on the price of exported oil and the number of days in the month. The regression works less well for gas, but given that gas revenues accounted for only 12.5% of gross oil and gas revenues in 2025 (before refinery rebates), this is not critical.

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3. The share of the ART, which will be paid twice this year, in July and October, traditionally accounts for just under 15 percent of gross oil taxes.

4. The final assumption is that oil production volumes in Russia will not change significantly till the end of the year (all oil taxes are tied to production volumes).

5. As a result, it turns out that in the remaining eight months of the year, an average export oil price, calculated by the Ministry of Economics, of $76 per barrel will be sufficient to collect the projected oil and gas revenues included in the 2026 budget.

6. How likely is such a scenario? I won’t predict oil prices, but simple calculations show that this can be achieved with a steady 6.5 percent monthly decline in the price of Russian oil starting in May; in November (for tax payments in December), the price calculated this way should be just over $59.

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Summary

• The Central Bank of Russia has cut the key rate, but this has not affected the mood of households or businesses.

• The monetary authorities’ artificial manipulation drove the paradoxical strengthening of the rouble in 2025.

• Demand for foreign labour has increased, alongside capital outflows abroad.

• Putin refuses to significantly reduce public spending, despite the drawdown of well-concealed reserves.

• The construction sector is experiencing a sharp decline.

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The Central Bank cuts the rate despite weak justification

At its meeting on 20 March, the Board of Directors of the Central Bank of Russia decided, as expected, to cut the key rate by 50 basis points to 15 per cent per annum. However, Elvira Nabiullina’s statement did not provide a convincing justification for this decision.

On the one hand, inflation continues to decline rapidly, and the acceleration in price growth linked to the VAT increase proved short-lived. The probability of inflation falling to 4 per cent by the end of the year remains fairly high. This would appear to create room for a faster rate cut, particularly given the deepening recession in the civilian sector of the economy, and the mismatch between the available workforce and the economy’s needs reported by headhunters (but not observed by Rosstat).

On the other hand, inflation expectations among households and businesses remain persistently high and are not responding to the decline in inflation and the lowering of the key rate. The Ministry of Finance’s refusal to finance the budget deficit using resources from the National Wealth Fund led to a reduction in the Central Bank’s foreign currency sales, and to a 9 per cent depreciation of the rouble since the beginning of March. This created the potential for faster price growth due to higher import costs.

The war in the Persian Gulf has introduced additional uncertainty for Russia’s monetary policy. If it continues, this conflict will inevitably trigger a worldwide recession, reduce global demand for Russian commodities, and complicate efforts to raise federal budget revenues and finance the rapidly growing deficit.

Overall, this situation indicated that the decision on the rate was likely to be deferred, especially as the Central Bank is expected to update its forecast by the next meeting. However, monetary policy remains extremely tight, and it seems that the Central Bank has begun to recognise this. At least, this is how one can interpret a passage from the summary of the discussion on the key rate decision published by the Central Bank.

‘According to most participants, overheated demand is cooling even faster than assumed in the February forecast, making room for cutting the key rate. However, elevated uncertainty associated with the external environment and fiscal policy requires a cautious approach.’

In sum, the decision to cut the rate can be described as ‘better late than never’. There are no strong arguments in favour of a rate cut, but there is an understanding that the rate is currently too high. In addition, the monetary authorities are well aware that a pause in rate cuts could trigger an increase in inflation expectations, which is clearly undesirable at present.

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The rouble strengthens against fundamentals as capital outflows shift channels

The Central Bank of Russia has published the final balance of payments data for the past year, with three points standing out.

First, the dynamics of the current account and the trade balance in early 2025 do not correlate with the sharp appreciation of the rouble in the spring of last year. The chart shows a clear downward trend that began in mid-2024, which should have created conditions for a weakening of the national currency. However, the opposite occurred. The reason was the Central Bank’s active foreign currency sales under the fiscal rule, as discussed in the previous issue.

In absolute terms, both indicators are approaching their lowest levels in the past twenty years. This trend will likely continue in the first quarter of the current year (the current account surplus in January amounted to only $0.4 billion, compared to $2.8 billion in January 2025), followed by a sharp reversal in the second quarter due to a rapid increase in oil prices. How sustainable this trend will be can only be conjectured, given that it will depend on when and how the military hostilities in the Persian Gulf end.

Second, the data clearly show that wage transfers from Russia to other countries, which fell sharply during the currency shocks of 2014–2016, have recovered from the ‘Covid’ shock and, since mid-2023, have returned to the pre-war trend of gradual growth. On the one hand, the volume of such transfers is half the level observed in 2008–2013. On the other hand, their renewed growth indicates a growing labour shortage in sectors that have traditionally relied on foreign workers to fill gaps. Whether the increase in remittances reflects a higher number of foreign workers or higher wages is immaterial.

Third, data on the channels of capital outflows from Russia suggest that an increasing share of cross-border financial flows is no longer captured by the Central Bank staff responsible for compiling the balance of payments. It is relatively straightforward for them to track transactions related to the purchase of shares and bonds, as well as direct and portfolio investment, which pass through the bank accounts of Russian individuals, companies, and banks. However, they are unlikely to have adequate information on ‘other investments’. Estimates of such flows can never be fully reliable, but the growing use of the ‘other investments’ channel, alongside the near disappearance of traditional investment channels, is indicative.

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No decision on sequestration: the Ministry of Finance may reconsider it

At the very end of February, Minister of Finance Anton Siluanov stated that his ministry proposes to revise the principles governing the collection and use of oil and gas revenues.

‘… to preserve the resources of the National Wealth Fund and to reduce pressure on the foreign exchange market, the government is considering tightening the fiscal rule by lowering the baseline price.’

Anton Siluanov

Minister of Finance of Russia

Shortly afterward, the Ministry of Finance announced that it would cease foreign currency sales from the National Wealth Fund to finance the budget deficit as early as March. A few days later, media reports indicated that the Ministry had sent instructions to all ministries and agencies to prepare proposals for cutting current-year budget expenditure by 10 per cent. It became evident that the sharp decline in oil and gas revenues in December–February, and the resulting growth of the budget deficit to twice the level set out in the law, had become a critical issue for the Russian authorities.

However, the Ministry of Finance’s position was strongly criticised at a meeting between President Putin and senior economic officials on 23 March.

On the one hand, the war in the Persian Gulf led to a sharp rise in global oil prices, the lifting of US sanctions on Russian oil purchases, and, as a result, the disappearance of the discount on Russian crude. As the share of spot sales by Russian companies increased from the pre-war norm of 10–15 per cent to 35–40 per cent, many consumers deprived of Middle Eastern oil rushed to purchase whatever was available. As a result, Russian oil was at times sold at a premium.

Russian tax legislation is structured such that oil and gas revenues respond to changes in oil prices with a lag. At the beginning of each month, the Ministry of Economic Development announces the average export oil price for the previous month, which is then used to calculate the mineral extraction tax (MET) payable at the end of the month. Thus, the increase in oil prices in March will only be reflected in federal budget revenues at the end of April.

According to the Ministry of Economic Development, the average export oil price was $44.6 per barrel in February and rose to $77 per barrel in March. Each additional $10 per barrel increases MET revenues for the federal budget by $1.1–1.2 billion. Accordingly, in April, the Ministry of Finance’s MET revenues will increase by 215–220 billion roubles ($2.7–2.75 billion). On the one hand, this is a substantial amount even for the Russian budget. On the other hand, in January–March (taking into account our forecast), the Ministry of Finance received around 950 billion roubles less than expected, as the rouble-denominated price of export oil was 40 per cent below the level assumed in the budget.

However, the effect of the sequestration proposed by the Ministry of Finance would have been very limited. A 10 per cent cut would have applied to less than a quarter of total budget expenditure, given that military and social spending, debt servicing, and a range of other items would have been exempt. Cutting budget expenditure would have dealt a significant blow to Putin’s political standing and image, and doing so to save around 1 trillion roubles would not have made political sense.

As a result, the decision on sequestration has been postponed. The Ministry of Finance has been instructed to fund expenditure in line with the approved budget law, while exercising greater scrutiny when reviewing budget requests that can be deferred.

Tax revenues: the figures are striking, but the conclusions are premature

February data on federal budget revenues from taxes linked to the domestic economy (VAT, profit tax, and personal income tax) appear surprisingly strong at first glance. VAT receipts increased by 29 per cent compared to the first two months of the previous year, profit tax revenues rose by 12 per cent, and personal income tax by 59 per cent. However, this impression quickly fades once one recalls that last year the profit tax rate was increased (from 20 per cent to 25 per cent) and the personal income tax was made more progressive (reaching up to 22 per cent), with all additional revenues from the higher tax burden accruing to the federal budget. From 1 January this year, the VAT rate was also raised from 20 per cent to 22 per cent.

In short, a direct comparison of tax revenues, especially at the beginning of the year, is not appropriate. It will only be possible to speak of the disappearance of the base effect for profit tax from May onwards, and for personal income tax from August onwards.

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The Ministry of Finance halts use of the National Wealth Fund and draws on Treasury balances

Although the president insisted that this year’s budget expenditure be fully financed, he conceded to the finance minister on another point: the use of National Wealth Fund resources to compensate for shortfalls in oil and gas revenues has been halted. The reason for this decision is clear. By early April, the liquid portion of the Fund had fallen below 4 trillion roubles (1.7 per cent of GDP), and a fiscal reserve of this level appears to be regarded by the Ministry of Finance as a necessary ‘rainy day’ buffer.

In March, the Ministry of Finance withdrew only 60 billion roubles from the Fund to finance expenditure, compared with 400 billion roubles over the previous two months. This raises a reasonable question: what sources can the Ministry use to finance this year’s budget deficit if it avoids drawing on the Fund and does not resort to fiscal dominance (under which banks would be required to purchase government bonds in significant volumes at below-market yields)?

To answer this, it is necessary to recall that, in addition to the well-known fiscal reserve in the form of the National Wealth Fund, the federal Ministry of Finance has another ‘reserve wallet’: the balances of funds held by the federal and regional budgets, the Social Fund, and the Mandatory Health Insurance Fund, which are placed with the Federal Treasury. This reserve began to form in late October 2020, when the Treasury was granted the right to place these balances in bank financial instruments (deposits and repo operations). Over time, legislation required regional budgets and extra-budgetary funds, which had previously held their resources with the Central Bank, to transfer their accounts to the Treasury. The Treasury’s deposits in banks rose sharply in early 2023, when, on the one hand, the budget advanced a large share of defence procurement in January–February, and, on the other hand, many defence industry enterprises were instructed to take payments for defence orders, and make payments to subcontractors, through Treasury accounts. In 2025, income from placing these funds amounted to 1.17 trillion roubles (3.13 per cent of total federal budget revenues), while regional budgets received 328 billion roubles (1.25 per cent of their total revenues).

The volume of available Treasury funds fluctuated between 8 and 10 trillion roubles from mid-2023 to the end of 2025, reaching 9.1 trillion roubles at the start of this year. By the end of March, balances in Treasury accounts had declined by 1.8 trillion roubles.

Output in civilian manufacturing is declining

Rosstat’s release on industrial production dynamics for January drew mixed assessments from experts.

• Rosstat reported zero growth compared to December.

• The CMASF (Centre for Macroeconomic Analysis and Short-Term Forecasting) assessed the first month of the year very negatively, estimating a 1.7 per cent month-on-month decline (-18.5 per cent in annualised terms).

• The Development Centre, which excludes sectors linked to the military economy, identified solid growth of 0.7 per cent (8.7 per cent in annualised terms).

To a large extent, this divergence reflects the specifics of adjusting for the calendar effect in January, when roughly half the month consists of public holidays. The difference in the number of working days (17 in 2025 and 15 in the current year) has a significant impact. In addition, January estimates by non-government experts were influenced by Rosstat’s data on strong industrial growth in December of the previous year. While CMASF accepted these figures, the Development Centre did not see sufficient grounds for them.

In this context, the February estimates were of particular interest, as they could have clarified the picture, but this did not occur. All three centres reported broadly similar industrial growth in February relative to January. However, the Development Centre excludes military-related sectors, whereas CMASF’s estimate of industrial dynamics, excluding the defence-industrial complex, shows a decline. CMASF experts argue that the discrepancies can be explained by differences in the statistical methods used to smooth seasonal factors. It remains to be seen whether these divergences will narrow in the coming months.

Among sectoral developments at the start of the year, the acceleration of the decline in output in civilian manufacturing stands out, particularly in segments linked to investment demand. The contraction continues in the production of most key construction materials, especially building materials (down by 1.4–2.8 per cent per month). Output in ferrous metallurgy is also declining, albeit at a slightly slower pace (-1.1 per cent per month). The production of machinery and equipment continues to decline rapidly, falling in February to 75 per cent of the average monthly level in 2024. The automotive industry, which showed a recovery in growth in December–January, returned to decline in February.

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The Ministry of Economic Development downgrades forecasts as construction declines sharply

Rosstat’s summary of economic performance for the first two months of the year offers little ground for optimism in the Kremlin. Many indicators show a noticeable deterioration, prompting the Ministry of Economic Development to revise its forecast for overall GDP dynamics this year downwards. The updated forecast is expected by the end of April, at the same time that the Central Bank updates its own projections.

The most striking development is the dramatic contraction in construction, down 15 per cent from the beginning of last year. We previously noted the sharp divergence last year between the rapid decline in production of construction materials and the continued growth in construction activity. This lag now appears to have been exhausted. Moreover, given the ongoing collapse in the production of basic construction materials, it is possible to project that the decline in construction will continue throughout the year.

The completion of new housing fell by 30 per cent, with almost all of the decline concentrated in individual housing construction, which dropped by nearly 40 per cent.

On the one hand, this suggests that the industrial construction sector is holding up relatively well. On the other hand, the sharp contraction in individual housing construction indicates that household economic expectations have become less optimistic.

What else do we monitor?

• The Russian government has introduced a ban on petrol exports, to be in force from 1 April to 31 July. Preparations for this decision became known about a week before Ukrainian strikes on Russian ports in Ust-Luga and Primorsk. The damage to these ports temporarily halted exports of petroleum products produced by four refineries in European Russia. This will force them to reduce oil processing volumes and, consequently, petrol production.
  
  As the sowing season is currently underway in Russia, petrol demand has objectively increased, which has been reflected in retail prices rising faster than inflation. In addition, the risk of further Ukrainian strikes on oil processing and export infrastructure remains. In effect, these factors have converged, leaving the export ban as the only instrument available to the authorities.
  
  While this measure allows for short-term stabilisation of retail petrol prices, it negatively affects oil companies’ long-term incentives to invest in refining. The export ban reduces company profits and the efficiency of investment in refinery modernisation, preventing the creation of a sufficient ‘buffer’ in petrol production.

• Rising household incomes and the sharp appreciation of the rouble have shifted Russian demand towards outbound tourism, affecting the dynamics of domestic and international air travel. In 2025, the total number of air passengers in Russia exceeded 105 million (up 1.4 per cent compared to 2024). At the same time, the number of passengers on domestic routes fell by 4 per cent, while international traffic grew by 11 per cent. Almost 93 per cent of the increase in international passenger traffic, which is significantly more profitable, was captured by foreign airlines. They were able to expand capacity quickly where intergovernmental agreements permitted this. Russian airlines are ceding this profitable market, as they are unable to purchase new aircraft, while their existing fleets are gradually shrinking as engine lifespans are exhausted.

• The Russian company Bureau 1440 has launched 16 satellites into orbit, intended as the first element of a low Earth orbit communications constellation. Since late 2020, Bureau 1440 has been developing an analogue of the Starlink system, named ‘Rassvet’. The satellites are built in the company’s own factory. They are equipped with a communications system based on 5G NTN architecture, an updated power system, next-generation inter-satellite laser communication terminals, and plasma propulsion units.
  
  Test satellites, which allowed key technologies to be verified, were launched in summer 2023 and spring 2024. Commercial operation of the broadband satellite service is expected to begin in 2027, when 250 satellites will have been deployed. The company plans to increase the constellation to 730 satellites by 2030 and to more than 900 by 2035. The target user base is estimated at 1.5–2 million users in Russia and up to 12 million in other countries.

• Transport Minister Andrey Nikitin stated that 183 kilometres of federal highway will be built or reconstructed by the end of this year. In 2019–2025, construction and reconstruction averaged 295 kilometres per year. The total length of federal highways in Russia is 66.4 thousand kilometres.

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  Share Behind the Iron Curtain

The US and Israeli military operation against Iran, which has escalated into a large-scale conflict in the Middle East, brings Russia short-term economic and political dividends and raises its status in global politics. Against the backdrop of a crisis that has exposed vulnerabilities in the global economy, the country’s geographical position and resource base take on particular importance. The Kremlin will attempt to use this situation to re-establish itself in the great game. However, if a diplomatic resolution of the crisis is delayed, the leading economies may slide into recession, which would deal a blow to the Russian economy.

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A short war and economic dividends

The Kremlin considers the most realistic and advantageous scenario to be one in which the US/Israeli war against Iran lasts no more than two months. This timeframe would bring Russia maximum political and economic dividends, while not significantly affecting its position in the region.

The economic benefits of a short-term conflict are primarily linked to rising global hydrocarbon prices. Oil prices on global markets are rising rapidly, while the closure of the Strait of Hormuz is increasing demand for Russian oil. Before the war in Iran, Russian oil was sold at a significant discount to global prices (the average price in February was $44.6 per barrel). That discount has now almost disappeared, and at times, Russian oil is sold at a higher price than Middle Eastern oil. An increase of $10 per barrel in the price of export oil brings the Russian budget $1.1–1.2 billion per month. However, due to the specifics of Russia’s tax system, these additional revenues will begin to enter the budget only at the end of April.

A significant positive effect will appear only if high oil prices persist for several months. This would allow the Kremlin to receive additional revenues of around 1.5 per cent of GDP by the end of the year and to bring the budget deficit under control, which increased rapidly in the first two months of the year.

The energy crisis may also lead to a softening of sanctions against Russia. The United States has already lifted sanctions imposed on India for purchasing Russian oil and has issued a 30-day permit allowing the delivery and sale of Russian oil at sea. Hungary has proposed that the European Commission lift the ban on imports of Russian oil and gas. If the blockade of the Strait of Hormuz continues, other countries may follow.

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Consequences for the war in Ukraine

The more problems the United States and its allies face in other regions, the more intense the competition for the same military resources becomes, including between Ukraine and Washington’s other partners. Ukraine, countries in the Middle East, and US allies in Asia are in practice competing for a limited pool of air defence systems, artillery, and ammunition. This is already visible in practice. The United States has begun redeploying military resources from South Korea, including artillery batteries and air defence systems, for deployment in countries that are facing attacks by Iranian drones.

If the active phase of the war in the Persian Gulf continues, it may, for example, lead to a reduction in the supply of Patriot missile. These remain the only truly effective tool available to the Ukrainian military for intercepting Russian ballistic missiles. Over four years of war, Ukraine has received around 600 missiles for the Patriot system. In the first five days of the operation against Iran, the United States used more than 800.

From the Kremlin’s perspective, the current situation demonstrates the severe limitations of the Western coalition’s military capabilities and resources. It is also indicative that during the four years of war in Ukraine, the defence industries of NATO countries have still not created and deployed mass production of inexpensive counter-drone systems.

A further weakening of the Western coalition, resulting from conflicts between the United States and Europe, within the EU, and within individual countries, would also be an important advantage for Russia. Chaos and instability work in Russia’s favour, providing broad opportunities for tactical disruptive actions.

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The great game

Over the past two decades, the Kremlin has consistently invested in developing relations with countries in the Middle East and the Persian Gulf1. As a result, Moscow has built working – and in some cases partner – relations both with Iran and Syria, and with Israel and the key Arab monarchies, while attempting not to tie itself closely to any single regional centre of power.

In the current crisis, this strategy has become particularly visible. Despite the proclaimed ‘strategic partnership’ with Iran, Russia joined a UN Security Council resolution condemning Iranian military strikes against neighbouring countries and did not provide significant military assistance to Tehran. Instead, it limited itself to verbal condemnation of US-Israeli aggression and delivery of humanitarian aid.

However, this restraint allows the Kremlin to claim the role of a potential mediator in a diplomatic resolution of the conflict. Russia maintains channels of communication with both Iran and its regional opponents and with Washington. This makes it one of the few actors potentially acceptable to all sides, albeit with different levels of trust and expectations. It is indicative that President Trump considered it necessary to call Vladimir Putin personally. This signal underlines that Washington recognises Russia’s influence in the region.

Against the background of the conflict, Moscow will attempt to extract additional benefits by promoting projects for alternative logistics corridors for global trade.

The blockade of the Strait of Hormuz, through which around 20 per cent of global seaborne oil supplies pass, as well as significant volumes of LNG and fertilisers, has already disrupted established trade chains and forced many countries to search for stable alternative routes. The Kremlin is attempting to exploit this situation by promoting the Northern Sea Route (NSR) as an alternative corridor between Europe and Asia and the International North-South Transport Corridor (INSTC) as another alternative route for trade between Europe, the Middle East, and Asia. At the same time, Russia expects that prolonged instability in the Persian Gulf will prompt Beijing to resume discussions on the long-delayed Power of Siberia‑2 gas pipeline project, which would allow Moscow to strengthen its eastern energy exports while bypassing traditional routes.

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The price of prolonged instability

It is in Russia’s interest that the active phase of the conflict in the Middle East does not last too long. A prolonged war carries more long-term risks for Moscow than benefits.

Financial gains from rising oil prices accrue only when the increase is moderate, as Russian oil companies’ ability to rapidly expand production is very limited. If oil prices exceed $120 per barrel, a recession in Europe and a halt to economic growth in the United States can be expected. This would reduce demand for all types of raw materials and would deal a serious blow to the Russian economy.

Prolonged instability in the region would also affect Russia’s strategic interests, above all, projects to develop transport corridors, construct nuclear power plants, and build other industrial facilities through which the Kremlin seeks to strengthen its position.

A deterioration in Iran’s financial position and the general weakening of the ayatollah regime may, in the long term, force the Kremlin to make a choice. It will either have to increase military and economic support for Tehran, effectively on a charitable basis, to avoid losing influence, or continue to distance itself from Iran, which, for some time, may become ‘untouchable’. In that case, Moscow would gradually have to accept reputational costs in the view of part of the Global South and a reduction of its presence in the region.

In addition, it is evident to Moscow that Ukraine also receives certain benefits from the war in the Gulf. Demand for experience in the use of drones, for the transfer of counter-drone technologies, and for the supply or joint production of systems for protection against drone attacks may provide Ukraine not only with significant commercial and political opportunities in the future, but also with the possibility of expanding its arsenal in the short term.

Finally, the inability of the White House to quickly find a diplomatic exit and the transformation of the conflict into a prolonged confrontation, in which Iran continues attacks on American bases and neighbouring countries, risk drawing the United States deeply into this theatre for a long time and making it a priority direction of foreign and defence policy. This would, on the one hand, reduce Washington’s attention to the Ukrainian direction and prolong the negotiation process. On the other hand, it would narrow Moscow’s room for manoeuvre if it were to use US pressure on Kyiv as a negotiating lever.

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Moscow seeks to preserve its position of equal distance from all countries in the Middle East, balancing between the parties and avoiding direct confrontation with the United States. The Kremlin aims, by every means, to preserve opportunities for continued dialogue with the administration of Donald Trump and therefore has no interest in obstructing the US military operation in Iran. In any case, Russia’s capacity for such confrontation is extremely limited. Instead, a prolonged crisis in the Middle East offers obvious advantages: it diverts Western attention away from Ukraine while rising oil prices support the Russian budget, even if it is still too early to assess how significant this benefit will be.

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Limited partnership

A week after the start of the military operation by the United States and Israel against Iran, it is clear that Moscow has only the capacity and the willingness to provide statements of support to Tehran.

Russia condemned the US and Israeli strikes and the killing of Iran’s supreme leader. It also issued statements in support of Tehran at the International Atomic Energy Agency (IAEA) and in the United Nations Security Council. At the same time, Russia has taken no steps that could alter the balance of forces or increase Iran’s security.

‘The war that is under way is not our war. We must do what corresponds to our interests. We must secure benefits for ourselves where this is possible, however cynical that may sound. Are we capable of stopping this war? No, we are not. The one who started it can stop it.’

Dmitry Peskov
Vladimir Putin’s Press Secretary

The key constraint for Moscow remains a shortage of resources – the war against Ukraine absorbs the bulk of Russia’s military capabilities. In addition, Russia has no military infrastructure or permanent bases in Iran, which significantly limits its ability to intervene in the conflict directly.

Despite the signing of a comprehensive strategic partnership agreement between Russia and Iran early last year – albeit without a commitment to mutual defence – military cooperation between the two remains limited. After the 12-day war, Russia did not supply Iran with any air defence systems, and the country today remains largely defenceless against air strikes by the United States and Israel. Of the full range of discussed deals, only a few have clearly resulted in actual deliveries, according to open sources. These include primarily Yak-130 subsonic combat trainer aircraft, a small batch of Mi-28 attack helicopters, and probably a limited number of armoured vehicles and precision small arms.

Most projects of military-technical cooperation remain at the level of promises, memoranda, or medium-term plans. The contract for the supply of 48 Su-35 fighter aircraft to Iran has repeatedly appeared in media reports and analytical assessments, but there is no reliable information that even a single aircraft has actually been transferred. Similarly, a deal for the supply of several hundred launchers for the Verba man-portable air defence system (MANPADS), along with thousands of missiles for them, is widely regarded as agreed. Yet the schedule for their delivery runs through the end of the decade, while reports of early ‘advance’ deliveries remain based solely on anonymous sources.

Russia is no longer largely dependent on Iranian military assistance, as it was in the early stages of the war. At the beginning of the conflict, Moscow relied to a significant extent on Iranian Shahed-136 unmanned aerial vehicles. By mid-2023, however, Russia had established its own drone production based on this design, which was designated Geran‑2. By the end of 2024, Russia had significantly modernised them by installing turbojet engines, which substantially increased their flight speed (Geran‑3), and began producing thousands of these drones each month.

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However, Moscow’s restraint is determined not only by limited capabilities. More active support for Tehran would mean openly joining the camp of US adversaries and could undermine the dialogue with Washington that is highly important for Moscow in the context of a settlement of the war in Ukraine and the possible easing of sanctions. To some extent, there is symmetry in the way the US approaches the war in Ukraine and Russia’s response to the war in Iran. Both want to avoid a serious deterioration in bilateral relations.

In the case of Moscow, this approach weakens Russia’s image as a state capable of protecting its partners and acting as an alternative centre of power for countries of the Global South. Yet Russian policymakers have no alternative.

A crisis beneficial to Moscow?

The Kremlin views a prolonged conflict in the Middle East rather positively since it diverts Western attention away from Ukraine and increases global oil prices and demand for Russian hydrocarbons. President Trump has been forced to temporarily accept the continuation of India’s purchases of Russian oil, although in August last year he imposed secondary sanctions on New Delhi over such supplies and as recently as a month ago demanded they be completely halted.

On the one hand, the new crisis reduces the focus of Western countries on the Ukrainian theatre. Media and political attention is partially shifting to the Middle East, which complicates efforts to maintain the previous level of mobilisation around Ukraine. Some military resources – air defence systems and ammunition – may also be redistributed to the Middle Eastern theatre.

The rise in oil and, above all, gas prices linked to the suspension of hydrocarbon exports through the Strait of Hormuz is set to hit European economies hardest. A deterioration in the economic situation will leave European leaders with fewer resources and possibly less willingness to support Ukraine. In addition, Trump’s foreign policy has not so far helped ease divisions within the Western coalition. Taken together, these factors clearly work to the Kremlin’s advantage.

At the same time, Moscow cannot ignore the risks associated with a prolonged war. If the United States becomes deeply involved in the Middle Eastern conflict for a long period, Trump may lose interest in the Ukrainian issue. In that case, Moscow would lose an important instrument of pressure on Kyiv.

Moreover, Trump’s policy is becoming increasingly unpredictable, including for the Kremlin. It is difficult to anticipate what the next step of the US president will be if the objectives of his administration in Iran, whatever they may be, are not achieved, and the conflict does not come to an end.

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Oil bonus

In Moscow, there is a clear understanding that a prolonged conflict in the Middle East, even if its intensity decreases, will lead to higher oil prices and thereby support the Russian budget, which has evidently faced serious revenue problems in recent months.

The new war has already affected the global energy market. On March 6^th, Brent crude exceeded $92 per barrel, while a week earlier it was around $20 lower. The main reason has been Iran’s de facto closure of shipping through the Strait of Hormuz – a key route for oil exports from the Gulf states.

The financial effect for Russia depends primarily on the duration of the crisis. In the short term (up to six months), Russian companies will not be able to significantly increase oil production and exports. In this scenario, Russian budget revenues from oil will depend on global oil prices and the discount applied to Russian crude.

During the three months preceding the military operation against Iran, Russian oil was sold at around $42 per barrel, with the discount relative to Brent exceeding 35 per cent. This resulted in the loss of more than one-third of the planned oil revenues in the budget. Recent information suggests that not only has the discount on Russian oil disappeared, but that it has begun to trade at a significant premium relative to Middle Eastern crude. However, due to the rules governing the calculation and payment of taxes, the Russian budget will only see these additional revenues in April.

If the Strait of Hormuz is closed for a few weeks, the impact of higher oil prices on Russian public finances will be limited. However, assuming the conflict drags on, and higher prices persist for several months, then even at a price of $60 per barrel for Russian oil, the additional budget revenues would amount to around 1.5 per cent of GDP on an annualised basis.

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• The Bank of Russia’s key rate has been cut again, but monetary policy remains extremely tight.

• The war economy continues to grow, while the civilian economy is stagnating.

• Russia’s Minister of Economic Development does not expect the economy to grow before next year.

• The successful implementation of the 2025 budget does not remove risks for 2026.

• The fiscal rule implemented by the Bank of Russia deprives the budget of revenues and reserves.

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Key rate

The Bank of Russia's Board of Directors has decided to cut the key rate from 16 per cent to 15.5 per cent.

The decision, taken at the meeting on 13 February 2026, was expected and understandable. Although macroeconomic data is sending mixed signals, inflationary pressure on the economy is easing. Moreover, the monetary authorities have stated that they are prepared to lower the rate further at the end of March.

Despite the rate cut, monetary policy remains tight and could be substantially eased if necessary. According to the Bank of Russia’s standards, the neutral rate today could be around 10–11 per cent. To prevent a potential acceleration of inflation, it would be sufficient for the Bank of Russia to keep the rate unchanged.

Economic growth

For three quarters of last year, the Russian economy stagnated, but the traditional December spurt strengthened the authorities’ optimism.

GDP growth of one per cent in 2025 was driven by manufacturing and the public sector. The combined contribution of all other sectors to GDP growth was close to zero.

In turn, manufacturing growth of 1.3 per cent was driven by industries serving the armed forces. Other branches of manufacturing, taken together, recorded a decline.

This dynamic should not be surprising. After the strong fiscal impulse of 2022 and the first half of 2023, inflation in Russia began to rise rapidly. To contain it, the Bank of Russia – having delayed the decision to raise interest rates – had to increase them excessively in the second half of 2024. As a result, alongside the two factors that had already been restraining economic growth – sanctions and the reallocation of resources in favour of the war economy – interest rate pressure was added. This has led to the suppression of economic activity across many sectors.

We may say, Russia is currently going through the final phase of the economic cycle: downturn → fiscal stimulus → inflation → interest rate rises → downturn → disinflation → interest rate cuts → recovery and growth.

A question that concerns many, but to which nobody has an answer, is: how quickly will the Bank of Russia bring its rate down to the neutral level, and how quickly will the non-military part of the Russian economy react?

The Minister of Economic Development, Maksim Reshetnikov, believes that ‘a recovery in growth rates will take place at best at the end of 2026, but most likely in 2027’.

While we broadly agree with the minister’s forecast, it is worth adding that new factors may affect the economy’s dynamics over the course of the year. Above all, these include developments regarding oil production and exports, including price changes, as well as the state of the federal budget.

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Budget

The 2025 federal budget was implemented without the traditional December surge in expenditures and with a significant increase in the deficit. Despite the increase in the VAT rate, budget implementation in 2026 will not be easier.

For the federal budget, the past year was, on the one hand, difficult. The sharp rouble’s appreciation at the beginning of the year led to a substantial shortfall in oil and gas revenues and in import-related revenues (VAT, excises, and customs duties), totalling 2.7 trillion roubles (≈$32 billion, or 1.25% of GDP)1.

On the other hand, the increase in corporate profit tax and personal income tax rates from the beginning of the year, combined with the redistribution of receipts from these taxes (1.7 trillion roubles, or approximately $20 billion) from the regional to the federal level, significantly eased the pressure on the federal budget.

At the end of last year, the Ministry of Finance managed to restrain the traditional December spending surge, which was significantly smaller than in previous years. Had the dynamics of past years persisted, expenditures in December 2025 would have been two trillion roubles (≈$24 billion) higher.

By limiting spending, the Ministry of Finance kept the deficit within the parameters set by the budget law adjusted in the last spring. It amounted to 2.6 per cent of GDP and was almost 4.5 trillion roubles (≈$54 billion) higher than the target approved in autumn 2024 (0.5 per cent of GDP).

Continuing a restrained fiscal policy, the Russian authorities plan to reduce the federal budget deficit this year by two trillion roubles (0.85 per cent of GDP), mainly through an increase in the VAT rate. This measure is expected to generate 1.75 trillion roubles (≈$21 billion) in additional revenue.

However, as was the case a year earlier, the Ministry of Finance’s main problem is linked to hydrocarbon export revenues. In the first two months of 2026, the rouble price of Russian export oil2 was 42 per cent below the level assumed in budget calculations, resulting in a shortfall of 520 billion roubles (≈$6 billion). If this price level persists throughout the year, budget losses will amount to 3.6 trillion roubles (≈$43 billion), doubling the planned deficit.

In that case, under the law, the increase in the deficit must be financed by the National Wealth Fund (NWF) – the country’s fiscal reserve. As of 1 February 2026, its liquid share d amounted to 4.2 trillion roubles (approximately $50 billion, 1.9% of GDP). This means that, with current oil prices and the rouble exchange rate by the end of the year, the Russian government may have no more than a quarter of that amount left3.

An alternative source of deficit financing is domestic borrowing. However, lower interest rates will reduce investors’ appetite for government bonds, and the Ministry of Finance will require significant support from the Bank of Russia, which has become a routine practice. In December 2024, the Bank of Russia lent one trillion roubles to state-controlled banks to purchase state bonds; in November 2025, it lent 800 billion.

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Rouble

Arrangements between the Ministry of Finance and the Bank of Russia regarding fiscal policy have led to an interesting paradox.

The appreciation of the rouble reduces budget revenues from oil and gas, forcing the Ministry of Finance to sell some of the National Wealth Fund’s gold and yuan holdings. The buyer of these assets is the Bank of Russia, which then sells foreign currency assets of equivalent value on the domestic market (so-called ‘mirror operations’), thereby strengthening the rouble.

The Bank of Russia is not obliged to sell foreign currency assets after the Ministry of Finance has used part of the NWF. It began conducting such operations on its own initiative in March 2020 and can stop them at any moment – as it did in 2022. At that time, following the introduction of sanctions against the Russian financial system, Russian companies had to rearrange their international settlement channels. The authorities, in turn, introduced numerous restrictions that effectively turned the rouble into a partially convertible currency.

From the beginning of 2023, the Bank of Russia resumed ‘mirror operations’. However, their volumes were volatile and did not appear to have a significant impact on the exchange rate. Since the end of 2024, the scale of these operations has been increasing. This has been linked to both the Ministry of Finance’s growing need to finance the budget deficit and the Bank of Russia’s decision to compensate for previously postponed sales.

Bank of Russia foreign currency sales (USD billion per month) and the average monthly USD exchange rate (rouble per USD), 2023–2026

Whereas in 2023 and 2024 the Bank of Russia’s average monthly foreign currency sales amounted to $834 million and $1.32 billion, respectively, in 2025 they increased to $2.75 billion, and in January–February of the current year they reached $3.6 billion per month.

In 2024, the Bank of Russia’s foreign currency sales accounted for just over 12 per cent of the export revenue by the 29 largest Russian exporters; in 2025, this figure rose to 34 per cent.

Such an intensive supply of foreign currency by the Bank of Russia in a market where demand was declining – the average monthly volume of corporate foreign currency purchases on the open market fell by 17 per cent in 2025 compared with 2024 – became one of the main factors behind the rouble’s appreciation and the maintenance of its exchange rate at the current level. If the Bank of Russia does not change its policy, which implies monthly foreign currency sales of more than $4 billion at the current exchange rate, then, given seasonally low demand for foreign currency in the first half of the year, further appreciation of the rouble can be expected and, consequently, an increase in the likelihood of budget revenue shortfalls.

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Summary

• Four years into the war, sanctions have not affected Russian oil production. Output in 2025 was only 2.5 per cent below 2021 levels, largely in line with OPEC+ quotas.

• Russia continues to export roughly three-quarters of its oil production. Sanctions have reshaped logistics, counterparties, and price discounts, but have not substantially reduced export volumes.

• Lower export and fiscal oil revenues are primarily driven by global price declines and rouble appreciation. In May–December 2025, oil-related budget revenues were 35 per cent lower year on year, broadly in line with a 32 per cent decline in the rouble price of export oil.

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Russia’s war against Ukraine is now almost four years old. During this period, the US, the EU, and their partners have imposed extensive restrictions on Russian oil and petroleum products: import bans, a price cap, shipping and insurance measures, and, most recently, the addition of major firms to the US Treasury Department’s list of ‘Specially Designated Nationals’. The debate over the effectiveness of the sanctions remains heated because many analyses focus on short-term snapshots rather than considering their impact over a multi-year time frame.

Four years is enough time to take a broader view, rather than merely surveying recent developments. Therefore, I will try to answer three simple questions:

1. Is oil production in Russia rising or falling?

2. Are Russian companies’ export revenues from the sale of oil and petroleum products rising or falling?

3. Why is fiscal revenue from oil and petroleum products falling?

Production

• Oil production in Russia in 2025 fell by 8.8 per cent from its 2019 peak.

• Sanctions affect where, how, and at what price Russia sells, but not how much Russia sells.

* * *

In the last pre-war year of 2021, oil production in Russia (including gas condensate) amounted to 525 million tonnes (10.54 million barrels per day). In 2025, this figure was 512 million tonnes (10.28 mbd). In other words, in four years, oil production in Russia fell by 2.5 per cent. It would seem that this answers the question about the impact of sanctions. If sanctions limited the sale and, accordingly, the production of oil, we would expect persistent failure to meet production quotas, abrupt declines in production around the time when logistical, insurance, or payment-related problems arose, an increasing number of shut-in wells, or clear evidence in regional economic statistics.

At the end of 2016, Russia and nine other oil-producing countries joined the twelve OPEC countries to form the OPEC+ coalition, which makes coordinated decisions on changes in oil production by member countries. In total, the 22 OPEC+ member countries account for more than 40 per cent of global oil production, and since spring 2020, the coalition’s policy of limiting oil production has been an important factor in stabilising global oil prices.1

Russia’s oil production quota in December 2021 was 11 mbd, and in January 2022, it fell to 10.5 mbd. Subsequently, it was reduced five more times, reaching a low of 8.98 mbd from May 2024 to March 2025. From April to December 2025, Russia’s quota slowly increased and currently stands at 9.57 mbd; oil production (excluding condensate) last year was 9.13–9.14 mbd.2

If we overlay the volume of Russian quotas within OPEC+ and the volume of oil production in Russia (excluding gas condensate) on a single graph, we can see that these two indicators have moved in step. Throughout 2022–2023, oil production in Russia slightly exceeded the established quotas,3 and in 2024, it corresponded to them with minimal deviations. The close relationship between quotas and output suggests that most of the observed decline is consistent with OPEC+ policy rather than a sanctions-driven production collapse. This does not rule out the possibility that sanctions have affected production costs or the feasibility of increasing production beyond quota levels. The data in the graph do not show significant changes in production volumes after the introduction of the latest sanctions.

However, given the significant decline in the price of Russian exported oil reported by the Ministry of Economic Development in December and January, the conclusion that sanctions do not affect production volumes is no longer as clear-cut following the introduction of the latest US sanctions (against Rosneft and Lukoil).

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Exports

• Russia exports about three-quarters of its oil production (including exports of petroleum products).

• Sanctions did not materially reduce Russian production/export volumes; their main effect was to increase transaction costs and discounts, i.e., the price disparity between Russian and non-Russian oil, and to reshape logistics and counterparties.

• The introduction of Western sanctions had no impact on Russian export volumes, except for the cessation of oil supplies via pipelines to Poland and Germany.

* * *

Russia does not have strategic oil reserves or significant oil storage facilities; in 2011–2025, slightly less than half of the oil produced (47–48 per cent) was exported, with the remainder sent for processing. Of the petroleum products obtained after refining, slightly more than half (52 per cent in 2011–2021) was exported. Overall, including petroleum products, Russia exported slightly less than three-quarters of its oil production. The sanctions imposed by the Western coalition after the Russian army’s invasion of Ukraine had no significant impact on these proportions.

Data on exports of oil and petroleum products from Russia shows that their decline during the war does not exceed the effect of the reduction in oil production under OPEC+ rules, and comparison of this data with the dates of the adoption of sanctions decisions does not indicate that these decisions had a visible impact on export volumes.4

Thus, the available data do not provide evidence that Western sanctions have affected Russian oil production or oil export volumes, which is not surprising. Given that global oil production is 103–104 mbd, more than half of that is consumed within the countries that produce it. The international oil trade amounts to 49–50 mbd, and given Russia’s prominence in seaborne and pipeline markets, replacing 6.5–7 mbd quickly would likely require higher prices or sustained spare capacity elsewhere.5

The stability of oil production and refining volumes plays a much greater role in the Russian economy than financial indicators, as it affects the performance of related sectors and employment levels. At the same time, financial indicators related to the oil industry have a significant impact on macroeconomic indicators: the balance of payments, fiscal revenue, the rouble exchange rate, and, consequently, inflation. One of the main goals of imposing oil-related sanctions was to reduce the export volumes, export revenues, and fiscal revenues. However, as the analysis shows, the West has not achieved significant success in this area.6

Export revenue is simply volume multiplied by price, but the latter is almost never factored in when publishing rapid assessments of the decline in Russia’s export revenues from oil and oil products. Meanwhile, global oil prices, which skyrocketed to $122.7/bbl in June 20227, have since begun a steady decline, falling to $62.5/bbl in December 2025. It is clear that even without the impact of Western sanctions, including the price cap, the decline in global oil prices would have led to a decrease in revenue from Russian oil exports. If we remove the price change factor, for example, by comparing April–June 2021 with June–August 2025, when the average price of Urals oil was at the same level ($69/barrel), we can see that the average daily revenue from Russian oil and oil product exports remained the same (around $430 million).

Russia’s oil and petroleum product export revenues (USD million per day, monthly) and oil prices (USD per barrel, monthly average)

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Russian oil revenues and the budget

• The Russian budget’s dependence on oil has decreased sharply over the past 10 years: the share of revenues derived from hydrocarbon production and exports fell from 50 per cent in the mid-2010s to 22 per cent in 2025.

• Discounts on Russian oil due to sanctions are highly volatile and may sometimes have the opposite effect on revenue dynamics in the short term, increasing the selling price of Russian oil.

• Tax receipts fell mostly due to prices and the foreign exchange rate, exacerbated by Russia’s tax-price formula.

• In 2025–2026, Russia raised its main tax rates (VAT, corporate income tax, and personal income tax), which will offset a significant portion of the decline in oil revenues.

* * *

In addition to oil and petroleum products being Russia’s largest export item, accounting for about 40 per cent of total exports, taxation of the oil industry generates a significant portion of fiscal revenue. Although the share of fiscal revenue that comes from the oil industry has halved compared to the first half of the 2010s, it exceeded 25 per cent in 2025.8

Tax rates on oil production and exports in Russia are determined based on the price of exported oil, which is calculated by the Ministry of Economic Development using a special algorithm. The ministry does not use actual data from payment documents, but rather information published by specialised agencies. In addition, oil companies pay taxes in Russian roubles using the Bank of Russia’s exchange rate. Thus, Russian fiscal revenue depends on the rouble price of Russian export oil.

In November 2024, the US dollar exchange rate was almost 108 roubles. By mid-April 2025, the dollar had fallen below 83 roubles, and since then it has traded in the 77-83 rouble range, suggesting further weakness. The strengthening of the rouble, exacerbated by the decline in world oil prices, led to a fall in fiscal revenue, which in May–December 2025 was 35 per cent lower than in the same period in 2024. Given that the average rouble price of Russian export oil fell by 32 per cent during this period, it is hard to attribute the decline in Russian fiscal oil revenues solely to sanctions.

Of course, sanctions have had and continue to have a significant impact on the price of Russian export oil, creating a discount to Brent oil, which has fluctuated widely since the war began. At the same time, analysis shows that the discount reached its maximum value during the period of greatest uncertainty regarding the functioning of European sanctions: between December 2022, when the price cap and ban on Russian oil imports to Europe came into effect, and March 2023, when Russian companies managed to rebuild alternative logistics and payment mechanisms. By the summer of 2024, the sanctions had become normalised, leading to a drop in the discount to around 10 per cent, where it remained until November 2025, when US sanctions against Rosneft and Lukoil were announced.

In November–December 2025, the discount began to grow rapidly, exceeding 15 per cent, but the effect of this, and how long it will remain noticeable, will be reflected in the 2026 statistics.

However, the decline in oil revenues is a major problem for the Russian authorities, regardless of the cause. The strengthening of the rouble in the first quarter of 2025 led to a decline in oil revenues equal to 0.6% of GDP over the following three quarters. The budget lost another 0.6 per cent of GDP due to an overestimated forecast of oil export prices.

Tax price of oil (RUB per barrel) and oil budget revenues (RUB billion per day), 2021–2025, monthly

When planning the budget for 2026, the Kremlin had three options:

• Maintain a high budget deficit, financed by domestic borrowing. The negative effect of such a policy is well understood: rising interest rates, reduced lending to the real economy, and increased stagnation.

• Weaken the rouble, which can be achieved by liberalising capital outflows and/or by ending the Bank of Russia’s ‘mirror’ operations on the domestic currency market.9 The side effect would be accelerated inflation and the inevitable tightening of the Bank of Russia’s monetary policy.

• Raise taxes, which would curb consumer spending and have a deflationary effect.

Putin consistently supports his economic advisors, who demand strict control over the macroeconomic situation. He has therefore chosen the third option: an increase in the VAT rate from 20 per cent to 22 per cent starting 1 January 2026 and the introduction of VAT for small businesses, which should increase fiscal revenue by 0.8 per cent of GDP.

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Last weekend, I was in Munich with my colleagues from the NEST Centre, presenting our report on Russia-China relations, “Marriage Without Love” as a side event of the MSC-2026. I was in charge of the economic chapter and had a limited ability to edit the rest of the paper. For those who are interested, the full report and the economic chapter as a standalone text.

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In Russian official and pro-government discourse, the Munich Security Conference is presented as evidence of a weak and divided Europe that depends on the United States and is incapable of an independent strategic role. Against this background, criticism of Germany and the United Kingdom has intensified, while rhetoric towards the United States has become more restrained in the context of negotiations on Ukraine.

‘Munich circus’

The annual Munich Security Conference took place on 13–15 February. A Russian delegation did not participate: following the full-scale invasion of Ukraine, the organisers have not sent invitations to representatives of the Russian authorities.

Until 2022, Moscow regarded the conference as an important international platform for direct dialogue with Western politicians and for the public articulation of its position. In 2007, Vladimir Putin used the conference to denounce the US-led ‘unipolar’ world in an angry speech. Foreign Minister Sergei Lavrov and other officials also spoke in Munich on other occasions. After participation ceased, the rhetoric of the Russian authorities changed. In official comments, the forum is now described as politicised and as having no influence on Russia’s foreign policy course.

In state and Kremlin-aligned media, this year’s Munich conference was referred to as a ‘circus’, an ‘anti-Russian sabbath’, and a venue for adopting Russophobic but, in general, weak decisions.

This position rests on a stable perception of Europe in Moscow: without US support and NATO infrastructure, European states are not regarded as independent actors in international relations. From Moscow’s perspective, Europeans’ unwillingness to invest systematically in defence, their lack of readiness to wage modern warfare with the mass use of drones, and their continuing dependence on Washington confirm their strategic vulnerability.

At the same time, Chancellor Friedrich Merz’s statement of his intention to make the Bundeswehr the strongest army in Europe is interpreted by Russian officials as a ‘revival of Nazism’. Merz himself is described as a ‘demon’, while European Commission President Ursula von der Leyen’s call to change the approach to Europe’s defence capability is presented as a step towards a ‘Fourth Reich’.

The harsh rhetoric towards Germany contrasts with the coverage of other European leaders. Emmanuel Macron, despite attempts at mediation and calls for dialogue with Moscow after 2022, is more often mentioned in Russian media in an ironic tone. Keir Starmer is also not perceived as a significant centre of power – his domestic political position is assessed as unstable. Despite sharp criticism, Merz’s figure in Russian discourse is simultaneously perceived as potentially significant for a future dialogue on the possible restoration of ties with Europe.

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London instead of Washington

In the context of the Munich conference, another shift in Russian discourse has become visible. Whereas previously the United States was described as the main opponent as the leader of the ‘collective West’, this role is now increasingly attributed to the United Kingdom. In this vein, the pro-government political analyst Oleg Yanovsky argues that London ‘claims the role of central coordinator’, forming a coalition of countries oriented towards deepening Europe’s military mobilisation. This shift fits into a broader concept of anti-British confrontation that Moscow has pursued in recent years.

Of course, the United Kingdom had been regarded by Moscow as a hostile state before this. However, over recent months, it has acquired the status of principal opponent against the backdrop of a softening of rhetoric towards the United States after the start of Donald Trump’s second term. After his meeting with Vladimir Putin in Anchorage, public assessments of Washington became noticeably more cautious.

Changes have also appeared in public opinion. In 2022, 75 per cent of Russians held negative views of the United States. After the Anchorage summit in August 2025, the share of positive assessments exceeded negative ones for the first time: more than 40 per cent expressed a favourable attitude towards Americans. By the beginning of 2026, the indicators had stabilised. In January, 45 per cent of respondents viewed the United States negatively, 33 per cent positively, and 22 per cent found it difficult to answer.

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Against this background, Russian state media’s coverage of the United States’ role at the Munich conference was restrained. Attention focused on Washington’s distancing from Europe – in particular, on the cancellation of a meeting between Secretary of State Marco Rubio and European leaders to discuss the Ukrainian issue, which was interpreted as a ‘humiliation of the Europeans’. Russian media actively quoted a Politico source as saying that the United States ‘does not need weak allies’.

In summary, Russian discourse around the Munich conference reflects a redistribution of symbolic roles within the construction of the ‘collective West’. At the same time, despite its demonstrative downgrade in official commentary, the conference itself continues to be regarded in Moscow as an indicator of the mood and coordination of Western elites. In this sense, ‘Munich’ remains for the Russian leadership less a platform for dialogue than a marker of the degree of European consolidation and transatlantic ties – and, consequently, a factor influencing the Kremlin’s long-term calculations.

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Key takeaways

• Russia’s economy is stagnating, and a recovery in non-military sectors remains unlikely.

• Russia remains vulnerable to large budget deficits due to rising military expenditure and declining oil and gas revenues.

• The appreciation of the rouble and the sanctions regime have led to a drop of more than 25 per cent in oil and gas revenues and a decline in import tax receipts, which may continue to constrain the budget’s revenue base in 2026.

• A potential end to hostilities in Ukraine could increase recession risks in the short term by reducing output in defence-related industries and lowering household incomes.

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Inflation slowdown

The main achievement of the Russian government in 2025 was the slowdown in inflation from 9.5 per cent to below 6 per cent. This was the result of coordinated actions by the Ministry of Finance and the Bank of Russia (CBR).

For eleven months of 2025, the Ministry of Finance adhered to strict fiscal discipline, restraining expenditure1.¹ The increase in the federal budget deficit relative to projections made a year earlier was driven primarily by a decline in oil and gas revenues due to the rouble’s appreciation.

In addition, the Ministry of Finance took a highly unpopular decision to raise the VAT rate from 1 January 2026. This measure will increase budget revenues, reduce private demand, and exert an additional disinflationary effect.

For its part, the Bank of Russia maintained an extremely high key interest rate until June 2025. It then cut its rate five times, but the cumulative reduction from 21 per cent to 16 per cent resulted in a very modest easing of monetary policy.

Besides that, the sharp appreciation of the rouble in the first half of 2025 (from RUB 110/$1 at the end of November 2024 to below RUB 80/$1 by mid-May 2025), which was not incorporated into most forecasts, contributed to a slowdown in price growth for non-food goods and even to their deflation in April-June. In retrospect, the rouble’s appreciation should be partly attributed to earlier decisions taken in Moscow, Washington, and Brussels that significantly restricted capital outflows from Russia, thereby strengthening the rouble’s exchange rate. Yet, the exchange rate factor does not negate the role of macroeconomic policymakers.

Despite the steady downward trend in inflation in the second half of 2025, and the Bank of Russia’s promise to reach its 4% stated target by mid-2026 and maintain it for the rest of the year, there is little confidence in this scenario. On the one hand, uncertainty over fiscal policy persists: even if 2025 spending is restrained, the question of how potential future declines in oil and gas revenues would be offset remains open. On the other hand, debates at various levels increasingly reflect the view that the rouble is overvalued and that its devaluation, followed by renewed inflationary acceleration, is inevitable.

Households’ and businesses’ inflationary expectations, which in recent months have not only failed to decline but have even increased slightly, remain an additional source of risk. In this situation, the Bank of Russia’s assessment, issued after its December decision to cut the key rate, appears well-founded: pro-inflationary risks continue to outweigh disinflationary ones.

This, however, does not rule out further reductions in the key rate. The increase to 21 per cent in October 2024 was primarily aimed at suppressing inflationary expectations. A reduction of the Bank of Russia’s key rate to the range of 12–13 per cent at the current level of inflation can therefore be seen as a form of partial compensation for the inflation slowdown already achieved.

It is expected that, in early 2026, rate cuts will proceed with extreme caution and that the Bank of Russia’s forecasts will remain restrained, unlikely to dampen inflationary expectations or stimulate a recovery in business activity.

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The price of success

‘Both the Government and the Central Bank are now setting the task of somewhat cooling these growth rates [of inflation], and next year, I think, according to various estimates, we should be somewhere around 2–2.5 per cent.’ Vladimir Putin, December 19, 2024

Russia’s economy is stagnating. According to Rosstat, GDP in the first three quarters of 2025 did not exceed the level recorded in the fourth quarter of 2024.

‘As for one per cent growth this year, the rate of economic growth, this is a deliberate action on the part of the Government, the Central Bank, and the country’s leadership as a whole, linked to inflation targeting. And it should be noted that, overall, this task is being addressed successfully, because the goal was set to reduce inflation to at least six per cent.’ Vladimir Putin, December 20, 2025

The assessments of the Government and the Bank of Russia imply GDP growth of 1 per cent in 2025 compared with 2024. Achieving this would require growth to accelerate to 3.6 per cent year on year in the fourth quarter, which would significantly exceed the figures recorded in the second and third quarters (1.1 per cent and 0.4 per cent, respectively). Given the current state of the Russian economy, such a scenario appears unlikely, although the traditional year-end ‘acceleration’ cannot be entirely ruled out.

The causes of the economic slowdown in 2025 are systemic: an increased tax burden, cuts to non-military budget spending, and high interest rates, which have sharply reduced the attractiveness of borrowing for companies whose business models rely on credit.

On the other hand, the 2025 growth slowdown appears historically consistent. Since Vladimir Putin returned to the presidency in 2012, Russia’s average annual economic growth rate has stood at 1.37 per cent. The gap relative to early-2010s estimates of potential growth (around 4 per cent per year) has widened steadily over the past 13.5 years.

During the four years since the invasion of Ukraine, the structure of the Russian economy has changed significantly. The primary beneficiaries of the war economy have been three sectors:

• public administration and military security;

• finance and insurance, primarily due to budget-funded interest rate subsidies (mortgages and support for the industrial and agricultural sectors) – in 2025, such subsidies accounted for around 40 per cent of the banking sector’s total profits;

• hotels and catering, amid a sharp decline in outbound tourism and the reorientation of higher-income households towards domestic travel.

Among the sectors that have incurred the most significant losses are:

• healthcare and social services (and, to a lesser extent, education), as a result of the reallocation of budgetary resources in favour of the military sector;

• water supply, sewerage, and waste management, due to disruptions in the implementation of state programmes in which the largest operator was the ‘Rostec’ corporation, which has been hit by sanctions and deprived of access to imported equipment;

• wholesale trade, including the revenues of holding companies in the raw materials sector, which have declined because of falling global prices, higher logistics costs, and reduced export volumes.

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Back to square one

Rosstat data on industrial output for October – showing a 3 per cent increase month on month – was striking not only because of the unexpected shift from the contraction which started in January to growth and the exceptionally sharp jump, but also because of the absence of any official commentary. Expert interpretations largely converged: this ‘miracle’ was linked to the specifics of military production and therefore could not be sustained. The November data subsequently confirmed this hypothesis.

Stagnation or recession persists across most industrial sectors. Over the first eleven months of 2025, industrial output declined by 0.7 per cent compared with November 2024, while the drop relative to October 2025 amounted to 4.1 per cent.

Sustained growth of more than 2 per cent over the first eleven months of 2025 was, not surprisingly, recorded in sectors linked to military needs:

• transport, other than motor vehicle manufacturing (+29.5 per cent);

• pharmaceutical products and materials (+15.6 per cent);

• fabricated metal products, excluding machinery and equipment (+13.9 per cent);

• computers, electronic, and optical products (+13 per cent).

The only exception was tobacco products (+5.3 per cent).

The steepest declines were recorded in production of:

• motor vehicles (-23.6 per cent);

• leather and leather products (-13.4 per cent);

• printed and graphic products (-13 per cent);

• the extraction of minerals other than oil, gas, coal, and metals – mainly peat, non-metallic materials, and sulphur (-10.8 per cent);

• furniture (-7.5 per cent).

Of 28 industrial sectors, 17 recorded weaker performance in January-November 2025 than in the first nine months of the year (January-September). Compared with the first half of 2025, a deterioration was observed in 21 sectors during January-November.

Military spending and the budget deficit

Budgetary data for the first eleven months of 2025 provided neither surprises nor clarity. Revenue and expenditure figures did not deviate significantly from trends observed in previous months or from expert expectations. Uncertainty over the final level of federal spending and the budget deficit will persist until the Ministry of Finance publishes full-year results in mid-January 2026.

Additional uncertainty was injected by a statement made on 17 December by Russia’s defence minister, Andrey Belousov, who said that actual Ministry of Defence spending had risen to 7.3 per cent of GDP in 2025. This exceeds the budget plan by one percentage point, or RUB 2.1 trillion (approximately $26 billion). At the same time, total war-related expenditure in 2025 amounted to 5 per cent of GDP, including 0.7 per cent generated through cuts to Ministry of Defence spending unrelated to the war in Ukraine. To secure additional funding for the Ministry of Defence, the Ministry of Finance therefore had to either increase overall expenditure – and, consequently, the budget deficit – or impose cuts on other spending items.

At the same time, unlike in 2024, when the Ministry of Finance unexpectedly raised more than RUB 2 trillion (approximately $20 billion by that time’s exchange rate) on the market in mid-December, practically all the financial resources that the treasury needed were secured as early as 12 November 2025. On that day, the treasury raised RUB 1.6 trillion (approximately $20 billion) through the issuance of government bonds. As in the previous year, the Ministry of Finance required support from the Bank of Russia: on 11 November, banks borrowed RUB 850 billion (approximately $10.6 billion) from the CBR through repo operations. In the weeks that followed, the Ministry of Finance’s borrowing volumes at weekly auctions were minimal. On 24 December, the ministry announced the completion of debt issuance for 2025 and the achievement of its annual borrowing plan.

This, however, does not mean that financing additional end-of-year spending would require a return to the market. The same outcome could be achieved by reducing balances on Treasury accounts held with the Bank of Russia or by lowering the volume of deposits that the Ministry of Finance holds with commercial banks.

Briefly

In 2026, according to Andrey Belousov, the ‘prioritisation [of Ministry of Defence spending] will make it possible to stabilise it at the same level or even reduce it slightly [compared with 2025]’.

* * *

In 2025, Russia raised the corporate profit tax rate (from 20 per cent to 25 per cent) and introduced a progressive personal income tax scale with a top rate of 22 per cent. All revenues generated by these measures were channelled to the federal budget. Despite this, the federal budget’s share of consolidated budget revenues declined from 51.8 per cent to 49.1 per cent over the first eleven months of the year2. The reason was the rouble’s appreciation, which led to a 25.4 per cent drop in oil and gas revenues over eleven months and a 16 per cent decline in import tax revenues. Taken together, the reduction in budget revenues exceeded RUB 4 trillion (approximately $50 billion) over the eleven-month period.

* * *

The Russian export oil price in November, which will be used for tax payments in late December, will result in an additional monthly revenue shortfall of around RUB 100 billion (approximately $1.25 billion). The average price of Urals crude used to calculate oil and gas revenues stood at $44.87 in November, 16.5 per cent lower than in October. This decline followed the introduction in October 2025 of US sanctions against two of Russia’s largest oil companies, Rosneft and Lukoil, which together account for roughly half of the country’s oil production and exports.

* * *

The aggregate financial result of the coal industry (profits minus losses) over the first ten months of 2025 was four times higher than a year earlier. At the same time, companies faced significant shifts in the structure of demand – driven by a decline in output in ferrous metals – and were forced to cut production of the most profitable types of coal. Anthracite production declined by 8.9 per cent over the first eleven months of 2025, while output of coking coal fell by 9.1 per cent. By contrast, production of lignite – the least costly fuel for power generation and the residential sector – increased by 5 per cent over the same period. Output of thermal hard coal rose by 3.9 per cent. Overall, coal production over eleven months increased by 0.1 per cent, reaching 389 million tonnes.

* * *

The government is discussing a large-scale financial rehabilitation programme for Russian Railways. The proposals include:

• the provision of budget support in various formats totalling up to RUB 150 billion (approximately $1.9 billion)3;

• early indexation of tariffs – from 1 October instead of 1 December 2026;

• an additional freight tariff increase of 1 per cent for a twelve-month period;

• debt restructuring, including the temporary conversion of part of the debt into equity;

• the sale of office space in the Moscow City skyscraper and the divestment of the Federal Freight Company.

These support measures could generate up to RUB 1.3 trillion (approximately $16.3 billion) for the company, but there is currently no consensus within the government on the proposed package.

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Conclusion

As the new year begins, the Russian economy is under pressure from three factors. First, the war continues to absorb financial, material, and human resources. Second, efforts to preserve macroeconomic stability imply the continuation of tight monetary policy and further cuts to non-military budget spending. Third, sanctions constraints are accelerating the technological ageing of capital goods.

Considering this, sustained economic growth appears unlikely. Moreover, a potential end to hostilities in Ukraine could increase recession risks in the short term by reducing output in defence-related industries and lowering household incomes.

The absence of growth implies the persistence of fiscal constraints and a lack of resources to stimulate economic recovery through government spending. Even if resources for such a policy were to be found through a higher deficit and increased public debt, the question of where new demand could emerge within the economy remains open.

Vladimir Putin’s 2025 Direct Line broadcast underscored the continuity of the Russian regime’s core priorities. The president’s remarks made it possible to trace how the Kremlin simultaneously consolidates its positions on key issues – the war, the economy, and social and demographic policy – while avoiding the articulation of any long-term development goals. In place of a vision of the future, Putin offers a managed present, in which war, resource mobilisation, and confrontation with the West serve as the defining features.

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Direct line

On 19 December 2025, Putin held his annual Direct Line – a public question-and-answer session with citizens and journalists. The event lasted four and a half hours, making it one of the longest of its kind in recent years.

Public expectations ahead of the broadcast were shaped primarily by socio-economic concerns. A pre-event survey by the Levada Center showed that issues such as rising prices, incomes, pensions, employment, and access to housing and services collectively outweighed war-related questions, even if the prospect of ending the war remained a key concern for many respondents.

According to Mediascope, the broadcast reached approximately 16.3 million viewers, or around 12 per cent of the population, mainly via state television channels. As in previous years, viewership was partly orchestrated: in several regions, school pupils, students, and public-sector employees were encouraged or required to watch, while officials were instructed to report publicly on their participation.

The 2025 Direct Line should be understood not as a one-off event, but as a content hub. Its key messages will be repackaged and amplified across pro-government traditional and digital media, extending their reach and reinforcing the Kremlin’s core narratives well beyond the live broadcast.

The Kremlin’s strategic priorities

Three interlinked pillars were at the core of the 2025 Direct Line: the war, economic and social policy, and confrontation with the West.

The war against Ukraine

The military agenda remains the central policy domain for Putin and one that is firmly under his personal control.

While signalling readiness to continue peace negotiations, Putin has simultaneously made clear that he has no intention of revising his position. His assessment of the situation on the battlefield as favourable to Russia, combined with the belief that Ukraine’s military resources are nearing exhaustion, removes any incentive for him to abandon or soften the conditions for peace which he has previously set1.

Beyond two elements of a potential peace settlement where disagreements between Moscow and Kyiv remain irreconcilable – the status of the occupied territories and the post-war capabilities of the Ukrainian armed forces – Putin has once again brought the question of Ukraine’s political legitimacy to the fore. The Kremlin has made little effort to conceal its interest in regime change in Kyiv and has renewed its demand for an early presidential election in Ukraine.

At the same time, Moscow has its own understanding of how such elections would need to be organised in order to be recognised as legitimate by the Kremlin. This is not merely about holding a vote as such, but about a comprehensive reshaping of Ukraine’s political landscape – from the reinstatement of previously banned parties and media outlets to the participation of millions of Ukrainians currently outside the country, including those residing in Russia.

The Kremlin assigns a significant role in this process to the ‘The Other Ukraine’ project, which it treats as a mould for a potential regime-change scenario in Kyiv. Established in Russia in 2023, the project brings together Ukrainian politicians and public figures based outside Ukraine and oriented towards Moscow.

Its most prominent public figure is Viktor Medvedchuk, a long-standing ally of Putin. In the Kremlin’s framing, Medvedchuk still serves as a symbol of an ‘alternative’ Ukraine – one that is prepared to negotiate on terms acceptable to Russia.

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Economic and social policy

The economic segment of the 2025 Direct Line differed markedly in tone from previous years. Whereas in earlier broadcasts Putin routinely announced new budget allocations and presented himself as personally resolving everyday problems faced by ordinary citizens, this time he repeatedly acknowledged the lack of resources even for relatively modest measures.

The contrast with the previous year was striking. In 2024, Putin spoke openly and with evident confidence about rapid economic growth and the resilience of the economy under wartime conditions and sanctions. By 2025, his rhetoric had become noticeably more restrained, reflecting tighter fiscal constraints and narrowing room for manoeuvre in economic and social policy.

Actual economic growth in 2025 fell well short of expectations, reaching around 1 per cent compared with the officially stated target of 2–2.5 per cent. Key indicators slowed in parallel. Growth in industrial output dropped to below 1 per cent, down from 4.6 per cent in 2024. In manufacturing, growth declined from 8.1 per cent to 3.1 per cent. Real wage growth almost halved, falling from approximately 9 per cent to 4.5 per cent.

The explanation offered for the slowdown was a purportedly deliberate policy choice in favour of lower inflation and macroeconomic stability. Within this framework, success is measured not by economic growth, but by restrained public spending, control over the budget deficit, and the preservation of financial reserves.

Unlike the previous year, when the war was presented as a driver of growth in several key sectors, in 2025 it is increasingly portrayed as a long-term burden. It requires the reallocation of resources and implies the abandonment of earlier expectations of rising living standards.

In addition, record-low unemployment in 2025 points to the exhaustion of available labour reserves and has become a structural constraint on further economic growth, increasing pressure on wages and inflation. The Kremlin acknowledges the existence of this problem, but offers no concrete solutions.

In practice, the only clearly articulated policy objective is an increase in the birth rate. This target, however, is incapable of affecting labour supply in either the short or medium term. Economic support for families with children is increasingly giving way to the promotion of early marriage and childbearing, a shift that resembles social engineering more than a response to structural economic constraints.

The social agenda is becoming ever more tightly intertwined with the war. Priority support for combatants and their wives and children, as well as for families with three or more children, now forms the backbone of a new social policy aimed at cultivating and sustaining a loyal base of support for the regime.

From Putin’s rhetoric, a clearer image is emerging of a society mobilised for war. The central figure is the ‘Special Military Operation hero’ – a combatant presented as the normative model of citizenship. A revealing episode involved a Kalmyk officer, promoted from a driver to the commander of an assault unit, who was invited to take part in Direct Line. During the discussion, Putin referred to his experience and views no fewer than nine times, effectively using him as a living endorsement of the legitimacy of the war and of the new social ideal advanced by the regime.

Alongside him, other emblematic figures were highlighted: the mother and widow of a man who fought in Ukraine, a young man seeking to start a family, and a scientist returning from emigration in Europe in the name of ‘traditional values’, among others. Taken together, these figures outline a model of a ‘proper’ society – loyal to the authorities, oriented towards the traditional family and hierarchical values, indifferent to formal political institutions, yet prepared to subordinate private interests to those of the state.

Confrontation with the West

In the absence of a clearly articulated vision of the future – reflected both in Putin’s failure to answer questions about the country’s long-term prospects during Direct Line and in his decision not to deliver a Federal Assembly address in 2025 – confrontation with the West remains the only stable point of reference for Russia. Even allowing for the possibility that active hostilities against Ukraine could cease in the foreseeable future, this confrontation is being consolidated as a political and institutional condition that will shape Russia’s agenda over the long term.

Within this framework, Europe has definitively replaced the United States as the primary source of a persistent external threat for Moscow, and is portrayed as an actor pursuing hostile policies and preparing for war with Russia. By contrast, the United States under Donald Trump is effectively depicted as a potential negotiating partner.

This framing enables the Kremlin to sustain a sense of external danger and, in doing so, to justify further tightening of domestic mobilisation policies. Militarisation is being entrenched institutionally, through organisational decisions and the reallocation of resources.

At an expanded meeting of the Defence Ministry board on 17 December 2025, Defence Minister Andrei Belousov outlined measures to expand military capacity, including the construction of military infrastructure, increased recruitment of cadets, the formation of additional units, and the maintenance of high rates of enlistment of contract soldiers and ‘volunteers’. Taken together, these steps point to the state’s adaptation to the reality of prolonged wartime conditions.

This embrace of militarisation does not necessarily imply continuous active warfare. Rather, it signals the emergence of a system in which war – real or potential – becomes a structural element of the regime: a key instrument of consolidation that shapes Russia’s domestic and foreign policy.

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By late autumn, the Russian economy began to show clear signs of weakness. Industrial decline has intensified, the federal budget is caught between a widening deficit and pressure to reduce spending, and inflation remains unstable. Price growth slowed in early November, but even the Bank of Russia does not view this moderation as durable.

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The deficit may increase by the end of the year

Federal budget revenues and expenditures for September-October 2025 remained stable, shifting the key uncertainty over levels of government spending to year-end. Revenue is likely to be close to the budgeted level: this requires inflows to be roughly 5 per cent lower than in the final two months of 2024.

Year-end expenditure remains the main unknown and will determine the size of the deficit. To meet its commitment to the Bank of Russia and prevent spending and the deficit from exceeding the legal limits, the Ministry of Finance would need to reduce expenditure in November-December by about 18 per cent compared with the same period in 2024. If spending at the end of the year matches last year’s level, the deficit will exceed the statutory target by around RUB 2 trillion and approach 3.5 per cent of GDP.

From August to October, federal spending was 10 per cent lower than in the previous three months, from May to July. The optimistic interpretation is that the Ministry of Finance has managed to distribute expenditure more evenly throughout the year and will avoid a December surge. The pessimistic one is that the ministry’s implementation of the spending planned for 2025 is falling behind schedule, and the need to finance the amounts ‘saved’ earlier in the year will increase December spending by roughly RUB 1 trillion, pushing the deficit towards 4 per cent of GDP.

The interest rate continues to fall

The 50-basis-point cut approved by the Bank of Russia’s Board of Directors on 24 October elicited little reaction from either businesses or the government. The main arguments in favour of the reduction were the government’s promise to narrow the budget deficit next year, and the assumption that the recent rise in inflation expectations reflected one-off factors – the forthcoming VAT increase and faster growth in petrol prices in August-September.

These arguments are unconvincing. Inflationary pressure is easing only gradually, inflation expectations remain elevated, and consumer demand continues to expand, driven by rising wages amid labour shortages. Slowing economic growth is widening the imbalance between supply and demand, adding further upside risks to inflation.

The rate cut was accompanied by neutral communication from the Bank of Russia, indicating that there is no commitment to additional monetary easing. In its forecast, the Bank of Russia left room for another reduction at the final Board meeting of the year on 19 December, while raising its projected interest rate level for 2026.

The Bank of Russia is undoubtedly in a difficult position. In its assessment of banks’ balance-sheet dynamics, it rightly notes that saving activity – primarily among households – remains stable. However, it omits the fact that this activity has fallen sharply since the beginning of 2025, and that more than half of the increase recorded this year reflects interest accrued on existing deposits rather than new inflows.

Figure 1 shows that the rapid expansion of deposits in the second half of 2024 drove the accelerated growth of banking system assets – the so-called ‘credit expansion’ that kept inflation elevated. By contrast, the slowdown in deposit growth in early 2025 reduced the aggregate value of banking assets, making it an essential disinflationary factor alongside the rouble’s appreciation.

Data for August-September indicates a certain recovery in banks’ lending activity. Analysts at the Bank of Russia note a modest revival of credit demand from the corporate sector following the first steps towards lowering interest rates. However, the scale of this recovery remains too limited to have any meaningful effect on inflation dynamics at this stage.

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Isolation is constraining import growth

After a brief depreciation of the rouble in early September, which triggered expectations of further weakening, the situation stabilised quickly, and the Russian currency regained its lost ground. Notably, even net foreign-currency purchases by households amounting to USD 2 billion in October did not lead to any significant weakening of the rouble.

There is no consensus among experts on the reasons for the rouble’s appreciation. The influence of several factors – the higher interest rate, the increased attractiveness of rouble deposits, and the inflow of foreign currency through carry-trade operations by non-residents and resident exporters – is not in doubt. Yet the question of why the economy has not responded to the rouble’s strengthening earlier this year remains open.

Economic theory declares that an appreciating currency reduces export competitiveness and increases the competitiveness of imported goods, leading to lower exports and higher imports. Empirical evidence supports this view. For example, Figure 2 shows the relationship between the Brazilian real and Brazilian imports in 2000–2025. The chart shows that the national currency’s appreciation was quickly followed by import growth in 2002–2007 and 2009–2011, whereas its depreciation in 2011–2015 led to a decline in imports.

Despite significant fluctuations in the rouble’s exchange rate, the Russian economy has, somewhat unexpectedly, maintained stable monthly import volumes of around $20 to $25 billion, which corresponds to the pre-war level (Figure 3). The most likely explanation is that import growth is constrained by logistical and payment difficulties, as well as by a shrinking pool of partners willing to trade with Russia amid heightened uncertainty.

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Weakening of the industrial sector goes on

Russia’s industrial sector is showing an increasingly pronounced downward trend. According to Rosstat, industrial output grew by 0.7 per cent in January-September 2025 compared with the same period of the previous year. Yet this headline figure masks a sharp decline across the main industrial segments. Of the 29 subsectors listed in Rosstat’s summary, 16 recorded year-on-year contraction three and six months after the beginning of 2025; after nine months, the number had risen to 21. Growth was observed only in four ‘military’ subsectors, three ‘civilian’ ones (metal ores, tobacco products, and textiles), and in the repair and installation of machinery and equipment – an intermediate segment dependent on the utilisation of military repair capacity.

After three quarters, 22 out of 29 subsectors showed slower growth (or deeper contraction) than after the first half of the year. Of the 129 industrial products for which official statistics are available, 106 recorded lower output in the first nine months of 2025 than in the same period in 2024 (90 after the first quarter, 96 after the first half).

Against this backdrop, agriculture appears to be a rare ‘safe haven’. Despite earlier concerns about drought in southern regions, grain yields in 2025 have been significantly higher than last year. In industrial crops, the negative picture is confined mainly to sunflowers: the harvested crop is currently 13 per cent below last year’s level.

By contrast, the situation in livestock and poultry farming is less favourable. The cattle herd has declined by 3.4 per cent, including more than 5 per cent in household farms. Poultry numbers have fallen by 0.7 per cent. As a result, meat and poultry output and milk production have increased by only 0.3 per cent, which may accelerate price growth for meat and dairy products in the coming months.

The construction sector continues to grow, but only according to Rosstat, which reports a 3.1 per cent year-on-year increase for the first nine months of 2025. These figures contradict data showing declines in the production of ready-mixed concrete (down 5.5 per cent), building blocks (down 13 per cent), bricks (down 10 per cent), and ceramic tiles (down 15–25 per cent). The statistics on new residential floor space commissioned – down 5.6 per cent over the same period – appear closer to reality.

The 2026 budget conceals everything

At the end of September, the Government submitted the draft federal budget for 2026 to the State Duma. The scope for analysing this document is limited: in Russia, not only war-related expenditure but most budget expenditure data – apart from the aggregate total – is classified. As a result, the analysis of the 2026 budget must rely on a ‘plan-to-plan’ comparison, recognising that the actual figures for the 2025 budget may diverge from the plan in either direction.

Macroeconomic developments this year have differed from the Ministry of Finance’s assumptions when preparing the 2025 budget: economic growth has been weaker than forecast, and inflation has been higher. Contrary to expectations, the rouble has appreciated by 40 per cent, sharply reducing the value of oil and gas revenues. At the same time, the Bank of Russia’s high interest rate has increased budgetary spending on subsidised loans and domestic borrowing.

The economic outlook for next year is even more concerning. Expected GDP growth is only 1.3 per cent, inflation remains within the ‘desired’ 4 per cent range, and the trajectory of global oil prices offers little reason for optimism. The authorities are reluctant to forecast a significant rouble depreciation, as this could raise inflation expectations and turn these risks into reality. As a result, projected budget revenues remain at roughly the current level, with only the increase in VAT from 20 per cent to 22 per cent providing additional income for the federal budget.

Even this modest increase in budget resources – 0.7 per cent of GDP – is not directed by the Ministry of Finance towards higher nominal spending, but towards reducing the budget deficit, which is projected at 2.6 per cent of GDP this year. In economic policy, this approach is known as fiscal consolidation; as carried out in Russia, it results in higher tax pressure and a decline in budget-funded demand in real terms.

The Ministry of Finance argues that expenditure growth is outpacing the economy’s capacity, and therefore sees limiting it as essential to preventing crisis scenarios similar to 1998. Yet the ministry has virtually no allies within the government willing to defend macroeconomic stability: each minister and other primary budget recipient seeks to expand their ‘share of the pie’. Contesting these demands is difficult: behind each request stand presidential decrees, directives, state programmes, and national projects. Conceding to one would mean conceding to all.

The ministry’s only option is to persuade President Vladimir Putin of the need for fiscal consolidation: nominal expenditure should grow only minimally, and decisions on reallocating funds should be taken by him personally.

Even if total spending next year increases only marginally, the budget still contains obligations that cannot be revised: higher debt-servicing costs, mandatory indexation of pensions and public-sector wages, and increased subsidies for preferential mortgages and other subsidised loans. By introducing an element of ingenuity, the Ministry of Finance has identified an area where substantial cuts appear possible: the main reduction falls on the Ministry of Defence, which, according to the author’s estimate, will receive roughly RUB 1 trillion less than its expected expenditure this year.

The nominal reduction in planned expenditure for the Ministry of Defence does not imply an actual decrease. Finance Minister Anton Siluanov has already stated that defence spending will not fall next year compared with the current level. Once the budget is approved, the Government may reallocate funds between expenditure lines without informing parliament. Likewise, nothing prevents the Ministry of Finance from announcing in the middle of next year that revenues are insufficient to meet budget commitments and that the deficit must be increased. This approach allows the ministry to avoid negotiations with ministers over additional resources, while giving the president the option to raise defence spending to whatever level he considers necessary.

It is also technically possible to borrow several additional trillion roubles from banks in the final days of December 2025 and then use these funds to finance next year’s military expenditure, formally recording the spending under the current fiscal year.

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The peace plan for Ukraine, which was almost agreed upon between Russia and the US and which has been put on the table for President Zelensky, is evidence of yet another zigzag in US foreign policy under President Trump. The first one happened at the very beginning of Trump’s presidency, when he announced that the US no longer intended to support Ukraine financially or with weapons (yet, this was the continuation of the late president Biden’s policy), shifting from the role of Ukraine’s supporter/partner to that of mediator. At the time, it seemed that this mediator’s sympathies lay with the weaker side, with the country that had been subjected to brutal, unprovoked aggression. But now that the mediation produced a 28-point document, and the mediator is openly stating that Ukraine must agree or say goodbye, it is clear that the US/Trump’s sympathies have shifted towards the Kremlin. However, should this come as a surprise?

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Trump is the president of the US, and for him, US interests come first. Unfortunately for many, Ukraine and its problems do not concern Trump in the slightest. Due to his Christian/humanitarian values, he does not want Russians and Ukrainians to kill each other, and that is where it ends. Why should he be interested in a distant (in every sense of the word) Eastern European country, squeezed for centuries between Europe/Poland/Austria-Hungary, Russia, and Turkey? It does not control any strategic points on the globe, does not possess unique resources (don’t tell me about black soil — America has long since solved its food problems), with a corrupt government, with a president who staged a public brawl in the White House, refused to sign a non-binding agreement on rare earth metals immediately, and (don’t forget) refused to help Trump investigate Hunter Biden’s dealings in Ukraine? Yes, the country has been attacked, and yes, it is defending its freedom and independence with its last ounce of strength, but it is far away in Europe, so let the Europeans solve the problems of their continent. In case you believe that it matters to Trump who owns Donbass, you don’t understand anything about Trump’s vision of American foreign policy.

According to today’s White House (and maybe the previous one as well), the US faces two global challenges: Russia and China. The task is to leave one. With China, which dreams of becoming the future world leader, displacing America from this position, it is impossible to agree on anything; the list of disagreements is too long. And what serious disagreements are there with Russia (apart from the war)? Strictly speaking, none. Both sides are interested in resolving issues related to military confrontation (START, missile defense, flank restrictions, etc.). In wartime, negotiators take irreconcilable positions, pouring buckets of mud on each other, but when, imagine, the war ends, what prevents them from sitting down in Vienna and moving towards a compromise for months and years? No, of course, Putin’s Russia will not become a friend and comrade. Still, it will become a country that requires little time and effort, with the arrogant Putin kept on a short, seemingly sweet leash (G8, economic cooperation), which can be turned into a whip at any moment with a wave of the hand. Putin cannot sever trade ties with China (Russia has to sell its natural resources somewhere), yet China is not open to providing Russia with advanced technologies and equipment. Still, he will be categorically required to cease all cooperation in the military sphere (including maneuvers with Iran) and stop the transfer of weapons production technologies (if there are any left to transfer).

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What needs to be done for this? Simple: put pressure on Ukraine to give Putin a small piece of its territory. Do you think this deal is beneficial or not so helpful from the point of view of US interests? And if we add the icing on the cake, Russia transfers 300 billion in frozen assets to US control.

(In parentheses, I’ll shout: Bravo, Putin! Hey, you son of a bitch! You realized that these assets would never be returned and that their loss would not create any problems for the Russian economy, and if you can’t resist, you have to take the lead! Agree, it would be much worse if Europe encumbered these assets with collateral and, in fact, used them to pay for American weapons that would go to Ukraine!)

However, what does “US control” mean? Two funds will be created immediately, the management of which will be transferred to the e.g. Jared Kushner, Trump’s son-in-law, from whom no one can demand to spend this money on the reconstruction of Ukraine (first, it will be necessary to make sure that the new authorities of the country are honest and not corrupt, and then approve a reconstruction plan and find other sponsors; in short, we can wait two, three, or four years), nor on the implementation of Russian-American economic projects (precisely because it is simply impossible to come up with projects worth $150 billion). However, no one will prohibit these funds from placing the received funds in the money market, receiving a modest 3-4 percent return per year. Profits that will end up in the fund manager’s pocket.

In short, first find out how this 28-point plan contradicts Trump’s American interests, and then criticize it. The fact that these 28 points have shocked Ukraine and Europe with their cynicism is a problem for Ukraine and Europe, and if they are ready to reject Trump’s plan, then let them try to solve the problem of ending the war without him. “The Moor has done his deed, the Moor can go”; Trump wants to distance himself (from the problem of war) and deal with other issues, of which he has plenty.

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PS: Don’t claim Trump betrayed Ukraine. The US made no formal commitments to Ukraine either before or during the war. Yet, Ukraine entered this war without alliances, despite the threat looming since 2014.

PPS: I believe that Putin is interested in ending the war. On the one hand, his entourage sees no advantage in continuing it, while the disadvantages continue accumulating. On the other hand, he sees that the economy is paying an increasingly high price for continuing the war. Considering this, Putin’s 28 points are not a “take it or leave it” offer; he is ready to make concessions during negotiations, but not so significant that Ukraine will get what it wants. Ukraine could only get what it wants by changing the situation on the front lines, and since the summer of 2023, there have been no signs of this happening, alas.

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