Russia Is Running Out of Good Options
The Geopolitical Pickle
Russia is not about to collapse. It still occupies a large part of Ukraine, continues to fire hundreds of drones and missiles at Ukrainian cities, and retains an enormous advantage in population and resources over its smaller neighbour. Yet four and a half years after Vladimir Putin launched his full-scale invasion, the war is beginning to look less like a contest Russia merely needs to endure and more like a trap from which it has no obvious escape, with no path to victory.
The problem for Moscow is not any one issue, whether a single battlefield defeat, a new round of sanctions, a budget or manpower shortfall. It is these factors that are beginning to work together, resulting in a slowly weakening hand.
Russia needs more soldiers to maintain pressure on the front, but recruiting them is becoming increasingly expensive. Its economy needs to sustain the enormous military expenditure, but it has continued to slow down. Oil revenue was long able to finance the state, but Ukrainian drones have increasingly struck refineries, ports, and pipelines, disrupting exports and even domestic supplies. The Reserve Bank has implemented high interest rates to contain inflation, but those same rates are squeezing businesses and increasing the cost of government financing. Finally, it needs to convince both Russians and the outside world that time remains on its side, even as some of its own senior economists are beginning to say otherwise.
Now, the Kremlin is stuck in a bear trap. They remain powerful enough to be dangerous, but the harder it struggles to continue the war on its existing terms, the deeper some of its structural problems become, and the longer the tail of them will be into the future. Ukraine has problems of its own, and some are severe. Its manpower remains limited, and its cities are becoming increasingly vulnerable to Russian ballistic missiles. What has changed, however, is that Ukraine is increasingly able to impose costs on Russia far beyond the immediate front line.
This means that it is increasingly becoming an industrial war, with the production of drones, missiles, and counter-systems becoming the key determinant of immediate success. On that measure, Russia’s position looks considerably less comfortable than the Kremlin would like the world to believe.
A front that is finally moving both ways
For a significant period after the war began, the central assumption was that Russia was advancing slowly. At the same time, Ukraine’s difficulty in replacing troops and equipment meant that Moscow had the advantage of being able to wait out its adversary.
That picture has changed.
Russia continues to attack across the front and still threatens important Ukrainian positions in Donetsk. Moscow claimed further territorial gains during its summer campaign in August. Yet the pace of Russian advances has slowed substantially, while Ukrainian forces have begun recovering territory in several sectors. On 12 August, President Volodymyr Zelenskyy said that Ukraine had retaken 745 km² in 2026. Ukrainian open-source mapping project DeepState independently showed a broadly similar pattern, recording 19 settlements returned to Ukrainian control and Russian forces pushed back around several others.
This does not amount to a dramatic Ukrainian breakthrough. Russia is still pressing towards important cities in the east, and Ukraine continues to suffer from its own manpower shortages. But it has also damaged the assumption of a slowly advancing, if extremely costly, Russian push.
More importantly, Ukraine has increasingly brought the fighting to Russia, far beyond conventional front lines.
Over the past several months, Ukrainian forces have rapidly expanded what they call their “middle strike” capability, using drones and other systems to hit Russian air defences, logistics, fuel supplies and military infrastructure hundreds, and increasingly more than a thousand, kilometres from Ukraine.
That campaign has continued to expand.
In August alone, Ukrainian drones have struck oil and petrochemical infrastructure in Bashkortostan, around 1,300 kilometres from the Ukrainian border, as well as targets around Saratov, Perm, Ryazan and elsewhere. The Orsk refinery, nearly 1,500 kilometres from Moscow, was forced to shut completely after an August strike. The regional governor warned that sanctions made it difficult to replace damaged imported equipment and that repairs could take six months, with Ukraine aiming to inflict maximum damage on Russian coffers, financing the war.
This is important for reasons that extend well beyond the immediate damage. It represents a shift in the risk calculation for both of the actors. Russia spent much of the war benefiting from strategic depth. Factories, refineries, depots and transport networks remained hundreds of kilometres away behind Russian territory, meaning Moscow could rearm the front line while remaining protected. Increasingly, they are now vulnerable.
Kyiv’s Defence needs help.
There is, however, another side to the story.
Ukraine is becoming considerably better at striking Russia, while at the same time, it is becoming less capable of stopping Russia from striking Ukraine. The problem here is Patriot missiles, or lack thereof.
Russian attacks have increasingly used ballistic missiles, which Ukraine now has very limited viable defences against. The primary means of intercepting these is the American-made PAC-3 missile used by the Patriot system.
Ukraine says deliveries of missile interceptors during the first half of 2026 fell to roughly one-third of the year prior. The shortage is highly visible during recent Russian attacks on Kyiv, when Ukrainian Patriot launchers were effectively left without sufficient interceptors and ballistic missiles passed through the air-defence network unopposed.
In July alone, Russia fired more than 450 missiles at Ukraine, more than half of them ballistic, according to the Ukrainian Air Force. Zelenskyy has since argued that receiving even 5% of the American Patriot interceptor stockpile would allow Ukraine to improve its protection through the winter substantially. He has also suggested that Ukraine could produce them under licence. His blunt assessment in August was that Ukraine currently had access to around 1%.
Some of this shortage is industrial. Patriot missiles are expensive, complicated, and currently produced in relatively small numbers.
But the US’s own quagmire has intervened.
The war with Iran has consumed American weapons and air-defence interceptors while also focusing Washington’s strategic attention towards the Middle East. Patriot deliveries to Ukraine have dwindled as supplies were diverted elsewhere. The US also largely stepped away from the diplomatic process after its earlier (lacklustre) attempts to broker negotiations between Kyiv and Moscow unravelled when the conflict in Iran escalated in February.
Washington has not abandoned Ukraine entirely. American officials continue discussing arrangements under which Patriot components could eventually be manufactured in Ukraine or Europe, while European governments continue purchasing American weapons for Kyiv. But those are longer-term solutions to an immediate problem.
For Ukraine, this creates a new strategic reality.
It can finally start to strike refineries thousands of kilometres inside Russia, yet it is also becoming less able to intercept a ballistic missile heading towards Kyiv. That is perhaps the clearest illustration of where the war stands today. Ukraine’s indigenous military capability is becoming more sophisticated, but its most important remaining weaknesses still depend on decisions made outside the country. And for now, it means that for both sides it is advantage attacker.
The war economy reaches its limits.
Russia has a different problem. While they possess the resources to continue fighting, maintaining them is becoming increasingly expensive as inflation bites and the economic impacts strain the war machine. For several years, Russia’s apparent economic resilience was one of the strongest arguments that sanctions had failed. Growth remained positive. Unemployment was extraordinarily low. Factories expanded production. Military wages poured money into poorer Russian regions.
But much of this was the product of an enormous fiscal stimulus created by the war itself. Russia effectively paid factories to manufacture missiles, artillery shells, tanks and drones which were subsequently destroyed, expended or damaged in Ukraine. The resulting activity still counts towards GDP, but it adds almost nothing to the country’s net productive capacity or long-term wealth.
Eventually, there are limits to how long an economy can operate this way. Russia’s government has now cut its expected economic growth for 2026 from 1.3% to just 0.4%, after the economy contracted during the first quarter. The central bank still maintains a key interest rate of 14%, even after several reductions, while warning that fuel prices, fiscal expansion and inflation expectations continue to constrain its ability to cut further.
Russia, therefore, faces an increasingly uncomfortable combination that has seemingly set into the economy. There is weak growth, expensive credit and extraordinarily high government spending, which means that the numbers are becoming harder to disguise.
Russia originally planned for a federal budget deficit of around 3.8 trillion roubles this year. By the end of June, the deficit had already reached 5.73 trillion. By the end of July, it had grown to 6.46 trillion roubles, equivalent to roughly 2.8% of annual GDP, with five months of the year remaining. Government expenditure increased 14.5% year-on-year.
Oil has helped, but considerably less than might be expected.
The war in the Middle East sent global energy prices sharply higher, providing Moscow with an unexpected windfall. Yet Russian oil and gas revenues between January and July were still 16.8% lower than a year earlier, at 4.6 trillion roubles.
This is where Ukraine’s long-range campaign begins to interact with Russia’s financial problems and further explains the strategy. Higher oil prices are extremely beneficial for Russia if it can sell the oil. If refineries are burning, ports are disrupted, pipelines are attacked, domestic fuel shortages occur, and expensive equipment cannot be replaced due to sanctions, then this windfall evaporates.
Ukraine has made the whole industry more expensive to operate. This has created secondary effects. Russian trucking companies reported fuel price increases of almost 20% over a single month following refinery strikes, increasing transport costs across the entire economy.
The Ukrainian campaign has been highly effective at reducing output, reducing oil sales abroad, and creating visible shortages within. A relatively inexpensive drone can force Russia to deploy scarce air defences hundreds of kilometres behind the front, disrupt production, raise domestic fuel prices, complicate logistics, reduce export revenue, and increase inflation. Ukraine has even sought advice from refining experts to determine the most irreplaceable, highest-impact sites at a refinery to hit, meaning they can be offline for extended periods.
The other use of drones has been to hit Wildberries distribution centres across Russia. Their answer to Amazon is Wildberries, an online marketplace that Kyiv claims has been helping supply parts to sustain Russian missile production and has again made the costs of war much more visible in Russian everyday life. This will not necessarily bring about immediate support for ending the war in a totalitarian regime like Russia; however, it does further erode the government’s credibility and the effectiveness of its propaganda.
The man who said the quiet part aloud
Perhaps the most telling indication of the financial pressure being faced came from inside Russia’s own financial establishment. On 17 August, Russian state development bank VEB dismissed its chief economist Andrei Klepach, a former senior Economy Ministry official and one of the country’s better-known macroeconomists. His apparent offence was pessimism.
In remarks made earlier this year, Klepach argued that Russia was falling behind economically and technologically and warned that Moscow would not win a prolonged “war of attrition” based on the expectation that Ukraine would eventually collapse. Ukraine had not collapsed, he argued, while Russia’s costs continued to accumulate.
That assessment is particularly striking because it attacks one of the central assumptions underpinning Russian strategy. Putin does not necessarily need to conquer Ukraine militarily if he believes Russia can outlast it. Moscow can absorb casualties, maintain pressure, wait for Ukrainian society to become exhausted, and hope that Western governments eventually lose interest.
For several years, that looked plausible, even the most likely outcome. Today, it looks considerably less certain.
Ukraine remains heavily dependent on Europe and the United States for certain categories of weapons, particularly sophisticated air defence. But its economy is increasingly integrated into a much larger European economic system, while its defence industry has become one of the most innovative in the world. European governments can collectively mobilise financial resources that Russia cannot match indefinitely, even if political willingness remains uneven.
Russia, by contrast, increasingly has to finance the war from within its own constrained economic system. That distinction becomes more important the longer the war continues.
The Bear Trap
None of this means Russia is about to run out of money. Countries rarely go bankrupt like companies. Governments can increase taxes, force banks to buy debt, cut civilian expenditure, weaken their currencies, tolerate higher inflation, or print more money – especially in an authoritarian state like Russia. They still hold considerable natural resources, an industrial base, and a population accustomed to significantly greater economic hardship than most Europeans would tolerate. Read our Russian net assessment here:
Putin himself retains enormous personal power. Russia can therefore most definitely continue fighting. But the costs and long-term economic implications are beginning to stack up. The available solutions now all worsen other problems – It has become an economic game of whack-a-mole played with increasingly expensive hammers.
Recruiting more soldiers has become more difficult, meaning wages and signing bonuses have continued to rise. Expanding military production has expanded labour shortages in more productive parts of the economy. Raising taxes breeds discontent and weakens civilian consumption and investment. They have tried borrowing more money, but this leads to rising debt-servicing costs. Cutting interest rates would be ideal, but that risks fuelling already high inflation. Those same high rates constrain businesses’ investment. Protecting refineries, ports, airbases and logistics hubs far from the front line means resources are dispersed. Military expenditure is straining regional and civilian budgets, while any reduction in military expenditure leads directly to pressure on the war front.
This is the bear trap they now find themselves in.
A bear trap does not kill the bear immediately. It immobilises it.
Russia can thrash around inside it, and a wounded bear remains extremely dangerous. Moscow is still destroying Ukrainian infrastructure, bombarding cities, and killing thousands of civilians. Its recent missile campaign demonstrates precisely why Ukraine’s shortage of Patriot interceptors should worry Europe.
But Russia is increasingly fighting a war in which its strategic objectives remain enormous while its room for manoeuvre is narrowing.
A game of endurance
That leaves the central question of the war increasingly straightforward. Not a balance of military equipment or any small changes on the frontlines. Rather, who can continue replacing what is being destroyed?
Ukraine faces some very real constraints. It needs soldiers and has exhausted most recruiting methods. It needs Western financing, which has been slow but is now being provided. Most of all, it desperately needs air-defence missiles. Its energy infrastructure remains vulnerable, and its economy continues functioning under extraordinary wartime conditions.
Russia possesses more of almost everything. But Russia also needs to sustain a vastly larger military machine, protect an enormous industrial and energy network, replace enormous battlefield losses, subsidise occupied territories, support defence companies, contain inflation, manage regional finances and convince its population that the costs remain distant.
The balance, therefore, looks more and more like a strange paradox.
Ukraine appears more immediately vulnerable, but Russia increasingly looks more structurally trapped.
Kyiv can be hurt badly by the absence of several hundred Patriot missiles. That is a very telling and frightening dependency. But it is also one that Ukraine’s partners have the industrial and financial capacity to solve if they choose to do so.
Russia’s problems are harder to fix. Its demographic problems will be in tatters for at least a generation due to hundreds of thousands of casualties and the departure of working-age Russians since 2022. Inflation and stagnant investment continue to worsen irrespective of rate decisions. Temporary surges in oil prices have been offset by damaged refineries rendering them unable to sell it, with Russian western-port oil exports running around 15% below planned levels, largely due to disruptions at Novorossiysk.
Even Moscow’s reduced global footprint can be understood through this lens. Russian influence has not disappeared from Africa, Syria or elsewhere, but maintaining military commitments far from home becomes harder when the war in Ukraine consumes more money, equipment and attention.
Russia will likely continue fighting as this war is existential for Putin himself. The real question is then how long it can continue fighting like this, with the economic toll compounding and the time needed to rectify structural issues multiplying. The harm to the Russian economy and population will be seen for decades.
For much of the war, Putin’s greatest strategic asset was time. Russia was larger, Ukraine was dependent on outsiders, and Western attention could reasonably be expected to wander.
Four and a half years later, time no longer obviously belongs to Moscow. Ukraine has not collapsed. Europe has not abandoned it. Ukrainian weapons are reaching deeper into Russia. Russian advances have slowed. Its energy infrastructure is increasingly exposed. The fiscal deficit is widening. Its own economists warn that the attritional contest may not end as the Kremlin assumes.
Russia remains powerful. It remains dangerous. And it can still inflict enormous suffering on Ukraine. But those are not the same thing as being in a strong strategic position.
The bear is still fighting.
The trap is only getting tighter.
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