Russia warns war costs are ravaging its finances while Ukrainian ‘drone overmatch’ sends Putin’s forces reeling in new phase of combat

The Kremlin sounded the alarm on its deteriorating finances earlier this year, just as its war on Ukraine pivoted dramatically against Russian forces. According to a letter seen by the Financial Times, Russia’s finance ministry estimated in Feb. that spending on Vladimir Putin’s war was on pace to exceed its budget by at least 2 trillion rubles this year, or about $28 billion, with a more negative scenario putting that figure at 4 trillion rubles. The ministry also put war-related overspending at 4 trillion rubles in 2027 and 2028, while asking the cabinet to freeze trillions in non-defense outlays in the coming years. The projected explosion in war costs comes as Russia’s budget deficit was quickly diving deeper into negative territory. The Kremlin had earlier seen a deficit of 3.8 trillion rubles for all of 2026, but it’s already 5.9 trillion rubles in the first four months of the year, according to the FT. The deficit outlook has worsened so much that the finance ministry asked government agencies to cut non-essential spending by 10%. Economic growth is also stagnating, with GDP expected to tick up just 0.4% this year, down from a previous view for 1.3%. As Russia’s finances go further into the red, the government has been forced to tap reserves in its wealth fund. But that is rapidly dwindling too. Meanwhile, high war-related inflation has kept interest rates high and is stoking fears of a debt crisis among companies and consumers. The spike in oil prices since the U.S.-Israeli war on Iran started in late February has helped Russia’s finances since the letter was sent. But Finance Minister Anton Siluanov has said recently that surplus revenue from energy exports in April was basically offset by weak revenue in March. Meanwhile, the Kremlin’s payments to domestic oil companies to cap fuel price hikes have also limited the benefit from oil. Ukraine’s game-changer The Kremlin’s February warning coincided with a pivota