Kyiv to Moscow: 'We will hit your economy until it buckles'

Political fortunes turn fast. One day there were handshakes and a red carpet in Alaska; the next, Trump calling Russia a “paper tiger”. Even more revealing than the insult was what followed: once Mr. Trump flagged fuel lines and gas shortages, Moscow’s tightly controlled media – usually eager to hide failures – started running the story, writing, “it is no longer possible to deny the signs of petrol shortages in the regions,” write David Kirichenko  and Alexander J. Motyl.

Being forced to cover the shortages is another crack in Putin’s façade as the “special military operation” drags well into its fourth year.

In February, Mr. Trump told Ukrainian President Volodymyr Zelensky he had “no cards”. But over the past year, Ukrainian drone strikes on Russian oil refineries showcased Kyiv’s growing drone power, even as Moscow relied on waves of meatgrinder assaults for tiny territorial gains. By 2025 Russia had paid an estimated 200,000–300,000 killed and wounded for roughly 0.6% of Ukraine’s territory – and in August 2025 controlled less land than it did in August 2022.

Andriy Zagorodnyuk, Ukraine’s former defense minister, argues the war has entered a prolonged phase in which deterrence and hopes for a quick ceasefire are unrealistic. He urges a policy of “strategic neutralization” – paralyzing Russia’s key capabilities across domains to make aggression operationally futile.

One Ukrainian officer said Kyiv carefully tracks damage and prioritizes hits on airports, weapons depots and energy infrastructure because, while Russia can absorb huge human losses, “it is painful for them to lose money” – and oil revenues fund the state, oligarchs and the funds used to keep soldiers fighting. Russia is simply too vast to defend all its territory against the masses of Ukrainian drones since Kyiv began its air offensive in 2023.

Kyiv is evolving beyond swarms of expendable drones. The War Zone noted that this month, Ukraine unveiled a “bulged” R-360 Neptune, a homegrown cruise missile with conformal fuel tanks to extend its range, a sign that Ukraine is building a deeper and more layered strike arsenal now used against Russian factories and logistics hubs. Another domestically-produced system, the Flamingo cruise missile, has also entered service, though its full impact remains to be seen.

According to The Economist, about 60 percent of deep strikes are carried out by the low-cost FP-1 drone, which can reach targets 1,500 kilometers inside Russia. The FP-1s, which cost around fifty-five thousand dollars each, are now produced at a rate exceeding one hundred a day. Ukraine is also fielding the heavier Lyutyi drone with a two-thousand-kilometer range, using machine-vision to guide it to the target. 

In early October, Russian officials reported a drone attack on the Tyumen oil refinery about two thousand kilometers from Ukraine, reflecting the growing reach and persistence of Kyiv’s long-range strike campaign. On October 22, drones hit another oil refinery in Makhachkala, Dagestan, which lies roughly 1,700 kilometers from Ukraine. Much as Moscow bets on mass to batter Ukrainian cities, Kyiv is now betting on mass to batter Russia’s rear, targeting oil refineries and supply nodes that keep the war machine running.

A Russian commentator has acknowledged the effect, warning; "I can state that the situation is deteriorating. The fuel crisis is developing now.” In occupied Crimea there have been reports of people siphoning fuel from parked cars; across Russia, long lines at gas stations, illegal markets for gas are booming and the introduction of rationing point to a large-scale fuel crisis. 

The crisis has grown so severe that authorities are preparing to import gasoline from abroad, with officials conceding that “the situation is critical”. By late September, roughly 38% of Russia’s primary refining capacity was impacted. Over 50 Russian regions face fuel shortages. On October 7, Reuters reported that Russia has ramped up gasoline imports from Belarus, surging fourfold in September to forty-nine thousand tons, as Ukrainian drone strikes on refineries have deepened the shortages and forced Moscow to look abroad for emergency supplies. 

Russia’s oil output is also falling as sanctions, war and aging fields bite, and the Wall Street Journal warns most reserves may be costly and hard to extract by 2030 – threatening the revenues that fund the Kremlin’s war economy.

Now Ukraine is making sure Russians feel the same blackouts Ukrainians have endured for years. On October 21, Ukrainian drones struck a power substation in Russia’s Bryansk region and a thermal power plant in Smolensk. Similar strikes earlier in October left nearly 40,000 residents in Belgorod without power after energy facilities were hit. Intercepted calls released by Ukraine’s military intelligence (HUR) reveal the growing despair among Russians. "Dozens of (strike drones) were launched somewhere. Can you imagine?! I look and it's flying. Where will it fly, and what will it do, what is it targeting? It's simply hopeless," said a Russian woman. 

Putin has bet his survival on endless war, remaking the economy to feed the fight and buying elite loyalty with wartime rents, even as the system shows growing fiscal and supply stresses. Meanwhile, Russians officials are stealing everything that they can from the war effort. The central bank can only perform so many “miracles” to keep the economy in a steady state.  

Interim H1 2025 dividends plunged to 341.8 billion rubles – roughly half last year. Gazprom Neft cut mid-year payouts from 246.4 billion to 82 billion rubles, while Severstal and MMK cancelled interim distributions. The squeeze on corporate cash flows reduces state revenue and complicates war financing; the Finance Ministry has already downgraded its dividend forecast.

By July, Russia’s budget deficit had already swelled to $61 billion, surpassing the full-year target in just seven months. The deficit is estimated to increase to 19 trillion rubles in 2026-2028. However, Zelensky predicts that the Kremlin will face a soaring budget deficit of around $100 billion in 2026.

Hoping to close the budgetary hole, the government has raised taxes on small business and increased the VAT from 20% to 22%. Social expenditures are being cut, and there is talk of government seizure of bank deposits, the printing of money, and the certainty of stagflation. Moscow aims to increase borrowing by almost 50% in 2025. 

To make matters worse, recent indicators show the economy is slowing, July GDP grew just 0.4% year-on-year and oil exports, which are Russia’s largest and most lucrative, have fallen. Employment remains strong, in no small measure due to the outmigration of hundreds of thousands of professionals, unfavorable demography, and the fact that Putin is heavily investing in the militarized economy and neglecting the consumer economy. As a result, just as many Russians have experienced significant drops in living standards as have benefited from over-investment in a non-productive sector of the economy: drones and tanks are destroyed as quickly as they are produced. Worse, growth rates of the militarized economy are slowing down, and wages have been cut by 10%.

Two dissident Russian economists, Vladimir Milov and Igor Lipsits, have correctly predicted Russia’s current economic woes months, if not years, ago–way before Western experts caught on and got on the bandwagon. Both men predict exceptionally dire times for the Russian economy. Lipsits says society will suffer, as Putin’s economy “casts aside the weakest, pensioners and the poor.” But the regime isn’t “swimming in chocolate” either: the economy can’t survive and Russia will, like the USSR, collapse. Russia’s only source of revenue is oil, because “Russia can’t produce anything” the world wants.

Milov is just as pessimistic about the Russian economy’s prospects. Russia is experiencing a “deep budget crisis” from  which there is “no way out.” Things haven’t been this bad since the 1990s, when the Russian economy went into free fall. Taxes can’t make up the shortfall; indeed they could depress economic growth and make things worse. Meanwhile, inflation remains high, all branches of the economy are suffering declines, and investments will stagnate in 2026 and after. If the authorities “want to kill the economy, it’s their choice,” says Milov. The current year may witness a perfect storm, during which a whole slew of negative trends come together at the same time. “Conditions will be bad for a long time.”

What impact will these trends have on Putin’s ability to wage war? Lipsits believes that “as long as Russia can export oil, it will be able to continue the war.” Milov believes that “Putin can’t afford a large offensive” and will continue doing what he is already doing: bombing Ukraine with cheap drones and pursuing limited drives in only several directions.

This appears to mean that economic pain alone may not be enough to force Moscow to the negotiating table. On the other hand, there is pain and there is collapse. If Lipsits’s and Milov’s worst-case scenarios come true, as they think they will, there may not be much of Russia left to go to the negotiating table.

The solution to Russia’s economic woes is simple: ending the war with Ukraine. But Putin, who may understand the mess he’s in, can’t do that. Having identified himself so closely with the lost cause, Putin knows that anything short of a smashing victory would mean political suicide for him. The choice before Russians is painfully clear: either Russia’s suicide or Putin’s.

David Kirichenko is an Associate Research Fellow at the Henry Jackson Society. His work on warfare has been featured in publications such as the Atlantic Council, the Center for European Policy Analysis, and the Modern Warfare Institute, among others. Follow him on X: @DVKirichenko.

Alexander J. Motyl is a professor of political science at Rutgers University-Newark. A specialist on Ukraine, Russia, and the USSR, and on nationalism, revolutions, empires, and theory, he is the author of ten books of nonfiction, as well as Imperial Ends: The Decay, Collapse, and Revival of Empires and Why Empires Reemerge: Imperial Collapse and Imperial Revival in Comparative Perspective.

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