Russia has poured an estimated €110 billion into its war on Ukraine in the first six months of 2026, a rise of roughly thirty per cent on the same period last year, according to analysis by German economist Janis Kluge. The surge in defence outlays, which now represent more than ten per cent of the country's gross domestic product (GDP) for the period, is widening a fiscal gap that could force Moscow to borrow at ever‑higher rates and shift the burden onto ordinary Russians.

Scale of the spending surge

Kluge, who monitors the Russian budget for the SWP Russian Budget Monitor, combined declared and classified defence spending to arrive at a total of 10.7 trillion roubles (about €110 billion) for the first half of 2026. By contrast, the same half‑year in 2022, the year the invasion began, saw just under three trillion roubles spent on the military. Even after adjusting for inflation, the amount spent today is almost four times the 2022 figure.

When expressed as a share of the economy, the numbers are stark. The first half of 2026 saw defence consumption equal to 10.5 % of the GDP generated in that period. Overall, 57 % of state‑budget revenue was earmarked for the war effort, meaning that more than half of every rouble collected in taxes and other income was diverted to the armed forces.

Budget plans versus reality

Official budget legislation had projected a modest decline in the defence share for 2026, aiming for around eight per cent of GDP. In practice, the actual outlay already exceeds that target, and Kluge warns that if the upward trend continues, the defence share could top nine per cent by the end of the year, a record for post‑Soviet Russia.

Revenue shortfalls are compounding the problem. Oil and natural‑gas sales, long the backbone of the Russian treasury, have fallen short of the levels anticipated in the autumn budget. Although a spike in global energy prices following the US‑Israeli strike on Iran offered a temporary lift, the overall fiscal picture remains bleak. By the end of July, the budget deficit had widened to 2.8 % of GDP, nearly double the original annual target.

Financing the war

In the early stages of the conflict, Moscow relied heavily on its National Wealth Fund, a sovereign‑wealth reserve built up during years of high oil prices. That pot has been largely depleted, forcing the finance ministry to turn to new borrowing. Domestic debt markets, however, have become increasingly expensive for the Russian state, reflecting investor wariness and sanctions‑related constraints.

Unlike many European countries that can issue bonds in stable currencies and attract a broad investor base, Russia faces a narrower pool of lenders and higher yields. The cost of servicing new debt is therefore rising, adding pressure to an already strained fiscal framework.

Impact on Russian households

For ordinary Russians, the fiscal squeeze translates into higher living costs and reduced public services. The government has already introduced price caps on essential goods, but shortages at fuel stations and disruptions to online retail, exemplified by attacks on warehouses belonging to firms such as Wildberries, are eroding consumer confidence.

Analysts note that the war‑driven budgetary pressure could force the Kremlin to cut back on social spending, pension adjustments, or subsidies that many households depend on. In a country where real wages have already stagnated, any further reduction in state support would deepen inequality.

European ramifications

Europe watches the Russian fiscal trajectory closely for several reasons. First, a weakened Russian economy could affect energy markets, especially for countries still dependent on Russian oil and gas. While the EU has reduced imports dramatically since 2022, residual flows and the risk of sudden supply shocks remain.

Second, the scale of Russian borrowing may spill over into global financial markets, influencing bond yields and risk premiums that affect European sovereign debt. If Moscow is forced to sell assets abroad to raise cash, it could create volatility in markets already coping with post‑pandemic inflationary pressures.

Finally, the continued flow of Russian war funds underscores the resilience of the Kremlin's war machine, a fact that shapes EU security and defence planning. The ability of Russia to sustain high‑intensity operations for another two years, as Ukrainian analysts suggest, means that European governments must maintain robust support for Kyiv while managing the economic fallout at home.

Ukrainian counter‑measures and drone warfare

Amid the fiscal drama, the battlefield itself is evolving. Ukrainian forces have increasingly turned to long‑range drones to strike deep into Russian territory. In early September, the Ukrainian Special Operations Forces claimed a successful attack on the Novy Urengoy gas‑condensate processing plant, a key asset in the Yamalo‑Nenets region, more than 2,800 km from the front line.

The operation, described by Ukrainian officials as using FP‑1 drones capable of covering the distance, marks a new milestone in the conflict's reach. It demonstrates how technology can offset conventional asymmetries, allowing a smaller power to threaten strategic Russian infrastructure far from the front.

Russia's own drone programme has also evolved. The Geran‑4, a jet‑powered unmanned aerial vehicle, has been used to target Ukrainian aircraft on the ground. Recent footage released by Russian media shows a Geran‑4 striking a MiG‑29 at Vasylkiv airbase. While Ukrainian authorities have not independently verified the claim, the incident follows a similar strike in June at Voznesensk airfield.

Experts such as Fabian Hoffmann argue that the Geran‑4 blurs the line between drone and cruise missile, offering a low‑cost, high‑speed platform capable of destroying parked aircraft. Its deployment reflects Moscow's attempt to compensate for losses in air superiority with cheaper, expendable weapons.

Front‑line developments around Lyman

On the ground, Ukrainian forces have made incremental gains near the town of Lyman in the Donetsk region. Over the past four months, they have reclaimed roughly 200 sq km, eliminating a Russian salient that threatened to encircle Sloviansk. Russian channels, traditionally reluctant to acknowledge setbacks, have begun to admit a "tactical defeat" in the sector, noting that units withdrew from forward positions without being encircled.

The admission, posted on the Paratrooper's Diary channel, also highlighted that the reclaimed territory remains contested, with a "grey zone" of control. While the acknowledgement signals a shift in Russian information strategy, it also underscores the fluid nature of the front lines, where gains are often temporary and subject to counter‑attacks.

Equipment losses on both sides

Data compiled by the open‑source project Oryx, which tracks losses through photographic evidence, shows that as of 7 September Russia had lost 24,066 pieces of heavy equipment since the start of the war. Of these, 19,034 were destroyed by Ukrainian forces, 1,000 damaged, 1,194 abandoned and 2,838 captured. Tanks accounted for a large share, with 4,446 lost, 3,351 of which were destroyed in combat.

Ukrainian losses were also substantial: 12,097 pieces of equipment were recorded, including 1,462 tanks, of which 1,120 were destroyed. The asymmetry in numbers reflects both the scale of the Russian arsenal and the intensity of Ukrainian counter‑offensives.

What the numbers mean for the war's trajectory

While the fiscal data suggest that Russia can sustain its war effort for another two years, analysts caution that this endurance is not limitless. The combination of a shrinking tax base, costly debt issuance, and the need to replace lost equipment creates a fiscal treadmill that could accelerate inflation and erode living standards.

For European policymakers, the key takeaway is that the Russian economy, though under strain, remains capable of funding high‑intensity operations for the medium term. This reality reinforces the importance of continued economic sanctions that target revenue streams, as well as diplomatic efforts to isolate Russia from international finance.

Union perspectives and labour implications

From a labour standpoint, the Russian budgetary squeeze could trigger a wave of wage stagnation and job insecurity. With more than half of state revenue earmarked for defence, funds for public services, healthcare and education are squeezed. Trade unions in Russia have already warned of growing labour shortages and a deteriorating banking sector, factors that could lead to informal employment and reduced worker protections.

In the EU, the conflict's fiscal spill‑over may influence debates on defence spending. Countries that have pledged to increase defence budgets to 2 % of GDP face the challenge of financing those commitments without compromising social programmes. The Russian example, where defence consumes a double‑digit share of GDP, serves as a cautionary tale about the trade‑offs between security and social welfare.

Looking ahead

As the war enters its fifth year, the financial calculus will remain a central battleground. If Russia's borrowing costs continue to rise, the Kremlin may be forced to re‑prioritise spending, potentially curbing offensive operations or seeking new revenue streams, such as intensified extraction of natural resources in the Arctic.

For Ukraine, the development of long‑range drone capabilities offers a strategic lever to pressure Russian economic assets far from the front. European partners are likely to monitor these innovations closely, weighing the benefits of supplying such technology against the risk of escalation.

In the meantime, ordinary Russians will feel the pinch of a war‑driven budget that leaves little room for public investment. The next few months will reveal whether the fiscal strain translates into visible cuts in social spending, or whether the state will find ways to extract further resources from an already exhausted economy.