By Sylvia Demarest, Substack, 7/19/26

The US Geopolitical Strategy Since WW2

At the end of World War 2 the US emerged as the unrivaled global military and economic power. The war left US cities and manufacturing plants untouched while the war destroyed most of the developed world. The US dollar became the world’s reserve currency giving the US financial system de facto control over global finance including the global messaging payment system SWIFT, the World Bank and the International Monetary Fund.

In 1992 after the dissolution of the USSR, the Wolfowitz Doctrine emerged. The Wolfowitz Doctrine declared the US to be the world’s sole superpower, and established the strategic objective of preventing the emergence (or re-emergence) of any global or regional competitor. This strategic objective included preventing any hostile power from dominating any important region whose resources could generate global power.

A review of US foreign policy since 1992 clearly shows that the Wolfowitz Doctrine of maintaining US global hegemony and preventing the rise of a peer competitor, has remained the central US strategic objective. Examples include; NATO expansion under Clinton, the Balkan wars and the attack on Serbia under Clinton, the wars on Iraq and Afghanistan under Bush, the wars on Libya and Syria under Obama, the drone campaigns under Bush Obama Biden and Trump, the propaganda campaign against the Russian Federation and President Putin under Obama and Biden, provoking the proxy war in Ukraine against Russia under Obama Biden and Trump, the blockade and takeover of Venezuela under Trump, and the war on Iran under Trump. The clear objective of these wars has been to confront, weaken and destroy any potential US (or Israeli) adversary, and to prevent the emergence of any potential competitor. The doctrine also seems to guide current actions against Venezuela, Cuba, Iran, Russia, China, and North Korea, as well as threats against Greenland and Canada, as the US attempts to exercise control over the resources of these and other counties.

In an essay written on March 25^th this Substack discussed the potential geopolitical strategy of the Trump Administration as reflected in recent events including the war on Iran and concluded “a strategy of “full spectrum energy dominance” was in effect “… as part of an effort to maintain US global hegemony. The components of this strategy include: 1–global dominance over energy production including liquid natural gas (LNG); 2–controlling the energy and resources of Western Hemisphere, and excluding rival powers from having access to those resources; 3–controlling all the global pinch points critical to global trade; 4-insuring access to arctic resources; 5-working to encircle, weaken and dominate countries seen as potential rivals, including Russia, China and Iran.”

In an essay written on June 4, 2025, this Substack discussed the rise of Military Keynesianism i.e. the use of military spending and war to stimulate the domestic economy. The essay discussed how military spending had been used to end the Great Depression, and how the US economy continues to be highly dependent on military spending. From the essay: “World War 2 and the adoption of military Keynesianism is credited with ending the Great Depression and providing the economic stimulus for several decades of economic growth after WW2. Militarism and military Keynesianism is a powerful economic and political force in the US. The policy of militarism and war is supported by both political parties and has persisted, election after election, for decades…”

“Military Keynesianism has been used as an economic stimulus and a jobs program ever since. The production of weapons and equipment is one of the largest remaining manufacturing industries in the US. Congress has been careful to locate bases and production facilities in each district, spreading the funding and the jobs around the country. US militarism is an economic stimulus program, a jobs program, and a source of lobbying and campaign cash. This means that militarism, and the wars that support it, has enormous economic and political power in the USA, even though maintaining it requires perpetual war.”

“For military Keynesianism to work its economic and political magic, the United States needs to use up the military equipment it produces so the arms manufacturers can keep busy. This is why the US is the world’s largest seller of weapons, and why every US president is an arms dealer. Even with these arms sales, military Keynesianism requires the US to fight a war every two, or three years, or to be continuously at war.”

The Expansion of NATO reflects Military Keynesianism

Even the incentive to expand NATO can also be traced to the promotion of Military Keynesianism here in the US because every new country that joins NATO must purchase billions of weapons and other war material from the US.

This means that NATO expansion has been one of the most profitable foreign policy decisions in US corporate history. Every new NATO member must replace Soviet-era equipment with NATO standard weapons, primarily manufactured by US defense contractors. NATO has 32 member states, and everyone is required to achieve interoperability with US equipment, all 32 are buyers of US weapons.

Here are just a few recent examples: Poland: $3.5 billion for F-16 fighter jets from Lockheed Martin; Romania: $4 billion for Patriot missile systems from Raytheon. The same is true for the Finland, Sweden, Czech Republic, Hungary, Bulgaria – each one a new market, locked in by treaty obligations.

NATO expansion was not debated as a market expansion strategy. It was debated as a security strategy. But the money told a different story. The New York Times noted that defense industry executives saw NATO expansion as “the ultimate market opportunity.” The Wall Street Journal described it as “a bonanza for Western arms merchants.”

As QINTELPRO noted: “The revolving door between NATO policy and defense industry profits was not subtle. Bruce Jackson: Lockheed Martin’s vice president for strategy and planning → chairman of the U.S. Committee to Expand NATO → chairman of the Committee for the Liberation of Iraq. Dick Cheney: Secretary of Defense → CEO of Halliburton → Vice President of the United States. James Jones: NATO Supreme Allied Commander → board of Boeing and Chevron → Obama’s National Security Advisor. Wesley Clark: NATO Supreme Allied Commander → board of several defense companies. The same people who made the policy profited from it. The same people who profited from it then returned to make more policy. The revolving door doesn’t just create conflicts of interest. It creates a permanent class of people whose personal wealth depends on perpetual military expansion.”

Military Keynesianism and the Ukraine War

It should be very clear by now that wars do not happen by accident, most require decades of planning, propaganda campaigns and outright lies and disinformation to persuade the US public to go along. The Ukraine war is no exception. Several studies have discussed how the CIA seized the opportunity to penetrate the Soviet Union through Ukraine and began organizing covert activities at the end of World War 2, laying the ground work for future conflict.

More recently, the RAND Corporation, a Pentagon think tank, published a study in 2019 titled “Extending Russia: Competing from Advantageous Ground.” The study was very explicit in recommending that Ukraine be used as a tool to weaken Russia. Here’s QINTELPRO again: “Its recommendations read like a pre-war checklist: Provide lethal military aid to Ukraine. ✓ Done. Increase support for Syrian rebels to bleed Russia. ✓ Done. Promote regime change in Belarus. ✓ Attempted. Exploit ethnic tensions. ✓ Done. Undermine Russia’s energy exports. ✓ Nord Stream destroyed. Expand NATO. ✓ Finland and Sweden added. RAND published this on its website. It was not classified. The blueprint for the war was available to anyone who bothered to read it.”

The conclusion: “When the architects of a war publish their plans three years before the war begins, and then the war proceeds exactly as planned, the word ‘unprovoked’ becomes difficult to sustain.”

Although the war has continued for almost 5 years costing thousands of lives, billions in weapons, and more billions in damage to Ukraine and Russia, the Ukraine war has been very profitable for the US defense industry. Here’s QINTELPRO again: “Lockheed Martin’s stock price rose 37% in the first year of the war. Raytheon’s rose 17%. Northrop Grumman’s rose 41%. General Dynamics rose 19%. Total U.S. military aid to Ukraine exceeded $50 billion by mid-2024. But the money doesn’t go to Ukraine. It goes to American defense contractors who manufacture the weapons that are shipped to Ukraine. Raytheon CEO Greg Hayes explained this on CNBC with remarkable transparency: ‘We don’t actually write a check to Ukraine. We write a check to the United States defense industry.’ The aid packages are essentially transfer payments from American taxpayers to American defense corporations, laundered through a foreign war. Ukraine gets the weapons. The shareholders get the profits. The taxpayers get the bill. The Ukrainians get the casualties.”

“In January 2023, Lockheed Martin CEO Jim Taiclet told investors the company was ramping up production to meet demand created by the Ukraine war. He said the conflict had created ‘long-term tailwinds’ for the defense industry. Tailwinds. A sailing metaphor. The war that has killed hundreds of thousands of people is wind in the sails of Lockheed Martin’s revenue projections.”

“This is an observation about incentive structures. When the most powerful corporations in America profit from war, and those corporations fund the think tanks that recommend war, and those think tanks staff the administrations that start wars, the result is a system that produces war as reliably as an assembly line produces missiles. You don’t need a conspiracy when you have an incentive structure. The machine runs itself.”

How will the Quest for US Global Hegemony End?

These wars by the US along with disruptive covert activities by the CIA and US Non-Governmental Organizations (NGO’s) have been going on for 80 years leaving a trail of carnage and destruction across the globe. The Church Committee exposed some of this, but US wars and meddling continue unabated. Meanwhile, the US goes deeper in debt and conditions in the US continue to deteriorate for most people.

The impact of these policies can be seen not only in the current war on Iran and the vast support provided to Ukraine by the US and the EU to fight Russia, but in US policy towards Venezuela, Cuba, and Iraq. Cuba is under a complete US embargo–Venezuela does not have control over her funds from the sale of oil and gas, which have been placed in an account under the control of the US Secretary of State Marco Rubio– See this astonishing article: “How Marco Rubio is Running Venezuela From Afar”–Iraqi funds are in the custody of the Federal Reserve Bank of New York, giving the US the leverage to select who runs Iraq and, recently, to force Iraq to distance herself from Iran and to invest in a new pipeline to avoid the Strait of Hormuz.

U.S. extraterritorial claims to Greenland, Canada, Cuba, and the Panama Canal also express the strategic aim of US foreign policy. In the past 24 months, the U.S. has directly attacked or materially supported bombings in Ecuador, Somalia, Haiti, Nigeria, Yemen, Venezuela, Syria, Iran, Iraq, and the Caribbean–including a full blockade of Cuba. Meanwhile, the Gaza genocide and the Israeli invasion of Lebanon continues unabated with full US support.

This is even though the US public continues to vote for peace and an end to these foreign wars. The fact that US public opinion has little impact of US foreign policy shows why net approvals of “U.S. leadership” are at a record low (-15 percent) while most Americans (59 percent) reported in April 2026 that “America’s best days have passed.”

Meanwhile, the proxy war on Russia is also at a boil. The US supports Ukraine by providing intelligence and guidance instructions for drone attacks on Russian energy facilities and grain exports. According to Glenn Diesen; “Moscow considers itself to be fighting a defensive war against a NATO determined to use Ukrainians to destroy Russia. …Sadly, our freedom of speech is in free fall, and our populations have been indoctrinated to squeal ‘Russian propaganda’ whenever an argument deviates from NATO-approved narratives.”

According to Ian Pound there is no functional way to end the war in Ukraine. This is based on the observation that NATO and the EU have stolen the sovereignty of their members, refuse to talk to Russia and see no interest for their citizens in peace-making. He concludes: “Only a popular uprising against globalist leaders in Europe and their proxy in Ukraine” will change this reality.

As Yves Smith of Naked Capitalism recently pointed out situation in the Middle East (and elsewhere) continues to spiral out of control. Here’s Yves: “The world is moving into a major and potentially catastrophic change in our geopolitical and economic order. Yet normalcy bias reigns supreme. Too few are taking seriously the risk of a global depression due to the US refusing to make concessions to Iran and Iran continuing to choke in the traffic in the Strait of Hormuz to a close to zero level for a protracted period. And the global economy gets there faster if the US and Israel hits critical Iran infrastructure like energy production and Iran starts destroying Gulf State petrochemical assets or desalination plants.”

So long as the Wolfowitz doctrine of global domination continues to form strategic basis for US foreign policy, the following outcomes are possible; 1) Countries like Iran, Russia and China capitulate and, like Venezuela and Iraq, the US assumes control over their economies and resources; 2) A serious economic collapse or a catastrophic defeat renders the US unable to continue the policy of global domination; or 3) Countries refuse to be dominated and the US quest for global domination results in a global war. Obviously, something must be done to change the outcome.

The Global Cost of Militarism

As the last Substack discussed the current NDAA for the US military requests $ 1.1 trillion for DOD operations in 2027. In addition, the DOD has requested an additional $65 billion for the US war on Iran, along with an additional $350 trillion for unspecified activities. The current DOD budget is $921 billion. The cost of militarism and war is a major reason why the US budget deficit is almost $40 trillion.

In 2025, NATO countries collectively spent approximately $1.63 trillion on defense. This figure reflects a significant increase in defense spending among member nations, with all allies exceeding the previous target of 2% of GDP. NATO budget is Eu 5.3 billion

The US and NATO countries have funded the Ukraine government and the Ukraine war — the US as of 12/31, $188 billion; NATO countries as of 12/24 EU 132 billion; Total 320 billion. An additional EU 90 billion was promised at the recent NATO meeting in Turkey for the rest of 2026 and for 2027

Meanwhile Russia spends $186 billion, and China spends $251 billion.

Excluding the US NATO Russia and China the rest of the world spends around $1.2 trillion

This is madness!!

Adendum:

Here are a few charts for your consideration. I will publish another essays on the global economic situation.

US Dollar share of global foreign currency reserves have fallen to its lowest level this century

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The crack spread

Inventories of refined products are very low compared to oil. With refineries in Persian Gulf and Russia down, 16% of world total, the shortage is in refined products.

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Araghchi Says Ukraine’s Attack on an Iranian Ship in the Caspian Sea ‘Cannot Go Unanswered’

By Dave DeCamp, Antiwar.com, 7/26/26

Iranian Foreign Minister Abbas Araghchi on Sunday said that Ukraine’s attack on an Iranian commercial ship in the Caspian Sea “cannot go unanswered,” comments that came after Ukrainian President Volodymyr Zelensky took credit for the strike, which killed an Iranian crew member.

Zelensky claimed that the ship that was struck was carrying military cargo. “We also achieved very strong results with long‑range strikes in the Caspian Sea – including vessels used in military cargo shipments involving Iran, as well as a warship,” he wrote on X on Saturday, the day of the attack.

In his statement on Sunday, Araghchi said that Zelensky “has attacked an Iranian commercial vessel, killing a sailor. A blatant UN Charter violation done at Israel’s behest to drag Europe into its war.”

The Iranian diplomat added that in calls with Russian Foreign Minister Sergey Lavrov and Kaja Kallas, the EU’s top foreign policy official, he “made clear that what the freeloader in Kyiv did CANNOT GO UNANSWERED.”

The attack on the Iranian ship comes as Ukraine continues escalating its long-range drone attacks against Russia, which are carried out using intelligence provided by the US, and have been targeting Russian oil tankers and refineries, and have also been killing a significant number of civilians.

***

Size Matters: Russian and Ukrainian Armies

By Oliver Boyd-Barrett, Substack, 7/28/26

Russian President Vladimir Putin has signed a decree raising the army’s authorized size to 2,426,130 personnel, with service members now numbering 1,535,000, up from 1,510,000.

The decree takes effect August 1 and ties the change to the creation of military construction units within the Russian Armed Forces.

A little more than a month earlier, Putin had signed the previous decree, which raised the army’s authorized size to 2,399,130 personnel. The reason for that increase was not specified.

It is the third change to the army’s size in the past six months, following two earlier decrees signed in March and June 2026.

Putin has now increased the army’s size six times since the start of the full-scale war between Russia and Ukraine.

Russia is increasing its armed forces through official personnel cap increases, force restructuring, and high-financial-incentive recruitment. Key steps include raising authorized end-strength numbers via presidential decrees, expanding regional military districts and commands, and relying heavily on lucrative contract enlistment bonuses.

As we have seen, Putin yesterday signed a decree on July 27, 2026, raising total authorized armed forces strength to 2,426,130 personnel – including 1,535,000 active service members – effective August 1, 2026. He has expanded specific force allocations to incorporate specialized military construction and infrastructure units.

In addition, recent measures have divided the traditional Western Military District into two distinct regional commands: the Moscow Military District and the Leningrad Military District; formed new combined-arms and army corps units (such as the 44th Army Corps) alongside upgrading existing motorized rifle brigades directly into divisions; developed new military bases and infrastructure near northern and eastern NATO borders to permanently station newly raised formations.

Moscow is offering large federal and regional sign-on cash bonuses alongside monthly salaries that significantly exceed standard national civilian wages, maintaining a continuous influx of monthly contract volunteers (averaging roughly 30,000 to 40,000 new recruits per month) to offset frontline combat losses; enforcing legal and administrative restrictions that bar active contract soldiers from resigning or leaving service.

Russia has also benefitted from the assistance of tens of thousands of troops from its allies, notably North Korea.

In brief, Russia has far many more active troops at its disposal than does Ukraine.

Sources from the United Kingdom assess the total size of the Ukrainian armed forces as between 800,000 and 1 million active personnel, reflecting the mass mobilization and expansion required during the ongoing war. Specific components include the ground branch and overall defense structure.

So, Ukraine’s army is estimated at roughly around 800,000 to 1,000,000 active service members and mobilized personnel. The Ukrainian Ground Forces account for approximately 450,000 active personnel.

By Ben Aris, Intellinews, 7/14/26

(Note: highlighting appears in original.)

Russia’s crude output declined to the lowest in at least two and a half years in June as Ukraine attacked the nation’s oil infrastructure on an almost daily basis. But LNG production remains untouched and exports to Europe are at their highest level ever.

There is a fundamental conflict of interests at the heart of Europe’s relations with Russia. On the one hand, Brussels wants to punish Moscow for its unprovoked invasion of Ukraine four years ago and it keeps pressing for ever more extreme sanctions. On the other, European businesses and its economic model remains heavily dependent on cheap Russian imports of energy and raw materials and business leaders try and limit or ignore sanctions as much as they can.

That dichotomy was on display again this week (7/14/26), not just with the record level LNG imports, but also with the European Commission (EC) failure to get its tough version of the 21^st sanctions package approved by the European Parliament. The latest package has been watered down yet again but EU members like Greece and Malta which are making money hand over fist transporting Russian oil to customers around the world.

Russia’s oil producers pumped an average of 8.928mn barrels a day of crude, which is 834,000 barrels a day below Russia’s required level for the month under an agreement with OPEC and its allies — the lowest level since February 2024, Bloomberg reports. The June figure is 834,000 b/d less than Russia’s assigned OPEC quota and 61,000 b/d below May’s level, according to OPEC data.

“A wave of Ukrainian attacks has pushed Russian refining runs to the lowest in more than 21 years, deepening a domestic fuel crunch and further squeezing the global market.

Crude-processing rates have averaged 3.91mn barrels a day so far this month, the lowest level since March 2005, according to figures compiled by EA Analytics. That’s more than 1.4mn barrels a day below the year-ago average, the data show.

The drop in production has prompted a ban on most diesel exports to the end of July, in addition to restrictions on gasoline and jet fuel shipments introduced earlier. The loss of diesel from a key global supplier has driven prices to multiyear highs, with the market already tightened by disruptions to Middle East flows.”

Kyiv has mounted a sustained bombardment hitting all 30 of Russia’s major oil refineries, many of them repeatedly, in more than 50 attacks in the last 100 days, Bloomberg reports.

As refined oil throughput falls and refinery runs fall to their lowest level in more than two decades, crude exports have jumped to a four-week average of 4.13mn b/d of seaborne crude shipments as of June 28 — the highest since Russia started its full-scale invasion of Ukraine in 2022.

LNG exports booming

So far Ukraine has not targeted Russian LNG production and gas exports remain unsanctioned. As IntelliNews reported, Ukraine’s widening drone campaign against Russian energy infrastructure raises the prospect that Kyiv widen its campaign and target Russia’s LNG assets in the Arctic, which would cause a major energy crisis in Europe. The pressure from Brussels on Kyiv not to attack Russia’s LNG must be intense.

Europe is in the midst of a mounting gas crisis having started this year with record low levels of gas in storage. It is importing every drop of Russian LNG it can get its hands on, despite promising to ban the import of Russian LNG from the start of next year.

The imports from Russia’s Yamal LNG facility reached a record high in the first half of 2026. EU countries received 136 cargoes containing 9.97mn tonnes of LNG between January and June, a 16% increase year on year, according to data from commodities intelligence group Kpler.

More than 97% of Yamal’s LNG deliveries during the period went to EU ports, despite Brussels’ stated desire to wean itself off Russian gas. Yamal LNG is controlled by Russia‘s Novatek (MOEX: NVTK), with China’s CNPC and France’s TotalEnergies (EPA: TTE) also holding stakes. Campaign group Urgewald estimated EU purchases from Yamal were worth €5.96bn ($6.82bn) in the first six months of the year, with France, Belgium and Spain the three largest destinations. Europe, the group said, “is absorbing almost the entire output of one of Russia‘s most strategically important LNG projects.”

The surge reflects a broader increase in Russian gas purchases as European companies scramble to meet the 80% full tanks benchmark by the November 1 EU deadline and front-load supplies before the EU’s phased ban takes full effect.

Russian pipeline gas imports via Druzhba pipeline increased 7% year on year between January and May 2026, while LNG imports rose 11%, according to the EU Agency for the Cooperation of Energy Regulators.

Short-term Russian LNG contracts have been banned since April as part of the coming full-scale ban legislation, but long-term contracts can continue until January 1 2027, while the final deadline for ending all Russian pipeline gas imports – including those headed for Hungary and Slovakia – is September 2027. The EU’s 2025 ban on trans-shipment of Russian LNG has also meant more Yamal cargoes remain in Europe rather than being re-exported to Asia.

Oil refining battered but not broken

Despite the dramatic nature of Ukraine’s campaign, the oil product sector remains battered but not broken, according to Sergey Vakulenko, an independent energy analyst argued in a recent note for Carnegie Endowment for International Peace.

Despite an unprecedented tempo of drone attacks and growing damage to the hard-to-replace specialist processing equipment that Ukraine is now specifically targeting, Russian refiners have repeatedly demonstrated an ability to carry out rapid repairs and restore at least part of their lost capacity quickly.

In April and May, Ukraine launched 26 attacks on Russian refineries, matching the number recorded in August and September 2025, when Russia also suffered noticeable petrol shortages. The impact on processing has been more severe this year and the fuel crisis worse.

Russian refinery throughput stood at about 5.2mn barrels a day at the end of March, but fell by as much as 700,000 barrels a day, or 13%, during April and May. That compares with a maximum decline of 480,000 barrels a day, or 9%, during the 2025 attacks.

The damage is also becoming harder to fix. Vakulenko says NASA fire data suggest more Ukrainian drones are reaching their targets than ever before, increasingly striking not only primary processing units, which are relatively straightforward to repair, but complex isomerisation, cracking and hydrotreating units. Replacement components often have to be imported, lengthening repair times, while some damaged plants can maintain output only by producing lower-standard motor fuels. For example, the key Moscow refinery that was hit earlier this month will be offline for the rest of this year, according to reports.

Yet Russia‘s refining system has proved remarkably resilient, says Vakulenko. After throughput dropped below 4mn barrels a day following a wave of attacks in late May, it rapidly recovered to more than 4.5mn barrels a day in the week beginning June 4, probably as several plants completed emergency repairs. Similarly, Ukrainian attacks briefly halved the number of loaded tankers leaving Russia‘s Baltic and Black Sea ports in June following the attacks on Primorsk and Ust-Luga, but traffic quickly recovered. Seaborne oil exports reached about 3.8mn barrels a day in the second half of April — some 500,000 barrels a day above the combined 2023-25 average.

The pressure is nevertheless mounting. Attacks on the Moscow refinery at Kapotnya and Tatneft’s (MOEX: TATN) TANECO complex in mid-June knocked out another 600,000 barrels a day of capacity. If previously damaged refineries cannot return quickly, Vakulenko estimates Russia‘s available refining capacity could fall as much as 28% below previous years.

The geographical concentration of the damage is particularly problematic: all three refineries supplying Moscow by pipeline — Yaroslavl, Ryazan and Kstovo — have been hit. The capital and surrounding region account for about 14% of Russia‘s 53mn passenger cars, while 40% of the country’s air passenger traffic passes through Moscow.

For now, Ukraine’s strikes have inflicted significant damage without delivering a knockout blow. But the cumulative destruction of increasingly complex refining equipment, combined with logistical bottlenecks and the Kremlin’s politically sensitive policy of artificially suppressing petrol prices, is narrowing Moscow’s room for manoeuvre.      

As Vakulenko warns, if the authorities can no longer prevent a petrol deficit, the question will shift from whether shortages emerge to “how they will organize the distribution of a scarce resource.”

By Ian Proud, Substack, 7/14/26

Ian Proud is a retired British diplomat who served in Moscow from 2014 – 2019.

There is no functional way to end the war in Ukraine, on the basis that NATO and the EU have stolen the sovereignty of their members, refuse to talk to Russia and see no interest for their citizens in peace-making.

In a perfect world, NATO and common EU foreign policy would cease to exist, but that won’t happen this side of the next decade.

So, I predict that at some point over the next year Zelensky will be ousted, and that from 2027, support for globalist mainstream parties will start to crumble across Europe as citizens increasingly come to the realisation that their prosperity and safety have been sold out to prolong a forever war that no one wants.

Peace in Ukraine can only happen if Ukraine and Russia agreed to coexist without war under the UN system. That does not mean a state of friendship between the two countries. It is impossible to imagine that any time soon and it would take a generation to restore any normality in relations.

Rather, it would mean an agreement by both sides to settle future disputes through dialogue and diplomacy — a situation that has not pertained in Ukraine since 2015.

Russia’s Core Conditions for Peace

For Russia, there will be no peace deal for Ukraine until the issue of NATO is finally and irrevocably taken off the table, together with a resolution of the status of Donetsk and protections for the use of the Russian language for those in Ukraine for whom it is their first language.

Ukraine’s Perspective on Security

For Ukraine, peace would require a reassurance against future Russian attack and support from the west in its economic reconstuction.

The Western View of a Potential Deal

The problem is that for European leaders in particular, a peace deal would represent a catastrophic defeat. Having spent years presenting Ukraine as a core and essential part of the NATO family, such a deal would confirm that European efforts had failed, despite years of asserting that the billions invested in the war would eventually secure success.

Russia’s Fundamental Strategic Concern

Ukrainian neutrality is about much more than Ukraine’s rejection of a military bloc.

For Russia, the Ukraine conflict — and now the full-scale war — has always been first and foremost about denying the West’s right to impose its will by force and economic pressure. Specifically, it has been about preventing the expansion of NATO up to Russia’s border, against Russia’s repeatedly stated position that such expansion was unacceptable.

Many argue that Russia does not have the right to decide who can or cannot join NATO. Strictly speaking, this is correct. However, Russia does possess the right, as a sovereign nation, to determine what constitutes its core strategic interests.

It decided decades ago that NATO expansion ran directly counter to those interests — to the extent that it would be prepared to fight to prevent it.

Of course, Ukraine also has the sovereign right to choose its alliances, although the relationship of most Ukrainians with NATO has been ambivalent at best. Even if every Ukrainian had viewed NATO membership as an absolute priority — a situation that has never existed — Russia’s security concerns would remain.

The Requirement for Negotiated Solutions

The only way forward in those circumstances would have been for Ukraine and Russia to negotiate a resolution that addressed both sides’ concerns, as required by the UN Charter. On this basis, Russia and Ukraine held talks about Ukraine’s NATO aspirations on multiple occasions after Putin came to power. At every stage, Russia expressed its strong objections.

When President Putin met Ukrainian President Yushchenko in February 2008, he described the potential military escalation between Russia and Ukraine under a NATO membership scenario as “horrible to say and terrifying to think.”

Ukraine’s NATO aspirations had largely disappeared under the Yanukovych presidency.

NATO expansion was driven primarily by Western powers, above all the United States, which meant that what Ukraine itself wanted or did not want became largely incidental. Even President Poroshenko was initially very cautious about NATO membership, noting that a majority of citizens did not favour it. He did not mention NATO during his inauguration speech.

It was only in late November 2014 — almost three months after he attended the NATO Summit in Wales and with his military campaign in the Donbas backfiring and pulling Russia deeper into the fight — that he stated Ukraine was “decisively resuming its political course for integration into the Euro-Atlantic security system.”

A month later, Poroshenko signed into law the repeal of Ukraine’s 2010 non-aligned status, setting in motion a five-to-six-year programme for Ukraine to meet NATO standards and promising a referendum on membership.

Zelensky was elected by a landslide in 2019 on a platform to bring peace with Russia. He also indicated that any future NATO membership bid would require a referendum.

As of today, no vote has ever been put to the Ukrainian people on NATO membership, although a significant majority of the population that remains in unoccupied Ukraine would likely support it today.

The Shift Away from Bilateral Diplomacy

Prior to 2014, Ukraine and Russia had regularly sought to resolve their differences through dialogue and diplomacy. From 2014 onwards, however, the West adopted the view that so long as it could support a leadership in Ukraine favouring NATO integration, the preferences of ordinary Ukrainian people became secondary. That position has remained unchanged.

In that sense, Ukraine has effectively subordinated its sovereign right to choose in favour of Western strategic interests. While Ukraine retains the appearance of a democratically elected president — although Zelensky has not faced an election in over seven years — elected Ukrainian leaders have been expected to follow the Western directive on the specific issue of NATO.

Even if one accepts the proposition that Ukraine is a fully sovereign nation making choices independently of Western influence, it has not, since 2014, been permitted to settle its disagreement with Russia through dialogue and diplomacy. The US, UK, and European strategy has been to deny that Russia has any legitimate say in the matter and to demand that it unconditionally back down.

This approach denies that Russia’s concerns about NATO expansion — expressed consistently throughout Putin’s presidency — have any legitimacy. It also denies the validity of the argument that NATO expansion escalated tensions and eventually contributed to war.

The UN Framework and the “Rules-Based Order”

No country can remove Russia’s right to advance its interests. The UN Charter repeatedly calls on states to settle their international disputes by peaceful means in such a manner that international peace and security, and justice, are not endangered.

The West’s strategy has been to deny Russia’s sovereign right to articulate its concerns and to resolve those concerns through diplomacy. In doing so, the West has chosen to operate outside the spirit of the UN Charter, subordinating the sovereign interests of both Ukraine and Russia in order to advance NATO expansion.

NATO does not enjoy legal statehood. It is a collection of sovereign states that have chosen to align their national interests with the institution as a condition of membership. Like the EU institutions, NATO is a bureaucratic entity with its own institutional interest in survival and growth and with a leader who has not faced a public vote. It does not possess sovereignty.

Yet it has acquired or assumed the sovereignty of its members. Its policy has effectively allowed member states to pressure Russia into accepting their collective goal of expansion into Ukraine over Russia’s expressly stated objections.

NATO has placed itself in a position analogous to that of the UN in setting the rules of the game. Unlike the UN, however, NATO has no dedicated mechanism for the peaceful resolution of disputes with nations that fundamentally disagree with its purpose or its plans for expansion.

The international legal system built on the UN has therefore been sidelined in favour of what Western powers describe as the “rules-based international order” — a phrase that, in practice, often means “our rules, not yours.” For the record, I had not once heard the term “rules based international order” used in the British Foreign Office before the Ukraine crisis started. It emerged as a confected phrase within a new lexicon to describe the rules that other states should obey.

The Nature of the War

The war in Ukraine has never been primarily about territorial conquest. It has been a battle between two systems: a Russia-favoured UN system in which disputes are to be handled through diplomacy, and a NATO-centred system in which Russia has had no say and has been expected to accept NATO’s terms. In this regard, Russia does not view the current President of Ukraine as an independent actor, but rather as a figurehead of a NATO-aligned system — someone elected on a platform of peace who subsequently aligned with Western preferences against the interests of the citizens who voted him into a power, and who no longer have a right to vote by virtue of the war.

There is little dispute that, at the outset, Russia’s aim was to remove the Zelensky government and install one that would adopt a less confrontational posture toward Russia. That attempt failed, locking both sides into more than four years of bloody war in which the front line has moved only slowly.

It would nevertheless be a mistake to describe the war as one of territorial conquest, even though the collapse of the draft Istanbul Agreement in April 2022 led Russia to advance claims over four additional oblasts.

For Russia, the war has become an existential struggle to prevent the expansion of the NATO bloc to its borders and to resist the imposition of a system of power that runs counter to the UN framework.

NATO’s Character and the Escalation Dynamic

NATO is a military bloc originally established to counter the Soviet Union. Today, its primary focus remains Russia — the only major military power that directly borders the alliance. The claim that NATO is purely defensive becomes harder to sustain when one considers that it accounts for approximately 53% of global defence spending, a percentage that will grow significantly as European nations rearm. Within the next decade, NATO may account for two thirds of global defence spending.

And yet it claims to be a defensive alliance. The Ukraine crisis began because Russia concluded that the NATO alliance sought to determine who governed Ukraine by interfering in its political system and supporting a change of government that installed a NATO-friendly regime.

In 2014, Russia responded by annexing Crimea — partly to secure the Black Sea naval base in Sevastopol — and by supporting separatists in Donbas. This allowed Western leaders to reinforce the narrative that NATO needed to expand in the face of a revanchist Russia.

Russia’s move on Crimea was framed as both a defensive measure and a correction of the Soviet-era administrative decision to transfer the peninsula to Ukraine. Prior to 2014, there is little evidence that Russia had active imperial designs on Crimea, which Russian citizens could visit under visa-free arrangements.

For years, Russia provided military support to separatists in Donbas in response to Ukrainian military operations and to protect the Russian-speaking population. There is little evidence, however, that Russia seriously considered absorbing the region until around the time the full-scale war began.

The key point is that every escalation has allowed Western leaders and commentators to strengthen the narrative that Ukraine needed protection from Russia, and that the best form of protection was NATO membership. This has created a self-reinforcing cycle in which both sides attribute every deterioration to the other, while the absence of sustained dialogue between Russia and NATO prevents any meaningful dispute resolution.

Why the Conflict Remains Unresolved

The Ukraine war is not currently resolvable through existing mechanisms. Russia will not abandon its long-standing objections to NATO expansion. NATO continues to maintain that expansion is the only reliable way to protect Ukraine. The Ukrainian leadership amplifies the NATO position and has shown little interest in realistic dialogue with Russia.

Western leaders keep calling on Russia to adopt a ceasefire.

And yet a ceasefire alone will never be acceptable to Russia, because while it would end the fighting, it would leave the underlying concern about NATO expansion unresolved while Ukraine rearms and seeks to integrate more deeply into a militarising Europe.

Locked in a NATO Narrative Cycle

For now, the war remains locked in a NATO-led narrative cycle which prevents any possibility of resolution through peaceful means. One of the biggest narrative thrusts is that Putin doesn’t want peace and that therefore we should avoid all diplomacy with him because there would be no point in talking to someone who doesn’t want peace.

However, this is an outright falsehood because peace will only be possible through diplomacy. Denying diplomacy is therefore denying the possibility of peace. As peace would require a reckoning with the underlying cause of the war — the role of NATO as a destabilising agent — no mainstream leader in Europe is prepared to countenance any sort of concession on NATO. So, the best form of deflection is to say that Putin doesn’t want peace.

However, Putin’s conditions for peace have been made clear consistently: Ukrainian neutrality, recognition of the current realities in Donetsk, and language rights. There is no evidence to support the allegation that he would reject diplomacy with European leaders. Putin engaged in direct peace talks with Donald Trump in Alaska and they have spoken on the phone many times. NATO and European leaders have said repeatedly that they see no value in direct talks with Putin because he does not want peace.

Yet Putin has said consistently that he is prepared to have direct negotiations. Zelensky has made several performative efforts to suggest peace talks but not in a manner that would suggest he is willing to follow through.

For example, his recent letter piled insult after insult on Putin while making a meeting sound like a throwaway remark. Zelensky has been one of the most vocal in saying that Putin should be forced to negotiate, even though Putin has consistently said that he is ready to negotiate, with no forcing needed.

So there can be no peace without diplomacy, and it is clear that NATO and European leaders have rejected diplomacy because that would require a reckoning with the underlying drivers of the war.

Signalling That Russia Is Losing as a Tool to Avoid Diplomacy

This has placed a huge emphasis on European leaders trumpeting signs of success in Western strategy, specifically proof that Russia is losing and will eventually lose. None of these communications strategies are remotely accurate, but they do help to maintain the position of no diplomacy.

The first is that Ukraine is turning the tide on the battlefield. There is nothing to suggest that this is true. Even Ukraine’s former Chief of the Defence Staff, now Ambassador to London Valerii Zaluzhnyi, recently admitted that the war is stuck in an attritional phase, dependent on which country has the most resilience — in circumstances where Russia has more troops, more money, more energy, and a strong industrial base to sustain the war.

Ukraine has a chronic manpower shortage and is conscripting its citizens in increasingly violent ways. It is totally dependent on the West for financial aid and for a significant part of its military needs. It is energy-dependent and much of its heavy industry has been degraded. At best the war is stuck in a chokehold in which Russia, unwilling to commit more troops through general mobilisation, is seeking to bleed Ukraine dry of men and bleed Europe dry of the economic means to support the war.

Ukraine will not win this on the battlefield, and most people, including many now in Ukraine, accept that. And yet Western mainstream media continue to peddle this line regularly.

The second claim is that Russia’s economy is about to implode. Again, nothing suggests this is true. Russia has undoubtedly suffered fuel supply problems from Ukrainian strikes on its oil refining infrastructure. That is causing inconvenience to the population and affecting views among Russians towards the war. However, that is not the same as suggesting that Russia’s economy is in trouble. It still turns in significant export surpluses, has practically no unemployment, industry working at full capacity, and significant financial reserves of gold to manage external shocks.

Ukraine, on the other hand, has become an economically failed state, totally dependent on Western support at a time when Europe itself is in industrial and economic decline.

Related to this is the repeated call for more sanctions on Russia to ratchet up the economic pain. As I have said countless times, the West long ago passed the point of diminishing marginal returns on sanctions. Each new package now serves only to harden Putin’s resolve and to prevent the possibility of any compromise on Russia’s part.

Related to this, Zelensky now calls for deep missile strikes inside Russia as long-range sanctions designed to force Putin to the negotiating table. Deep strikes inside Russia appear only to precipitate an equal or heavier response from the Russian side – another point Zaluzhnyi conceded – which the West will then spin as evidence that Putin does not want peace and therefore we should not engage in diplomacy with him.

On the basis that European leaders refuse to engage in diplomacy, it is disingenuous to talk of forcing Putin to a negotiating table that clearly does not exist. Once more, this is another press line to prevent the possibility of direct dialogue.

The Claim That Russia Will Attack Europe Next

This is yet another self-serving line that supports massive inputs into the European and Ukrainian defence industrial complex at the expense of productive economic development and social spending in those countries.

It is clearly absurd to suggest that, having been waging a slow attritional war in Ukraine for four and a half years, Russia somehow has the desire and the resources to attack Europe next.

Firstly, that assumes Russia can subjugate the whole of Ukraine so it does not have to fight on two separate fronts which is self-evidently unrealistic given progress made so far in the Donbas.

As importantly, it puts the conversation into Russia being an imperialist power intent on conquest and takes the conversation away from the root cause of the war in Ukraine, which is NATO itself. Russia has fought Ukraine to a standstill precisely so it can avoid having NATO on its doorstep. Why then attack the largest military bloc in the world that it has determined to keep its distance from?

The Claim That Russian People Are Turning Against Putin

Finally, there is the claim that Russian people are turning against Putin and will soon evict him from power, so we need to keep the pressure up. For a long time, Western policy hitched itself to an approach of “boiling the frog,” in which ever-increasing pressure on Putin will eventually precipitate some sort of collapse of his rule and usher in a change in power more favourable to good relations with the West.

Even though there is no evidence that a direct military victory can be secured against Russia by Ukraine fighting on its own, claiming that Putin’s legitimacy is collapsing blocks off any suggestion of direct dialogue, because if Putin will soon be out of the picture, then let’s wait until he is gone.

The most troubling aspect of this line is its assumption that any future replacement for Putin would be more favourable towards the West. Firstly, there is little evidence that Putin wants to live in a state of permanent hostility with Europe. He has been remarkably cautious in his prosecution of the war. Militarily he could have escalated several steps up the ladder, including through strikes into Europe or the use of tactical nuclear weapons, which he has actively avoided.

It is my assessment that despite many hardliners in Russia calling for sharper escalation, Putin is driven by a desire one day to normalise relations with Europe and is keen to avoid anything that would deepen an already gaping gulf between Russia and the West.

But the point is that it is deeply mistaken to believe that any future change in leadership in Russia will precipitate a change of heart about the threat of NATO towards Russia. A collapse in Putin’s rule, it is assumed, would usher in Ukraine’s membership of NATO and create a sense of the West finally having prevailed.

Yet it is incredibly foolish to believe that, given the treasure and hundreds of thousands of Russian lives lost in Ukraine, a future Russian leader would resist NATO expansion as fiercely, if not more so. There is a presumption of liberalism in this Western view — that a future Russian leader might be more moderate. The reality is that they could take a much tougher line.

Summary of the Narrative Strategy

To summarise, the constant bombardment of Western press lines about the prosecution of the war in Ukraine is designed to prevent any possibility of direct dialogue with Russia in the interests of peace. In circumstances where the war is functionally at a stalemate, with Russia holding the strategic assets to wait, that leaves us in a position of having no way out of war.

The Western policy position has meant that European countries have subordinated their sovereignty to supranational bodies in the form of NATO and the EU and they are unable on a bilateral basis to break the deadlock of the consensus that governs those organisations, which are led by unelected officials with outsize power to decide policy.

The irony is that the underlying basis of the war is and remains Russia’s claim that NATO expansion threatened its sovereignty.

So, to bring it back to the top of the discussion, NATO has not only supplanted the UN in deciding the rules that Russia should accept without condition. It has taken upon itself the sovereignty of its member states to prevent the types of bilateral dialogue between states that the UN Charter provides for.

The obvious way to end the war would be to disband NATO and return to the norms of diplomatic engagement that are set out by the UN. But that simply will not happen because NATO itself has the convening power to corral the sovereignty of its members around a raison d’être that the bureaucracy, rather than elected officials, decides.

Even though I believe that removing NATO would remove the problem, I judge that it will be practically and politically impossible in modern Europe with the globalist leaders that we have in charge, at a national and at a supranational level.

How Will the War End?

As of today, there is no functional route out of the war in Ukraine. Western leaders have locked themselves into supporting Zelensky come what may, and Putin is unwilling to back down. There is an absolute resistance to a diplomatic settlement and an outright military victory appears unlikely.

Russia will probably seek to paint out the rest of Donetsk, though that may take some time yet. There is a chance, should there be no change from the European side, that Russia would then seek to occupy Odessa, possibly. But that would take much longer. It is far from clear that the West would change its narrative approach, even if Russia made further slow advances. The response would almost certainly be that Russia’s slow progress is a sign of their weakness and the strength of Ukrainian and European resolve.

And even greater gains by Russia might not provide for a negotiated way out if Zelensky and European leaders continued to refuse to engage.

So we risk literally being in a never-ending war in which little military advancement is made at huge cost to Russia, Ukraine and Europe in men and materiel but without the diplomatic means to escape.

That’s why I consider the war will end through popular resistance to it, not through any political moves by Western leaders or through a decisive military victory. The biggest weak point will be in Ukraine itself, with war weariness now heavy and with increasing rebellion against the brutal forced recruitment tactics being employed to shore up the country’s shaky military manpower situation. I therefore predict a forcing event inside Ukraine, either an assassination of Zelensky — who now deliberately spends much of his time outside the country — or, more likely, an internal coup d’état.

A coup could take place on the back of a popular uprising against the continuance of the war and his extended period in office. Or it could be a palace coup. There are risks of an ultranationalist takeover of the Ukrainian state. But given the allegations that Ukrainian ethnonationalists have an outsize role in war policy, I assess that pragmatists within Ukraine’s political elite will seek to oust him, most likely through an impeachment on the back of corruption scandals.

On the European side, I see popular unrest about the war policy of EU and NATO institutions leading to seismic political change in the main powers — France, Germany and the UK. There will be a concerted media campaign to prevent victories by the AfD, National Rally and Reform, though I consider these will ultimately prove fruitless.

A major by-product of the war in Ukraine has been to remove the rights of ordinary citizens to choose their future. This may ultimately lead to the slow erosion of NATO and the EU.

But assuming that Zelensky has not been removed from office by 2027, I predict that the collapse in Western support for the forever war in Ukraine will start to crumble after the French Presidential election, which Marine Le Pen is considered in hot contention to win. France under Le Pen will not want Ukraine to join the EU because of the loss of financial benefits to France that would result. I predict she would not want to prolong the war in Ukraine further given the significant indirect economic cost to France from the decline of Europe that it has precipitated.

There will be an enormous legal and media campaign to prevent Le Pen from winning, much as there will be a similar campaign in Germany in 2029.

Even in Britain, political elites are already looking to unpick the Brexit vote and suck us back into the warmongering supranational structure of Europe.

But the simple truth is this, the only way to end the war in Ukraine is the get rid of Zelensky and the globalist elites in London, Berlin, Brussel and Paris.

There is simply no other functional way to make it end, on the basis that NATO and the EU have stolen the sovereignty of their members, refuse to talk to Russia and see no interest for their citizens in peacemaking.

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By Oliver Boyd-Barrett, Substack, 7/13/26

An Obsession

The state of Russia’s economy has become almost an obsession for direct participants in the propaganda war that in Western mainstream media suffuses reports and representations of NATO’s war on Russia over proxy Ukraine. Pro-Russian sources seem not to exercise anything like comparable interest in the state of Western economies or even, very much, of Ukraine’s

Competing Economies

This is a limitation, of course, as few Western economies can be said to be thrilling, many are stagnant, and some are in recession, and their economically inadvisable involvement in the Ukraine war is a good part of the reason for this state of affairs. Where economies look more exciting, as in the extremely different cases of Ireland and the US, a single sector (computing and AI) tend to account for a hefty percentage of gains, provided, of course, that one ignores environmental and other consequences unaccounted for.

The Much Exaggerated “Collapse”

Apart from consideration of what is happening to competing economies (and disregard for the cyclical nature of capitalism that thrusts all economies into periods of significant challenge from time to time), other common problems in the assessment of the Russian economy include clear editorial hostility to Russia that affects how data are interpreted, and high selectivity in the economic indices that are selected for discussion.

Economies rarely “collapse,” which is a favorite simile employed by each side when expressing its hope and expectations for the fate of their opponent.

Far more generally, economies pull through, adapt, develop, survive. Nuance rules.

A Dual or Multiple Reality: Explaining Resilience

Like many, Russia’s economy shows a dual if not multiple reality. Massive state spending after 2022 initially prevented collapse against the threat to the economy of the pulling out of Western enterprises and Western sanctions (which Trump is promising to further enhance at the urging, among others, of the late Lyndsy Graham), even though all that these seem to have achieved to date is rapid and effective product substitution and growth.

Other factors that staved off the worst of negative consequences were the forced domestic containment of Russian capital, the return of Russian capital invested overseas back to Russia, the acquisition of Western enterprises by local, and the fact that many Western enterprises remained in Russia despite pressure from their own governments but were required to reinvest local profits locally. Overall, initial Western sanctions and other hostile measures following the SMO of February 2022 proved to be a major boost for investment in the Russian economy.

Sources of Strain

Russia’s critics like to argue that the initial model of aggressive economic adaptation is transitioning into stagnation. They say that the economy is under severe strain from intense labor shortages (but which are often an indicator of a very active, though perhaps overheating, successful economy), heavy military spending (something that creates strong demand for industrial productive assets, a bonus for the economy), and strict monetary controls (which have had demonstrably favorable results in curbing inflation and interest rates), while simultaneously remaining resilient due to high employment and stronger trade ties with non-Western partners (hardly unimportant – see below).

The Military Factor

Critics are keen to convince themselves that the massive state-led stimulus for weapons factories has peaked, resulting in a “dual economy” of overheated military production and stagnant civilian growth. I would say that demand for weapons will continue to increase so long as the West, especially Europe, indulges in anti-Russian warmongering rhetoric – including bravura predictions of going to war against Russia by specific dates – and that while a militarily-skewed economy is not ideal, it does have positive consequences for the circulation of money in the economy and demand for civilian goods and services.

Conscription and war casualties have reduced the available workforce (although we should not overlook the fact that Russian compensation to bereaved families is relatively generous, and that Russia has shown that it can attract significant immigrant labor from North Korea and from China) creating severe labor shortages and a mild wage-price spiral.

Inflation and Interest Rates

Critics also argue that borrowing costs – with the Central Bank benchmark interest rate near a 20-year high of 21% – along with higher taxes and fears of nationalization, have led to a sharp drop in fixed capital investment. State finances face growing strains. Liquid assets in the National Wealth Fund have plummeted (down to 1.8% of GDP), while oil and gas revenues have experienced significant year-on-year drops, widening regional budget deficits. Consumers and entrepreneurs continue to save, but high inflation limits both purchasing power and business expansion.

Yet (!) Russia is investing 26% of its GDP, compared with investment of 15% of its GDP before the war, far higher than most anywhere in Europe. Consumers and entrepreneurs continue to save, even if relatively high inflation limits both purchasing power and business expansion.

Yet (!) the annual inflation rate in Russia is officially projected by the Bank of Russia to decline to a range of 4.5% to 5.5% by the end of 2026 (while the annual inflation rate in the USA is 4.2%, as of the latest May 2026 reading). This is a targeted cooldown from the 6.02% annual headline rate recorded a year earlier.

Borrowing costs remain high as the central bank balances economic cooling against rising inflation risks. Monetary policy easing has been complicated by expanding fiscal spending, wage growth, and energy infrastructure disruptions, causing annual inflation, as we have seen, to hover around 5%, above the central bank’s 4% target. As a result, analysts anticipate that the central bank’s rate-cutting cycle will slow or stall, meaning local mortgage and commercial loan rates will likely stay restrictive.

Banking System

Russia maintains an impressively low national debt, hovering around 17% of GDP.

The domestic banking system remains stable, and employment rates are very high, with wages creeping up to buffer households against rising prices. Continuous state interventions, including extensive social benefits, cash payments to soldiers, and high public spending, have propped up domestic demand and prevented a collapse in living standards for many. Latent vulnerabilities are growing due to a war-burdened economy, rising household insolvencies, and the compounding effects of international sanctions.

While the Bank of Russia maintains that the sector has adequate capital buffers to absorb losses, some independent and intelligence analysts warn of a looming systemic crisis. Signs of underlying strain include a rise in non-performing loans. The share of non-performing assets in the banking system has reportedly surpassed 10% (nonperforming loans make up about 1% of total loans held by US banks).

Debt

Corporate and household debt has risen. Over 500,000 Russians declared bankruptcy last year (but compared with the 574,000 bankruptcies declared in the US in 2025 – admittedly a country with twice the population – this is maybe not so bad) and an estimated 25% of the bond market is at risk of default as businesses struggle with refinancing. Deteriorating asset quality, critics say, is temporarily being masked by loan restructuring and strict financial controls.

New Trading Partners and Opportunities

In response to Western sanctions, Russia successfully redirected its trade and energy exports toward major markets in China and India, insulating itself from a major crisis in export revenue. This is a crushing response to those who argue that sanctions “isolated” Russia into a largely “closed” economy which is about as stupid as the Russophobic complaint that Russian “aggression” in Ukraine has isolated it in international relations (even though Russia is a major player within the BRICS and enjoys largely excellent relations with China and many countries of the global South).

The G7 price cap and European Union import embargoes continue to heavily restrict Russia’s oil and gas revenues – but only from Europe (!). Overall, Russian crude oil exports are close to their historical peak. Purchase by Europe of Russian LNG has risen 18% in the previous year and will likely increase further as gas reserves in Europe plunge in the lead up towards the next winter.

Sanctions and Drones

Extraterritorial U.S. sanctions targeting major firms like Rosneft and Lukoil have driven the Urals crude discount to Brent up significantly. Sanctions targeting Russia’s “shadow fleet” tankers (many of these now being hit by Ukrainian drones in the Azov Sea) have significantly squeezed logistics. Ships are forced to cover longer distances to reach buyers like China and India, artificially creating tanker shortages and depressing domestic crude production.

Drone strikes on oil refineries have severely crippled internal fuel output. Processing volumes fell by nearly one-third by mid-2026, forcing the Kremlin to implement fuel rationing across roughly half of Russia’s regions and boost imports from Belarus and India.

While sanctions compress Russia’s margins, international supply shocks – such as the recent conflict in Iran and subsequent volatility in the Strait of Hormuz – have kept global energy prices high. This allows Russia to stay afloat on higher nominal pricing despite steep buyer discounts.

Monetary Policy

Led by Elvira Nabiullina, the Russia Central Bank has been engaged in an aggressive monetary tightening cycle designed to keep the economy from completely overheating. This involves a gradual easing cycle. As we have seen, after raising the benchmark interest rate to a crushing historical high of 21% to control systemic panic, the Bank of Russia executed a sequence of cuts, ultimately lowering the key policy rate to 14.25%. The latest 25-basis-point cut was smaller than the 50 bps the market expected, revealing growing anxiety over pro-inflationary risks.

The central bank is explicitly battling the Kremlin’s fiscal policy. Government spending on the war has repeatedly run over budget, pushing the primary budget deficit well above targets. Because the Finance Ministry extended its target for balancing the budget all the way out to 2029, the central bank warned that it must keep interest rates highly restrictive. This tight monetary stance heavily frustrates domestic business owners who desperately need cheaper credit to resume civilian corporate investment.

Relations with China and India

Sanctions forced Russia to completely alter its trade map, transforming China into its primary supplier of manufactured goods and India into its most vital energy outlet, while greatly increasing Russian energy exports to both China and India. Bilateral trade between Moscow and Beijing jumped nearly 23% in the first five months of 2026 alone, hitting $109.5 billion. Russia holds a substantial trade surplus with China. Russia’s top exports are entirely resource-driven, led heavily by crude petroleum ($5.96 billion in May alone) and petroleum gas. China has successfully replaced Western tech and automotive suppliers. China exported $11 billion worth of goods to Russia in May 2026, primarily driven by massive car shipments ($1.33 billion), alongside telecommunications equipment.

Bilateral trade between Russia and India hit a historic record high of $68.69 billion for the recent fiscal year. The two nations are proactively tracking a roadmap to reach $100 billion by 2030. The dynamic is vastly lopsided. India imported over $67 billion from Russia, heavily tilted toward discounted crude oil and fertilizers. On the flip side, India’s exports to Russia are a mere fraction at roughly $4.88 billion (mostly pharmaceuticals and machinery). This has stranded billions in non-convertible Indian rupees in Russian bank accounts, creating an ongoing transaction bottleneck.

Gold Sales

Faced with a ballooning federal budget deficit driven by military expenditures, the Kremlin has drastically shifted its gold strategy from long-term accumulation to aggressive, short-term liquidation. Driven by a steep 38% drop in hydrocarbon taxes early in the year, Russia’s budget deficit rose to $78.4 billion in the first four months of 2026 alone. This greatly exceeded the $50.5 billion deficit the Kremlin had originally projected for the entire year. Between January and April 2026, the Bank of Russia shed 27.9 tons of gold to plug these widening fiscal holes.

This represents the single sharpest drop in sovereign bullion reserves in a quarter-century. Russia has converted this gold directly into physical cash by bypassing standard markets. Russia exported 25.3 tons of physical gold to China – valued at $3.29 billion – marking a massive ninefold increase over previous baselines. Prior to 2022, the National Wealth Fund strictly accumulated physical gold as an untouchable strategic cushion. Since then, more than half (232.6 tons) of the fund’s gold has been liquidated to cover state spending. Total remaining NWF liquid assets have plunged from 7.3% of GDP down to roughly 1.5% to 1.9%. While soaring global gold prices (surpassing $5,000 an ounce) temporarily artificially inflate the dollar-value of Russia’s remaining holdings, intelligence reports emphasize that using gold swap operations and emergency sell-offs indicates a severe, ongoing domestic liquidity deficit.

Russia’s state gold reserves fell below $300 billion at the end of last month amid a broader drop in the country’s total reserve assets, according to the latest data from the Central Bank of Russia (CBR). This marks the sixth consecutive month that Russia’s official gold reserves have dropped, and the decline has been dramatic. In April, the CBR revealed that Russia’s gold reserves recorded the sharpest drop in a quarter century.

The main purpose of gold sales is to cover the budget deficit, which reached 4.6 trillion rubles by the end of March, but may also be aimed at building up foreign currency reserves, especially yuan, and domestic demand for gold has risen as a hedge against a weakening ruble. Such sales of gold from reserves by the Central Bank of Russia is said by some expert observers to be consistent with what other central banks are doing, especially in developing countries. Note that because of rising prices in the value of gold, the actual current value of Russian gold reserves may be increasing even as stocks are falling.

Stock Market

There has also been the issue of a fall in the Russian stock market, that marks the longest unbroken slump since 1997. The Russian stock market plummeted in 2022 following the invasion of Ukraine and initial Western sanctions, triggering a market shutdown and massive sell-offs. By mid-2026, the market entered another protracted slump, hitting levels not seen since December 2022 due to fresh US sanctions on major energy firms and high interest rates. While the benchmark MOEX saw temporary, artificial “wartime peaks” driven by domestic retail investors – briefly hitting a high in May 2024 and seeing sporadic rallies in mid-2025 – these gains completely evaporated due to heavy economic headwinds. By late 2025, the market was plumbing deep lows, a trajectory that worsened dramatically into a 17-week consecutive collapse. This is said by Russia’s critics to present a serious loss of investor confidence reflecting stagnant peace talks, frequent infrastructure drone attacks, and the severe financial costs of the military-industrial complex. The Russian Central Bank is maintaining a tough stance on interest rates, signaling that high borrowing costs will persist longer than markets expected. Vital sectors – including oil and gas, mining, and major industrials – are struggling, with giants like Gazprom tumbling to decade lows.