Chapter 1
Russia pays for its war out of oil money and taxes
Russia pays for its war out of oil money and taxes, and through 2026 both came under pressure at once. Ukrainian drones have damaged its refineries badly enough that a country which exported about half its diesel has banned diesel exports and started importing petrol. Meanwhile the federal deficit has run far past what the government planned, defence has taken a growing share of spending, and the state has turned to households to fill the gap. Western sanctions press on the same revenue, though unevenly: Europe has kept adding listings, while the United States passed a tough law and then licensed Russian diesel three weeks later.
Chapter 2
The fuel story starts with Ukraine's long-range strikes on refineries
The fuel story starts with Ukraine's long-range strikes on refineries, and outside measurers have put numbers on it. The consultancy EA Analytics estimated Russian refining at 3.6 million barrels a day in July, the lowest since May 2002, and 3.8 million in August, against the 5.3 to 5.6 million normally run in those months. By the end of July more than 30 per cent of Russia's working refining capacity was out of action. In August the IEA cut its estimate of global refinery runs, naming the attacks on Russian plants alongside Middle East disruption. By mid-September three of Russia's six largest diesel refineries had sharply cut or halted output, and Kirishi was shut. The state's responses are the plainest evidence of the damage. It banned petrol exports in April, jet fuel in mid-June and diesel on July 8, the first diesel ban in its history, and kept extending them. It re-legalised petrol grades banned since 2013, bought petrol from Turkey and Belarus, and rented a refinery in Kazakhstan. At home, shortages reached 92 per cent of regions by the end of June. In August Moscow's stations reimposed purchase limits, and Meduza's analysis of nearly half a million drivers' reports found petrol available without a queue at 30 per cent of the capital's stations, down from 75. Refiners missed about 60 per cent of their exchange petrol contracts between May and September, and petrol cost 21 per cent more in mid-September than in January. Neighbours felt it too: Kyrgyzstan and Tajikistan, which took most of their petrol from Russia, began rationing.
Chapter 3
The budget took the hit from both ends
The budget took the hit from both ends. A spring oil-price spike after the closure of the Strait of Hormuz should have been a windfall, but much of it never reached the treasury: the state paid refiners about 1.5 trillion roubles in subsidies between April and August to hold down domestic fuel prices. Oil and gas revenue ran about 17 per cent below the year before. By August the deficit was already larger than the whole of 2025's, and by September it had passed the 3.786 trillion roubles the budget law allowed for 2026. The gap has been covered mostly by ordinary Russians. VAT rose from 20 to 22 per cent in January and its receipts climbed by about a quarter. Bond auctions stalled in the summer, the liquid part of the National Wealth Fund is largely spent, and a draft law would let the state draw on private pension accounts. Putin said in July the economy and its key sectors were stable. That held for the headline figures, not for fuel or the fiscal path. The draft budget sent to the Duma on September 30 points the same way: 17.1 trillion roubles for defence in 2027, more than a third of federal spending, with education, health and social policy cut against earlier plans and this year's deficit revised to 7.345 trillion.
Chapter 4
Sanctions have tightened on paper faster than in effect
Sanctions have tightened on paper faster than in effect. The EU adopted its largest package in four years in July, adding 41 shadow-fleet tankers to its list, and on October 12 its largest single set of listings, 1,569 arms suppliers and their chief executives. The regime now covers close to 4,600 listings. In the United States the Senate passed the Graham sanctions bill in August and the House in September, and it became law on September 18. It authorises tariffs of up to 100 per cent on countries that buy Russian oil and gas, but leaves their use to the President, and none has been reported. On October 9, after a call with Putin, Trump announced a diesel deal and the Treasury issued General License 135, authorising Russian diesel sales until April 2027. Eleven senators have asked him to revoke it. Enforcement leaks at sea: in September sanctioned shadow tankers carried 57 per cent of Russia's seaborne oil, and fossil-fuel export earnings held flat at about €625 million a day.
Chapter 5
The diesel deal now tests whether Russia can supply what was promised…
The diesel deal now tests whether Russia can supply what was promised for it. Trump said Russia would ship 300,000 tonnes at once and 500,000 more in November, and Deputy Prime Minister Alexander Novak said exports would rise in November and December as refineries return. The IEA's October report says Russia's export capacity is limited by refinery damage, not by the ban. What is unresolved is whether the refineries come back faster than they are struck, whether the tariff authority is ever used, and how long the budget can keep spending at this rate.
And now
The United States has switched off its own new sanctions law against Russia. On October 16, two days before the deadline, Donald Trump signed an order setting the law’s tariffs — 500 per cent on Russian goods, 100 per cent on the five largest buyers of Russian oil and gas and on the top facilitators of evasion — and waiving them in the same order, along with nearly all its sanctions on people and banks. The waivers have no end date. Sanctions under earlier executive orders stay in force, as does the Treasury licence of October 9 allowing Russian diesel sales until April 7, 2027. Lawmakers of both parties objected; Congress is in recess until after the November 3 midterms.
What Russia can sell is now limited less by sanctions than by its refineries. Moscow partly lifted its diesel export ban on October 10, and one tanker of about 40,000 tonnes loaded at Primorsk on October 13, against the 300,000 tonnes Trump said Russia would supply at once. The IEA says the easing will barely move the market, because drone damage, not the ban, limits exports.
The budget is still strained: the January–September deficit of 5.186 trillion roubles exceeds the 3.786 trillion allowed for all of 2026.
Where it stands today →