As Moscow faces mounting economic pressure from sanctions and dwindling reserves, the Kremlin’s ability to sustain its war effort in Ukraine hangs in the balance ahead of high-stakes Alaska talks.
Russian President Vladimir Putin is set to meet U.S. President Donald Trump in Alaska on August 15, aiming to discuss a potential end to Moscow’s war in Ukraine. Yet behind the diplomatic maneuvering, Russia’s economy is showing signs of serious strain, with a looming “fiscal crunch” that could severely hamper the Kremlin’s military campaign.
Since the 2022 invasion of Ukraine, Russia has weathered Western sanctions with surprising resilience. But recent economic indicators reveal a more precarious situation. In June, Economy Minister Maxim Reshetnikov warned that the country teeters “on the brink” of recession. The Russian central bank responded last month by cutting interest rates by 200 basis points in a bid to stimulate faltering growth.
The backbone of Russia’s finances—oil and gas revenues—has taken a heavy hit. In July, revenues dropped 27% compared to last year, falling to roughly $9.8 billion, as crude prices declined and Europe intensified sanctions, including tighter controls on tanker fleets transporting Russian crude.
Despite weakening income, Moscow’s war-related expenditures continue to soar. Funding for weaponry, incentives to mobilize volunteers, and compensation for soldiers’ families have pushed the government into growing deficits. For the first seven months of this year, Russia’s fiscal gap widened to $61.44 billion (2.2% of GDP), up from 1.7% during the first half of 2024.
Spending surged 20.8% from January to July compared to the previous year, while revenue crept up only 2.8%. Economist Anders Åslund warns the Kremlin’s financial reserves are rapidly depleting. Russia’s National Wealth Fund, which stood at $135 billion in early 2022, shrank to just $35 billion by May 2025. Åslund predicts the fund will be exhausted by the year’s end, triggering painful cuts to public spending and constraining Russia’s war effort.
Moscow’s financial isolation is deepening as sanctions choke off access to global banking. Even China’s banks have grown hesitant to extend credit. While U.S. sanctions have stopped short of the harshest secondary measures—largely due to Trump’s approach favoring diplomatic talks—Russia’s fiscal troubles persist.
Trump’s upcoming summit with Putin will revisit peace talks that faltered in April, when proposals to lift sanctions and recognize Russian territorial gains were rejected by Ukraine and its European allies. Trump has suggested that territorial swaps might be necessary to end the conflict, a stance that faces stiff opposition from Kyiv, which insists on retaining its land.
As Russia confronts an economic crunch with profound implications for its war strategy, all eyes turn to Alaska, where diplomacy could either ease or escalate one of the world’s most dangerous conflicts.