Putin to Meet Trump as Russia's War Machine Faces Fiscal Crunch

Russian President Vladimir Putin is set to meet U.S. President Donald Trump in Alaska on August 15, with ending the war in Ukraine as a key agenda item. The timing of the summit is significant, as Russia’s economy shows growing signs of strain amid Western sanctions, falling oil prices, and a deteriorating fiscal outlook. Analysts warn that a looming fiscal crunch could limit Moscow’s ability to sustain its war effort, adding pressure on Putin as he seeks a diplomatic resolution [1].

Russia’s economy has so far demonstrated resilience in the face of sanctions imposed after its 2022 invasion of Ukraine. However, recent data indicates increasing stress. In June, Economy Minister Maxim Reshetnikov warned that the country was “on the brink” of a recession. The Central Bank responded by cutting interest rates by 200 basis points in an attempt to stimulate growth [1]. Despite these measures, government finances remain under pressure, with oil and gas revenue—a key source of funding—plummeting 27% year-on-year in July to 787.3 billion rubles ($9.8 billion) [1].

The war effort has continued to absorb a significant portion of the state budget. Expenditures on weapons, mobilization incentives, and compensation for soldiers’ families remain high, contributing to a widening fiscal deficit. The gap for the first seven months of the year reached $61.44 billion, or 2.2% of GDP, up from 1.7% in the first half of the year [1]. Meanwhile, revenue growth has remained modest, rising just 2.8% from January to July, compared to a 20.8% increase in spending during the same period [1].

Economist Anders Åslund highlighted the severity of the situation, noting that Russia may soon exhaust its financial reserves, forcing painful spending cuts. According to Åslund, the National Wealth Fund—which stood at $135 billion in January 2022—has dwindled to $35 billion as of May 2025, and he predicts the fund could be depleted in the second half of the year [1].

With access to global financial markets largely restricted by sanctions and Chinese banks hesitant to lend, Russia’s ability to raise capital is severely constrained. This fiscal pressure could ultimately force a reassessment of the war effort, though Åslund cautions it may not be enough to push Putin toward peace [1].

In the diplomatic arena, Trump’s approach appears more conciliatory than his previous administration’s. Earlier this year, he backed off from threatening secondary sanctions on Russian oil buyers and has instead prioritized reviving ceasefire negotiations. During an earlier round of talks in April, Trump’s envoy proposed lifting U.S. sanctions, demanding Ukrainian neutrality, and recognizing Russian-occupied territories—terms rejected by Ukraine and European officials [1].

During the upcoming Alaska meeting, Trump hinted at the possibility of territorial exchanges to reach an agreement. “You’re looking at territory that’s been fought over for 3½ years with—you know, a lot of Russians have died, a lot of Ukrainians have died,” he said. “There’ll be some swapping of territories to the betterment of both.” [1]

As both leaders prepare for their summit, the economic realities on the ground suggest that Russia’s war machine is running out of steam. Whether this will translate into concrete peace efforts remains uncertain, but the financial constraints are tightening around Putin, potentially reshaping the dynamics of the conflict.

Source: [1] title: Putin will meet Trump as a ‘fiscal crunch’ is about to hit Russia’s war machine (https://fortune.com/2025/08/09/russia-economy-fiscal-deficit-trump-putin-meeting-alaska-ukraine-war/)