Russian War Spending May be Maxed Out

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Russian military spending and other war-related expenditures surged last year even as oil and gas revenues fell, with the difference covered by a mix of higher taxes on the domestic non-O&G economy, cuts in non-military spending, public borrowing, liquidation of reserve assets, monetization of gold holdings, and a massive credit expansion via the banking system. Yet, even with the Ukrainians squeezed by the reduction of support from the U.S.1, the faster tempo of operations financed by these extraordinary measures failed to generate meaningful breakthroughs on the battlefield.That has implications for the negotiations currently underway in Abu Dhabi.Russian officials have repeatedly insisted that they will only end their war on Ukraine if, among other things, they are given territories in Donetsk and Luhansk that they have been unable to conquer. The land in question is filled with defensive fortifications and difficult terrain, protecting the rest of Ukraine from Russian infantry and armor. Having failed (so far) to take it in battle, the Russian strategy over the past 12 months has focused on trying to convince U.S. officials to pressure the Ukrainians into surrendering the territory without a fight. The Russian argument is that their victory is inevitable, and that conceding now would be better than accepting the (far worse) terms of any future peace deal.It takes heroic levels of squinting to notice meaningful changes in the Institute for the Study of War’s maps of assessed control of terrain between now and last year. The Russians have managed to advance a little bit c…