With Russia’s economy on the verge of collapse as Ukraine encroaches on more territory, Vladimir Putin has been warned that his conflict in Ukraine is unaffordable.
Additionally, despite persistent gasoline shortages, Crimean authorities are advising people not to panic as the conflict shifts in favor of Kyiv.
Since Soviet armies invaded Ukraine more than four years ago, the warning issued by the President’s top administration officials represents the most severe indication of internal discord within the Kremlin.
The setback coincides with the revelation that Russia is losing territory for the second consecutive month.
Ukraine regained more area than it lost to Russian forces in May, according to a recent analysis of statistics from the Institute for the Study of War (ISW).
According to the figures, Ukraine’s army gained a net 282 square kilometers (109 square miles) over the month, as Kyiv praises its growing success on the vast battlefields in the country’s east and south.
But according to reports early this morning, Russia launched an overnight missile and drone assault on Ukraine, killing at least 11 people, injuring scores, and trapping others.
However, according to Bloomberg, Russia’s Finance Ministry and central bank have predicted that if the Kremlin keeps up its present rate of defense spending, the government’s budget deficit will grow to a perilous level.
The cost of Vladimir Putin’s war in Ukraine has been pointed out to him.
In the Moscow region’s village of Subbotino, Naro-Fominsk District, a Ukrainian drone attack has set a house on fire.
Following a drone strike by the Ukrainian Armed Forces on a cafe in the Kherson region under Moscow’s authority, a hotel and cafe were demolished.
Defense spending cuts have been suggested, and authorities have warned that without a solution, it will be challenging to address Russia’s strained finances.
Policymakers are at odds, meanwhile, with some Kremlin officials and top Defense Ministry officials who are dedicated to achieving Putin’s wartime goals contending that military funding should be protected from reductions.
They contend that because so many companies rely on military contracts, cutting defense spending would have a major negative impact on the economy.
Putin has urged Finance Ministry staff to find savings in other parts of the budget before discussing cuts to defense spending, according to multiple sources familiar with the talks.
According to the sources, the scope of these issues has never before been made public.
Additionally, the Defense Ministry is requesting additional financing, according to two sources close to Putin’s administration.
According to officials, in order to close a budget deficit that could amount to three trillion rubles (£31 billion), defense spending may need to increase even more this year.
According to reports, Putin has been informed of growing fiscal pressures since last year, so he is not surprised by the current challenges.
They stated that the president, who has the last word on all significant budgetary issues, is ultimately responsible for deciding on the extent of spending cuts.
Officials knew that a financial deficit of between 1.2 trillion and 1.5 trillion rubles may appear in the second half of 2026 when they started working on the budget.
If the demand for military spending grew, those monies were anticipated to be needed.
Planners first believed the war in Ukraine would be coming to an end after Putin and US President Donald Trump met in Alaska last August, according to sources close to the Russian administration.
In that case, reducing defense spending later in 2026 seems like a reasonable assumption.
The discussion of spending priorities started before to the start of the US-Israeli crisis with Iran and has persisted ever since, with Putin and other high-ranking officials actively considering it.
As Russia’s economy under mounting strain in the fifth year of the full-scale conflict, the Kremlin is being forced to make difficult financial and political decisions, which is reflected in the talks.
Higher oil prices brought on by the Iranian dispute are unlikely to offer a long-term solution, according to people familiar with the situation.
They believed that for crude to really stimulate the economy, it would need to stay over $100 per barrel for at least a year.
They contended that underlying structural issues impacting inflation, economic development, and the banking industry would not be fixed even in that scenario.
Defense spending was anticipated to remain mostly constant under the Economy Ministry’s three-year budget framework, which extended to 2028.
Industries reliant on state defense contracts were predicted to rise by just 4 to 5 percent in 2026 after rising by about 30 percent in previous years to support a significant increase in weapons production.
Additionally, Russia is on the verge of a recession after lowering its growth projection in December.
On June 2, Ukrainian rescuers are at the scene of a Russian attack on a car dealership in Kiev.
On June 2, Russian missiles and drones launched a major joint strike that left the streets littered with rubble and destruction.
The GDP is predicted by the Economy Ministry to grow by 0.4% this year, which is less than the 1.3% that was previously projected.
The worsening prediction followed Putin’s April demand that his officials provide an explanation for the economy’s bad performance.
He seemed to be upset that officials had failed to prevent a downturn when he acknowledged that the economy was having problems.
Despite an increase in oil earnings related to the Middle East conflict, Russia’s budget deficit has reached a historic level.
According to official data, the deficit for the first four months of the year reached 5.9 trillion rubles, or 2.5% of GDP, which is about half as much as the government’s annual goal.
Each of the last four years has seen a budget deficit, with a 5.6 trillion ruble difference in 2025.
The National Wellbeing Fund’s liquid reserves have decreased by about 60% from levels prior to the invasion of Ukraine, and Russia’s economy is currently under much more pressure from sanctions, even though the current deficit is still less than the 3.8% of GDP recorded during the pandemic in 2020.
The current budget was predicated on cautious assumptions made by officials, such as a gradual reduction in military spending and a minor narrowing of the deficit.
As part of a larger effort to calm an economy strained by military spending, the government implemented tax increases this year in an effort to uphold fiscal restraint and adhere to the nation’s budget plan.
Financial strains have not decreased as anticipated in the event of a negotiated conflict resolution.
Consequently, authorities now have to find ways to close the budget deficit, either by cutting expenditures or finding new revenue streams.
Additionally, government representatives doubt that rising oil prices will continue. At the same time, the value of export revenues has decreased due to the strength of the ruble, which has made fiscal challenges worse.
In an interview with Kommersant last week, Finance Minister Anton Siluanov stated that public spending needs to be restrained.
“Reserves are not endless,” he stated. “We need to improve the efficiency of budget expenditures because weakness in finances cannot be tolerated in the context of such large-scale transformations in the world.”
In the midst of gasoline shortages on the peninsula, which Russia annexed from Ukraine in 2014, Sergei Aksyonov, the Russian-installed leader of the Crimean administration, advised citizens to remain calm and patient on Tuesday.
Fuel shortages have been plaguing Crimea since supplies from nearby Russian-controlled territory were restricted due to Ukrainian drone assaults.
Russia has been dealing with nearly daily attacks on its oil infrastructure by the Ukrainian government for more than four years since the invasion of Ukraine in 2022, and Western sanctions have increased the cost of crude shipments.
Sales of the most popular gasoline, Ai-95, have been limited, according to Aksyonov, and consumers must use fuel coupons to make purchases.
Long lines were seen at gas stations in Sevastopol, the biggest city in Crimea and the traditional home of Russia’s Black Sea Fleet.
Oksana Senchenko, a resident, stated, “I haven’t been able to fill up for two days now. Yesterday there was no gasoline, and today I’m driving around town and there’s no gasoline, neither 92 nor 95.”
Following government restrictions on fuel sales in Crimea, cars wait in line for petrol at a gas station.
At a gas station in Crimea, people enter their names on a list to join the line for fuel.
Mikhail Razvozhayev, the governor supported by Russia, stated on the Telegram messaging app early on Tuesday that Sevastopol is trying to restock stockpiles in order to begin gasoline sales as usual on Wednesday. Only fuel vouchers will be used for sales on Tuesday. “I want to emphasize that standing in line early in the morning or spending the entire day in line is not necessary.
Volodymyr Zelenskiy, the president of Ukraine, has stated that Ukrainian sovereignty over Crimea must be restored and has ruled out relinquishing territory taken by Russian soldiers.
According to the Institute for the Study of War (ISW), Ukraine has been gradually getting the upper hand as Russia’s advance has slowed since late 2025 due to the growing efficacy of Ukraine’s frontline and mid-range drone strikes.
In April, Moscow lost control of almost 120 square kilometers (46 square miles), marking the first time in two and a half years that its soldiers had given up more territory than they had taken.
However, according to the ISW, Russian troops are still present in the majority of the regions where Ukraine has reclaimed land.
In order to provide room for bigger groups of troops to advance later, the Russian army frequently dispatches small groups of men to take up positions along portions of the front line and conceal there.
The advances Ukraine made in April and May, totaling about 403 square kilometers (156 square miles), are still insignificant and account for just 0.4 percent of Russia’s overall area.
However, the ISW reported last week that “Ukraine’s successful mid-range and frontline drone strike campaigns are limiting Russia’s ability to transport personnel to the frontline and to supply and sustain frontline positions,” indicating a positive trend for Kyiv, which has claimed to have recently gained the upper hand in the four-year conflict.
The majority of Ukraine’s victories were in the southern Zaporizhzhia area and the eastern Donetsk region, which Russia claims as its own and is battling to fully occupy.
The estimates do not include advances that Russia has claimed but that the ISW has not verified or refuted.
