Putin May Soon Struggle To Pay His Soldiers

ANCHORAGE, ALASKA – AUGUST 15:U.S. President Donald Trump (R) and Russian President Vladimir Putin (L) hold a meeting at Joint Base Elmendorf-Richardson on August 15, 2025 in Anchorage, Alaska. The two leaders are meeting for peace talks aimed at ending the war in Ukraine. (Photo by Andrew Harnik/Getty Images)

Getty Images

Russia’s war in Ukraine has become a grinding test of endurance, and Vladimir Putin is struggling to sustain his wartime finances. What many expected to be a quick victory has instead devolved into a costly war of attrition, with Moscow unable to break through Ukraine’s growing “drone wall.”

Ukraine is waging a precise campaign to cripple Russia’s oil refineries, while also accelerating production of drones and domestic missiles, and expanding the role of autonomous weapons — innovations that only deepen the Kremlin’s mounting problems.

Lyuba Shipovich, CEO of Dignitas Ukraine, which helps the army adopt advanced technologies, told me that AI-targeting systems are especially effective when used far from the front lines: “Closer to the battlefield there is a higher risk of confusing friendly and enemy targets, but deeper behind the front, you don’t have that problem.”

Anatolii Tkachenko, commander of a mortar battery unit from Ukraine’s 92nd Separate Assault Brigade, told me: “In four years the USSR defeated Germany. In four years the Russians have only managed to take half of Donetsk Oblast.” Russia’s answer to all this is money, oil revenues turned into wages that keep feeding soldiers into its meatgrinder strategy.

Oil Money Buys Soldiers

To sustain the fight, the Kremlin has relied on oil and gas revenues to bankroll soldier salaries and payouts to families of the dead and wounded.

A large share of that spending goes to salaries and compensation for families of the dead and wounded. The Washington Post reports that in Moscow, a sign-up bonus can reach $28,000, with monthly pay starting at $3,200, plus bonuses for front-line duty and captured equipment. Recent estimates from Re: Russia, a research platform run by exiled Russian academics, show that personnel costs alone hit a record 2 trillion rubles ($25.6 billion) in the first half of 2025, nearly 10% of all federal spending.

The Russian economist Vladislav Inozemtsev has called this dynamic “deathonomics,” noting that in Russia’s poorest regions, a man killed after a year at the front can leave his family with as much as $150,000, more than he would have earned in a lifetime. At the same time, the war economy has spawned a new middle class in Russia’s industrial heartlands, fueled by soldiers’ salaries, death benefits, and surging wages in defense factories. For many, peace would mean sliding back into poverty, creating a perverse incentive to see the war continue.

Oleksandra Ustinova, a Ukrainian member of parliament, told me, “We cannot compete with Russia on manpower.” Instead, Ukraine has learned that Moscow values revenue more than lives. That is why Kyiv has poured resources into long-range drones, striking oil refineries and energy infrastructure that bankroll the Kremlin’s war chest.

“Ukraine is slowly building this capability of deterrence, which it is going to need down the road as well,” says Volodymyr Dubovyk, director of the Center for International Studies at Odesa Mechnykov National University.

Ukraine’s Drones Say No To Oil

In August, fuel prices in Russia hit record highs, and by September a gasoline shortfall of about 400,000 tons forced many stations to shut down, especially smaller independent operators unable to raise prices. In occupied Crimea, half of all stations have closed. Russia is now losing an estimated $720 million per month in fuel revenues, as Ukrainian strikes have cut diesel and gasoline exports by roughly 30%.

“The most effective sanctions – the ones that work the fastest – are the fires at Russia’s oil refineries, its terminals, oil depots. We have significantly restricted Russia’s oil industry, and this significantly restricts the war,” said Ukrainian President Volodymyr Zelensky in a Sept. 12 evening address. Ukraine’s drone offensive is not just hitting refineries on the ground, but it is reshaping the air war as well.

Apart from the fighting on the ground, Ukraine is also locked in a battle of endurance in the skies. Decoy drones have become an important tool, helping to clear air-defense corridors so long-range strikes can pierce through. “It’s likely that we will see a growing role of decoy drones as the conflict continues,” explains Samuel Bendett, an adjunct senior fellow at the Center for a New American Security.

Kyiv has even turned Su-27 fighter jets into decoy launchers armed with American MALD missiles, forcing Russia to waste multimillion-dollar interceptors on false targets while opening windows for real strikes. “Both Russia and Ukraine use decoys in their long-range strike operations, demonstrating how effective they are at fooling air defense systems,” says Olena Kryzhanivska, a defence analyst and author of the Ukraine’s Arms Monitor newsletter. “Some reports suggest that about 30% of the drones Ukraine deploys are actually decoys.”

In May, open-source satellite imagery revealed that Russia, facing its own shortages of air-defense systems, resorted to deploying decoys in the Far East. As Europe has also discovered with Russian drone incursions into its airspace, it is not financially sustainable to use costly air-defense missiles against cheap drones, especially when many of them are mere decoys.

“Ukraine, forced to adapt for survival, now leads the world in combat-proven defense tech. No other country has developed such a comprehensive ecosystem of battlefield innovation,” says Deborah Fairlamb, founding partner of Ukraine-focused venture capital firm Green Flag Ventures.

These innovations and asymmetric cost tactics have only increased the effectiveness of Ukraine’s drone campaign against Russia’s oil industry.

Over the past two years, Ukrainian strikes have grown increasingly sophisticated and damaging, knocking out a significant share of Russia’s refining capacity. Figures from the BBC show that since January, 21 of Russia’s 38 major refineries have been struck, with successful Ukrainian attacks already 48% higher than in all of 2024.

The Russian news outlet RBC reports that nearly 40% of Russia’s refining capacity is offline, with up to 70% of shutdowns caused by drones, while Kommersant noted that in September alone, petrol output fell by 1 million tons, leaving the domestic market short by about 20%. As political scientist Alexander Motyl told me, the impact goes well beyond gasoline shortages: “Less oil means less money.”

Motyl argues that sustaining these payouts will become increasingly difficult as revenues shrink. “It will get harder to pay Russian soldiers their contract money,” he said, noting this may help explain the Kremlin’s reliance on cheaper foreign mercenaries from Africa and Cuba. That financial squeeze is no longer confined to the Kremlin’s war budget. It is rapidly spilling into the daily lives of ordinary Russians.

Ordinary Russians Feel the Pinch

Russia’s war machine is also running into fiscal limits. For the first time since the full-scale invasion, Moscow’s military budget is projected to decline in 2026, dropping from $163 billion to about $156 billion after inflation. According to Ukrinform, spending cuts will hit 18 of 51 federal programs, saving the Kremlin more than 207 billion rubles ($2.2 billion). At the same time, Ukrainian drone strikes on refineries are eroding the oil revenues Russia relies on to pay soldiers and finance the war.

Even public transport is being sacrificed, with funding for new buses and trolleybuses slashed threefold despite nearly half the fleet being past its service life, showing how social needs are being stripped to bankroll the war.

“As long as Russia can export raw oil, mostly to China and India, its export revenues, although reduced, will not dry out completely,” says Ilona Sologub, an economist and editor at Vox Ukraine.

At home, higher fuel prices ripple across the economy, raising costs for consumer goods and military supplies alike. “This will force the central bank to hike interest rates,” Sologub added, “creating strains in the banking sector and making loans more expensive.” This economic pressure shows why Ukrainian leaders see refinery strikes as one of the most effective tools to weaken Moscow’s war machine.

Alexander Kolyandr, a senior fellow at the Center for European Policy Analysis, wrote: “As economic growth stalls and revenues decline, Moscow is no longer able to pump up the fiscal stimulus that fueled earlier wartime expansion, instead embracing austerity measures that threaten to further strangle the civilian economy.”

Russia’s central bank has so far held the economy together, but a permanent war footing is draining the private sector. Massive war spending demands and the fight to contain inflation have pushed interest rates to 17%, hurting the private sector.

According to the Moscow Times, the Kremlin plans to raise the value-added tax (VAT) by two percentage points in 2026, along with a proposed 5% hike in the gambling tax. Kolyandr noted the Kremlin’s plan to slash the VAT threshold from 60 million to 10 million rubles, forcing even small businesses to pay a 22% tax rate instead of the current 6%.

With fuel prices already up 50% since January, ordinary Russians are being asked to foot the bill. Overdue mortgages jumped 7% in a single month and 120% over the past year, according to data from Ukrainian analyst Yevhen Istrebin.

The Kyiv Independent highlighted that inflation has become one of Russians’ top concerns, with prosecutors probing more than 400 cases of rising food prices in 2025 and issuing warnings to over 5,000 companies. Authorities are now working to cap prices on staples such as vegetables, dairy, and poultry, as food and services continue to push inflation well above the central bank’s target. History shows that financially squeezing Russians during wartime rarely ends well for the Kremlin.

As political science professor Taras Kazio told me, “It is wishful thinking to believe Russians will suddenly say ‘enough’ and stop fighting, as they did in 1917. They fight for money, and because they have been fed anti-Ukrainian and anti-Western propaganda for three decades.”

The squeeze on the Russian state could soon intensify. With Washington now approving intelligence sharing to guide deep strikes, Ukraine’s drones and missiles are becoming deadlier. And if the U.S. supplies Kyiv with Tomahawk missiles with ranges of up to 2,500 kilometers (1,500 miles), Kremlin leaders, as Zelensky warned, “will have to know where the bomb shelters are.”

As Ukraine cuts into Russia’s oil revenues, Moscow may soon struggle to pay the very soldiers it relies on to sustain its meatgrinder offensives. At a minimum, the Kremlin will be unable to fight with the same intensity it has during the early years of the invasion. Over time, as Ukraine strengthens its technological shield, it will only become harder for Moscow to achieve its war aims.