By Ben Aris, Intellinews, 8/13/26

Ukraine and Russia continue to hammer each other, with ports, warehouses and increasingly power infrastructure in focus. I’ll do a wrap of warehouses and power today as they are the most painful targets.

Ukrainian President Volodymyr Zelenskiy is still hunting for Patriot interceptors and while Greece and Spain are refusing to part with theirs, Poland is feeling guilty and government officials said this morning they might donate some of theirs – a decision will be made “in the next couple of days.”

Zelenskiy is also still pressuring the US and said Ukraine could make do with 5% of the remaining stock, which is a downscale from previous requests. I calculate that to be a total of 42, or 7 a month, which is a bit more than the 5 a month I was guessing at earlier this week from the “every month” pledge US President Donald Trump has already offered.

But of course, it is still no way near enough. Ukraine needs 7 per day to have any chance of surviving the winter.

In anticipation of the onslaught, Kyiv just stopped sharing any of its missile info, in a repeat of Russia’s lockdown on most economic and trade info. It is also actively drawing up lists of individuals who “may need to be evacuated.”

Kyiv mayor Vitali Klitschko said last week that Ukraine has about 4,000 portable warming stations it used last year – basically a big tent with a generator where people can go to warm up, have a cup of tea and charge their phones. But he also said there were far too few of them (and men are barred from using them, as they are supposed to be at the front). This is all preparation for Ukraine’s Battle Britain moment, but without the Queen Mum to rally people’s courage.

Russia released some macro numbers today that show GDP growth was 1.3% in the 2Q26, which is a bit better than expected. The last PMI was up too in black territory, but not by much.

“Growth in the second quarter was driven by robust domestic demand and positive dynamics in several real sector industries; consumer activity continues to increase, the Ministry of Economic Development reported. Additional support was provided by government measures to stimulate investment and entrepreneurial activity, increase labor productivity, reduce business costs, and improve the regulatory environment, according to the ministry’s press release. The gradual easing of monetary conditions is also becoming an important factor in the recovery of economic activity, the Ministry of Economic Development noted,” TASS reports.

So CBR governor Elvia Nabiullina’s 600bp of rate cuts are finally starting to have an effect. However, the more important story here is that the Ministry of Finance (MinFin) is starting to struggle to issue more OFZ to fund the budget deficit gap, which also shrank a tiny it in the last month after the budget made a RUB280bn profit in June – the first time this year.

Putin keeps banging on about how low Russia debt is – about 15% of GDP. And that is a great result compared to everyone else in Europe who have debt closer to 100% of GDP. But… There is one big caveat that Putin doesn’t mention: MinFin is currently paying about 14% yields on its treasury bills – an extraordinarily high rate. That is three times the boom year rate. And the volume of OFZ outstanding is up by half from pre-war levels to around RUB32 trillion now.

The problem with this is, although the level of debt in GDP terms is low, the COST of servicing that debt is now eating up 9% of all government spending. That is extremely high as healthy debt service cost spending should normally be about 4% of the total. At 9% that is starting to approach an unsustainable level. But it’s not as bad as the US’ 14% of government spending on debt servicing, which is already passed unsustainable levels (and has already led to downgrades from its AAA rating level), but worse than the UK’s 8.3% and France’s 7% – which are both considered to be basket cases in the increasingly dysfunctional European economy.

The interest rates have become so high that Russian banks – the only source of liquidity available to MinFin – are starting to refuse to buy more bonds. They are demanding even higher rates that MinFin is refusing to pay, that it can’t afford to pay, and MinFin has been forced to cancel several auctions in the last weeks. It could issue the so-called “floaters” but that could make borrowing even more expensive. So the government is starting to have a problem funding the deficit by just using bonds.

Unable to issue more OFZ is a very serious problem, indeed. Is there going to be a crisis? Not yet. But the situation continues to deteriorate. As we argued before, it’s a race between Nabiullina’s relief from cutting rates to boost growth, and the rising cost of unsustainable debt issues. It looks like “Unsustainable” is in the lead over “Recovery” by a head at this point.

The Kremlin still has a lot of things it can do if it needs to. Raising taxes is obvious, but so unpopular that the Kremlin will avoid it as long as it can. Much more likely is it will dip into the National Welfare Fund (National Welfare Fund (NWF), the rainy-day fund to cover budget shortfalls.

MinFin has already made heavy use of the NWF and run it down from around RUB9 trillion pre-war to around RUB3.4 trillion now (the deficit is currently around RUB6 trillion). But that is only the liquid part. There is a total of RUB13 trillion ($170bn) in the whole fund – enough to cover the deficit two times over – but the “illiquid” part has been used to invest into things like infrastructure projects so is not in cash.

However, part of the illiquid bit is RUB3.5 trillion of Sberbank shares. Those could very easily be converted into cash as plenty of people would be willing to buy them and as they are shares, the Kremlin would only need to place them on the exchange to get cash back. Of course this would be a pretty radical thing to do – and the Kremlin would likely issue a “golden share” to keep control of the bank – but it is an option.

The point is that Putin is under pressure, but he is not under enough pressure to be forced into peace talks. The reserves are enough for at least another year, and probably a lot longer if the economic recovery continues. Zelenskiy on the other hand doesn’t have as much time as the Ukrainian budget is already under a lot of pressure; it is already short of $20bn this year as Kyiv suffers from the same rising military spending costs that Moscow is struggling to cope with.

However, this growing pain – the Kremlin appears to be reacting to hitting the OFZ issuance ceiling – is probably contributing to the escalation in the tit-for-tat missile war we are seeing at the moment. I have long believed that Putin has long used a gradual escalation in fighting as pressure to try and force Zelenskiy into a negotiated capitulation on the Kremlin’s terms, but the nature of the fighting has changed since July and we are now into what looks like “total war” where the game is simply to crush the other guy; no more graduated escalations. You just send your biggest bombs to destroy as much as you can. I also believe that Trump’s withdrawal from the peace talks have contributed to this decision. Once that became clear Putin has no motivation to go slowly as it means military victory is the only option, with no negotiations and with no chance of lifting sanctions in his lifetime. So, you might as well go all in.