WASHINGTON, Oct 2 (Reuters) – The Trump Administration’s desire to send long-range Tomahawk missiles to Ukraine may not be viable because current inventories are committed to the U.S. Navy and other uses, a U.S. official and three sources said.
U.S. Vice President JD Vance said on Sunday that Washington was considering a Ukrainian request to obtain long-range Tomahawks that could create havoc deep into Russia, including Moscow. On Wednesday, Reuters reported, the U.S. will provide Ukraine with intelligence on long-range energy infrastructure targets in Russia.
But a U.S. official and sources familiar with Tomahawk missile training and supplies questioned the feasibility of providing the cruise missiles, which have a range of 2,500 kilometers (1,550 miles).
The U.S. official stressed there was no shortage of the workhorse weapon, which is often used by the military for land attack missions, suggesting other shorter-distance options could be supplied to Kyiv.
The official said the U.S. may look into allowing European allies to buy other long-range weapons and supply them to Ukraine, but Tomahawks were unlikely.
SHIFT IN STANCE BY TRUMP
In recent weeks, U.S. President Donald Trump has sharply shifted how he talks about the war in Ukraine, suggesting Kyiv could retake all the land Russia has seized and calling the Russian military a “paper tiger.” The U.S. decision to help Ukraine target Russian energy infrastructure appears to be one tangible outcome of the new stance.
A new financial mechanism, the Prioritized Ukraine Requirements List (PURL), has been developed by the U.S. and allies to supply Ukraine with new weapons and those from U.S. stocks using funds from NATO countries.
Supplying Tomahawk missiles to Ukraine could significantly expand its strike capabilities, enabling it to hit targets deep inside Russian territory, including military bases, logistics hubs, airfields and command centers that are currently beyond reach.
The Kremlin said on Thursday that if the U.S. provides Tomahawks to Ukraine, it would trigger a new round of dangerous escalation between Russia and the West.
According to Pentagon budget documents, the U.S. Navy, the primary user of the Tomahawk, has thus far purchased 8,959 at an average price of $1.3 million each.
The Tomahawk missile has been in production since the mid-1980s. In recent years, production has ranged from 55 to 90 per year. According to Pentagon budget data, the U.S. plans to buy 57 missiles in 2026.
Russia said on Monday that its military was analyzing whether or not the United States would supply Tomahawk cruise missiles to Ukraine for strikes deep into its territory.
'Can American 'Tomahawks' cause us damage? They can. But we will shoot them down. Will this damage our relations with the USA? Of course. Using 'Tomahawks' without the direct involvement of American servicemen is impossible. This will be a completely new stage of escalation' –… pic.twitter.com/2hcrG6nrOl
Introduction: A Short History of Western Colonialism, including in the Middle East
The discovery of the Americas in 1492 ignited what has been called “The Age of Discovery” and the creation of colonial empires across the world. Almost every European country established colonies in the Americas, Africa, and East Asia. These colonies were used to supply resources, raw materials and markets for home-based production. This resulted in the extraction of enormous wealth which flowed back to Europe. Many books have been written about this blood-soaked period of human history.
The most significant colonial empire was the British Empire. Britian used its navy to “rule the waves” for 275 years while small groups of British nationals controlled enormous populations in East Asia and elsewhere. The East Asia Company, at its peak, controlled 50% of global trade and was said to be worth $7 trillion in today’s dollars. How did the Brits manage this empire? By using both violence and strategies that kept the subject population too divided to organize effective opposition. What we call “the west” still depends on extracting wealth from the rest of the world. This means colonial thinking and the technique of divide and conquer continues to drive foreign policy.
How does this apply to today’s Middle East? Again, a short history is required. The Ottoman Empire existed from 1300 to 1923. It was centered on the Anatolia plateau, what is now Turkey, and included parts of Europe, the Middle East and North Africa. At its peak, the empire was noted for its advancement of artistic expression, literary works, and architectural milestones. It oversaw flourishing trade routes until it encountered rivalry from the East and Europe which gave rise to factions within the empire. One important aspect of the empire was its religious tolerance, which was not in the best interests of the western colonial empires that wanted to break up the Ottoman Empire.
The dissolution of the Ottoman Empire after WW1 resulting in the creation of several countries that exist today: Algeria, Tunisia, Libya, Egypt, Sudan, several countries in the Balkans in southeastern Europe, Turkey, Cypris, Saudia Arabia, Iraq, Syria, Lebanon, the Palestinian Mandate, and later, Israel.
The partition of the Ottoman Empire set the stage for today’s controversies in the Middle East. The agreements establishing the partition include The Sykes-Picot Agreement (1916), the Balfor Declaration (November 1917) and the Treaty of Sevres (1920), eventually replaced by the Treaty of Lausanne in 1923. Under these, sometimes secret agreements, the Ottoman Empire was partitioned and the British, and the French, gained control over Iraq, Saudi Arabia, Lebanon, Syria, and Palestine. The Balfour Declaration was incorporated into the British Mandate for Palestine, and the Brits helped to facilitate Jewish immigration into the area–ultimately resulting in the emergence of Israel in 1948.
At the time, the Brits were aware that Iran had oil but did not appreciate how much oil was in Iraq, or that there were enormous deposits of oil in what became Saudi Arabia in 1932. Oil was discovered in Saudi Arabia by expat, Max Steineke, Chief geologist at Casoc and Aramco in 1936.
The big issue, from the very beginning, was how to deal with and control, Arab nationalism. The British worked against the more moderate forms of Arab nationalism by forming alliances with Wahhabi elements represented by the House of Saud and providing them with military and financial support during their conflicts with the Ottoman Empire. Wahhabism emerged on the Arabian Peninsula in the 18th century founded by Mohammad ibn Abd al-Wahhab. The aim of Wahhabism was to reform Islam by denouncing practices seen as idolatrous. The British, seeking to weaken the Ottoman empire, aligned with Wahhabism going all the way back to 1744 because it was seen as a tool to advance British interests. In 1806 the Arabian tribal leader ʿAbd al-ʿAziz ibn Saʿūd seized Mecca. In 1932 of the state ofSaudi Arabia was founded as a modern Islamic state.
The point to be made is that the colonial powers, especially the British and the French but ultimately including the United States, played a major role in the rise of reactionary Arab regimes, which depended on the continued support of colonial and imperialist powers for their survival. The rise of reactionary Arab regimes split Islam by empowering the most radical form of Sunni Islamist fundamentalism, and by disempowering the more moderate forms of Islam, including Sunni Islam. This tactic successfully fractured Arab unity and, to this day, has prevented the consolidation of the Arab population into a world power.
Saudi Arabia, alone, has spent billions supporting the spread of Wahhabism through the construction of mosques around the world and by training and funding Wahhabi Iman to run them. This has resulted in the radicalization of an entire generation of Arabs, unbelievable carnage in the Middle East, and the creation of the image of Islam as a backward violent religion. This represents another successful use of the strategy of “divide and conquer” to control resources, and to protect both Israel and the reactionary Arab regimes.
The empowerment of Wahhabism ultimately led to al Qaeda, ISIS, Au Nusra and dozens of other Sunni Islamist gangs, all of whom have been supported by the Brits, the US, and an alliance of reactionary Arab regimes. The ultimate beneficiary has been western colonialism and Israel. The atrocities committed by these Sunni Islamists led to the “War on Terror”, the Patriot Act, the fall of secular governments in the Middle East, the rise of the Likud party and settler radicalism in Israel, along with our current panopticon of 24-hour total surveillance. The “War on Terror” and the label of “terrorist” or “terrorism” enabled the violation of civil rights at home, US wars for the security of Israel, and atrocities across the Middle East. Once a group or individual is labeled a “terrorist” all human rights are lost, and they can be killed. The labeling of Palestinian organizations, including Hamas as a terrorist group, has been used as an excuse to for the occupation of the West Bank and Gaza. More recently to flatten Gaza, make Gaza unlivable, and murder thousands of Palestinian civilians. An alternative interpretation under international law would be that Hamas is exercising Palestine’s legitimate right to resist the illegal Israeli occupation and theft of Palestinian land. The terrorist designation is by design, and it reinforces decades of propaganda focusing on “Israel’s right to defend herself” and “Israel’s right to exist”, while ignoring the fact that under international law, Palestine also has a right to exist, and Palestinians also have the right to defend themselves.
This centuries old pattern in the Middle East seems to be changing. This essay will discuss how and why.
The Yinon Plan, Clean Break, A New Pearl Harbor, and the dream of Greater Israel
In 1982 an article was published in a Hebrew journal by Oded Yinon, a former advisor to Areil Sharon and a journalist for the Jerusalem Post entitled “A Strategy for Israel in the 1980’s”. This article advocated accelerating the strategy of sectarian division of Islam discussed above. It called for the breakup and fragmentation of the Arab states into small, weak, ethnically and religiously defined states to enhance the security of Israel.
The “Yinon plan’ is claimed to have influenced the drafting of “Clean Break: A New Strategy for Securing the Realm” issued on 1996. The plan called for Israel to renew itself economically by leaving behind it’s socialist foundations and focusing on neoliberalism. It also called for Israel to adopt “preemption” as a military strategy, and to “broaden Israel’s base of support in the US Congress”.
In 2000 a group of neoconservatives surrounding George W. Bush described the need for a “new Pearl Harbor”. Soon after 911 occurred and the wars of the administration of George W. Bush began to take out 7 Middle Eastern countries in 5 years. The countries named were Iraq, Libya, Syria, Lebanon, Somalia, Sudan, and finishing off with Iran. The result has been what Richard Perle described as the beginning of waging “total war”. Over the last 24 years, Zionists and neoconservatives have overthrown several of the countries mentioned, destabilizing the Middle East, but failed to destroy Iran and had to, at least partially, withdraw from Iraq. Presently, Lebanon and Syria are under assault, and Israel is engaged in ethnically cleansing the West Bank and making Gaza unlivable. The UN has now characterized the Israeli attack on Gaza as a genocide.
Support for Zionism and for Israel is falling in the United States. US global military and economic hegemony is in decline. This implies the time frame for Israel to achieve her objectives in the Middle East, including creating a Greater Israel, is narrowing.
As you can see, Greater Israel includes the following:
–Egypt–the Sinai and everything up to the Nile including substantial resources along the Red Sea. Egypt has a peace treaty with Israel and is the recipient of a large amount of US aid. Egypt has yet to respond.
—All of Jordon. Jordon has been silent.
—All of Syria. Syria has been systematically destabilized. Jolani, the Jihadist who had a $10 million bounty on his head, has allowed Israel free rein to bomb and occupy Syrian territory.
—All of Lebanon including the water resources of the Litani River, the gas resources off the coast, Beirut, the mountains–everything.
—A good part of Saudi Arabia including much of the oil and other resources.
—Northern Iraq including the oil and other resources.
—All of Kuwait including the oil and other resources.
—Part of Turkey.
—Although not shown on the map, there are indications that the Zionists also want Cypris.
Putting aside for a moment whether a Greater Israel is realistic, we must assume that the conquest of Greater Isreal would resemble the conquest of Palestine. If so, terror techniques would be used to expel most of the population in each country, and the property and resources would be confiscated without any compensation. After all, Zionists owned only 7% of Palestine–the rest was seized without compensation. Israel is now attempting to depopulate and confiscate 109 square miles of Gaza, constituting prime Mediterranean property, and off-shore gas resources, again with US support and without compensation.
Obviously, Israel cannot achieve Greater Israel without US help. The US would have to pay for the wars, do the fighting, and the shed the blood and treasure to conquer the targeted countries. Can Israel manipulate the US into creating Greater Israel, as for the wars after 911? Does the US have the financial and military capacity to fight even one more war for Israel or have US militarism and Zionism finally gone too far?
The Israeli strike on the Hamas negotiating team in Doha marks the end of an era
Israel has been conducting “decapitation strikes” with impunity for decades. Here are just a few recent strikes:
—On October 17th and 18th, 2024 thousands of handheld pagers and hundreds of Walkie-talkies, assumed to be used by Hezbollah, suddenly exploded. This represented the use of ordinary commerce to achieve a targeted decapitation. At least 12 people were killed and over 3,000 were injured. Leon Panetta condemned the pager strike as “an act of terrorism.” Which is clearly true.
—On September 27, 2024, Israel killed Hassan Nasrallah, secretary general of Hezbollah, along with many others, as they were meeting under a residential building. The operation involved dropping more than 80 bombs on a residential neighborhood of Beirut, Lebanon. Nasrallah was killed for tying the Hezbollah cause to the Gaza war and seeking to include Gaza in a cease fire. Nasrallah is credited with ending the 18-year Israeli occupation of Lebanon in 2000.
—In the predawn hours of June 13, 2025, even as President Trump was advocating continued dialogue with Iran to resolve the nuclear issue, and another negotiation session had been scheduled, Israel launched a preemptive decapitation strike designed to take out Iranian civilian and military leadership. The strike included a massive attack of perhaps 200 fighter jets dropping 330 precision munitions on over 100 targets. The decapitation strike failed. The result was the 12-day war.
—On August 28, 2025 Israel conducted a decapitation strike that took out the entire Houthi civilian cabinet including the prime minister and 10 senior ministers.
—On September 9, 2025, as a Hamas team was gathering to discuss “the Witkoff Gaza proposal” in Doha, Qatar, Israel attempted a decapitation strike to take out the entire Hamas team. The team survived but again, like with Iran, the Hamas team was meeting in response to a peace proposal being pushed by President Donald Trump. Six people were killed including a Qatar security official. Qatar was not pleased.
Crooke points out that for decades Qatar had supported An-Nusra jihadists in Syria, against Iran (divide and conquer), while selling gas and maintaining US military bases and a strategic partnership with Washington. Doha was a mediator with a relationship with the jihadists while acting as a facilitator for Mossad. Now the idea that anywhere in the Middle East is a safe zone from Israeli strikes, or that the US would be a reliable defender, is over.
Israeli channel 11 reported that President Trump approved the attack and applauded any killing of Hamas members. This was yet another US/Israeli sneak attack–one that finally got through to the Arab countries that there are no forbidden territories; no rules of law; no Vienna Convention, and that the US and Israel would act as they pleased in the Middle East.
The unconditional US support “…for Israel’s genocide and ethnic cleansing; the failure to make any serious effort to prepare a political path for a settlement on Ukraine; the reliance instead on making war, whilst proclaiming peace – all these represent the essence of the Trump approach: An exercise of escalatory dominance, both at home and abroad.”
The impact of a US “Israel first” policy is fracturing Trump’s MAGA base as the reaction to the assassination of Charlie Kirk clearly shows. Worse, US policy has negatively impacted US soft power and diplomatic trustworthiness across the world, yet, for some reason, the Trump Administration cannot break free from Zionist domination. Meanwhile, Israel is increasingly out of control, carrying out a second Nakba (ethnic cleaning and genocide) in Gaza and the West Bank. At the same timees, Jewish society itself in Israel is trapped in repression and denial –as it was in 1948 when the reality of the founding of Israel was denied. Israeli filmmaker Neta Shoshani’s controversial documentary about the 1948 war has been banned in Israel because it tried to tell the truth about this history.
“I suddenly realized that in the past two horrible years the whole matter of the Israeli ethos has been totally shattered”:
“I grasped that an ethos has a great deal of power, that it contains society within certain boundaries. And even if those boundaries are breached – and they were certainly breached as early as 1948 – there was still something in society’s moral codes that at least caused it to feel ashamed. So, for decades that ethos safeguarded [Israeli] society and the army, compelling them to preserve certain limits”.
“And when that ethos falls apart, it’s really scary. From this perspective, the film was difficult to watch from the get-go, but after the last two years it’s become unbearable” …
“If 1948 Was a War of Independence, the current war could be the one that ends Israel”.
What does all this mean for the Middle East?
Several of the nations in the Middle East have been aligned with the US; Saudi Arabia, Qatar, UAE, Bahran, and Kuwait. These nations believed that the purchase of US weapons, even with back doors giving the US control, and hosting US military bases would ensure their national security. The Doha attack blew that assumption to smithereens. The US consented to the attack, and the realization finally hit these countries that all the years of cooperating with US/UK/Israel, even as they worked to divide Islam and weaken the Arab world, had been for naught. Plus, the back doors embedded in US weapons meant they could not be used against either the US or Israel. These countries were defenseless, and vulnerable.
The reaction was instantaneous. Qatar organized an Arab-Islamic summit after the Doha attack seeking a collective response to Israel. This follows decades of the systematic destruction of Iraq, Libya, the destabilization of Syria, the ethnic cleansing of the West Bank, the destruction and genocide of the population of Gaza, the destabilization of Lebanon including the US demand that Lebanon disarm Hezbollah.
Leaders from the 57-member Organization of Islamic Cooperation (OIC) and the 22-member Arab League attended along with Iran’s President Masoud Pezeshkian, Pakistan Prime Minister Shehbaz Sharif, and Malaysian Prime Minister Anwar Ibrahim. On September 13th, Iran’s security chief Ali Larijani issued what he called a “warning to Islamic governments” and said they must “form a ‘joint operations room’ against the madness” of Israel instead of resorting to mere statements. The result is unclear, but these nations are talking and the US and Israel are not part of the discussion.
The reaction did not end there. On September 18th Turkey revealed that Israel had sold Greece an air defense system that could further destabilize the Island. It was also reported that Israel thought it was time for Turkey to be forced to leave Cyprus. These events are happening while Israeli’s are buying land and building communities in Cyprus. Turkey is a member of NATO, but this fact could be meaningless in a conflict with Israel.
There are now two nuclear power blocs in the Middle East–the US/Israeli block and the Pakistani/Saudi Arabia block. More importantly, Pakistan has vowed to nuke Israel should Israel use nuclear weapons.
For Pakistan it addresses a critical flaw, access to energy. From Thomas Kieth: “Pakistan now enjoys an unprecedented warfighting depth: Chinese arms and ammunition on one side, Saudi oil and money on the other. It is an industrial-scale supply chain that neutralizes the constraints India has historically counted on. For Saudi Arabia, the pact is equally revealing. Riyadh has watched the limitations of U.S. security guarantees with growing unease. The recent incident in which Israeli missiles crossed Saudi airspace to strike Qatar without interception exposed the cracks in U.S. air defense systems stationed in the region.”
India has yet to respond and tensions with China and Pakistan still needs to be addressed. Still the pact has created a new strategic corridor where China supplies the arms, Saudi Arabia supplies the energy, and Pakistan provides the pivot.
The US was not informed of this pact until it was announced. For Saudi Arabia, the pact provides a defense against a decapitation strike and the takeover of Saudi assets by Israel as part of creating Greater Israel. By providing a nuclear umbrella over at least part of the Middle East, Pakistan has also defanged Israel’s nuclear threat.
The Saudi/Pakistani pact could result in other client states exploring options leading to the collapse of the US global alliance system. The implications for the petrodollar and US global economic and military dominance should also not be ignored.
The question now is what will happen to Iran. The “snap back” sanctions provisions were adopted by the EU, but their legality has been questioned by Russia, China, and the global south. Apparently, they did not intend to obey the sanctions. Reports say that Israel will initiate another war with Iran before the end of the year.
Conclusion
For the US, the realization may be dawning that it is too late to arrest China’s dominance of the eastern Pacific–or to breakup and loot Russia–that the US should instead pivot to securing the homeland including the entire western hemisphere. The result of this shift is still to be determined. The US now has a flotilla of battle ships threating Venezuela and blowing up small boats. Does this mean the US intends try and seize Venezuelan oil reserves? This would imply the US is trading one series of absurd wars for another. What is needed instead is diplomacy and working to create peaceful exchanges and commerce.
The kind of thrashing around we have witnessed for the last 35 years is not the way a superpower should behave. The dissolution of the Soviet Union should have ended US militarism but instead resulted in the quest for global hegemony and a frantic search for another enemy. Years of domination by militarism, neoliberalism, and the corruption of money has created a catastrophe.
The “brilliant minds” behind US foreign and domestic policy have made an enormous mess both domestically and with foreign policy. Our present circumstance represents a bi-partisan failure of the entire political class over at least 2 generations. A reckoning is coming. This contour of this mess has been discussed in previous Substack’s. The fix has also been discussed; it involves the American people coming together in a new populist movement to reform the system, focused on economic fairness. As for the reckoning–what, how and when is unknown, but it is coming.
Russia’s Ministry of Finance (MinFin) presented the 2026-2028 budget on September 24 that keeps spending flat and introduces a number of new taxes to fund a ballooning budget deficit and cuts military spending for the first time in three and half years of war.
Not all the details were released, but most of the main parameters have been made public and the draft is scheduled to be submitted to the State Duma by September 30.
The MinFin said its draft federal budget for 2026–2028 will remain “balanced and sustainable,” while prioritising defence, security and social support for families of participants in the war in Ukraine, TASS reported on September 24.
“The draft budget preserves conditions for growth in real wages and household incomes,” the ministry said in a statement, adding that allocations for housing and family support would increase alongside defence expenditure.
The budget will be closely scrutinised after US President Donald Trump claimed he has studied the Russian economic situation and discovered it was very “BAD”, calling it a “paper tiger”, as part of an abrupt U-turn on Ukraine during the United Nations General Assembly (UNGA) in New York this week.
The main change in the new budget is sharp changes in the GDP growth outlook: 2.5% in 2025 instead of 1%; and 1.3% instead of 2.4% in 2026. This brings the Ministry of Economy’s estimates closer to the Bank of Russia’s current forecast for growth of 1-2% in 2025 and 0.5-1.5% in 2026.
After three and half years of war, the Russian government is under growing pressure to fund its “Special military operation” (SVO) and its economic problems are getting worse. However, as bne IntelliNews reported in a recent deep dive into Ukraine and Russia’s budgets side-by-side, the Kremlin can fund its entire war effort using only internal resources – largely the issue of the Russian Finance Ministry’s OFZ treasury bills tapping the RUB20 trillion of liquidity in the banking sector.
Ukraine is, however, entirely dependent on external funding from its allies: it is short some $8bn-$19bn (depending on if there is a ceasefire) for 2025 and the unfunded gap in next year’s budget was just increased to $65bn by the International Monetary Fund (IMF), all of which will have to come from European partners this year, after the US sent no money to Ukraine since US President Donald Trump took office.
Russia’s MinFin is trying to spread the load with a mix of modest drawdowns from its rainy day National Welfare Fund (NWF), cutting spending, issuing more OFZ bonds and this year increasing VAT rates by 200bp that comes into effect on January 1, and the introduction of progressive income taxes for the first time in Putin’s 25 years of rule that came into effect this year.
Taken together, while this will be a painful year for Russia’s budget, the Kremlin is still well able to fund a continuation of the war for at least two more years based on its domestic funding resources, and probably much longer.
Revenues: Prime Minister Mikhail Mishustin announced two key figures at the government meeting. According to him, federal budget revenues in 2026 will amount to RUB40.283 trillion, while expenditures will amount to RUB44.869 trillion. (chart)
This means that, adjusted for inflation, expenditures will remain virtually unchanged compared to 2025 (RUB41.469 trillion) and will be only 2% higher than last year’s 2026 plans, The Bell reports, which is unsurprising, as inflation was also higher than planned.
“Revenues will decline not only in real but also in nominal terms—both compared to this year’s planned figures and to the government’s 2026 plans adopted a year ago. The decline in revenues is due to deteriorating macroeconomic indicators,” The Bell said in a comment.
Russia’s economy has been slowing sharply thanks to the CBR’s unorthodox plan to artificially cool the economy to bring down inflation. The outlook for this year is for about 1% growth after two years of 4.3%, according to the CBR’s Main Directions of the Single State Monetary Policy mid-term outlook report released on September 3. However, growth will start to pick up again in 2026, according to the regulator’s basic scenario.
First military spending cuts: For the first time since the war started in 2022, Russia’s defence spending in 2026 will be reduced, according to data cited by Reuters, from RUB13.5 trillion to RUB12.6 trillion ($153.7bn, 5.8% of GDP). Moreover, it will be slightly lower than the 2026 plans set when the previous budget was approved a year ago (RUB12.8 trillion).
“Given that inflation has exceeded the plans, the actual reduction in defence spending will be even greater,” says The Bell. “However, expenditures under the adjacent budget line item “National Security and Law Enforcement” will increase from RUB3.56 trillion in 2025 to RUB4.065 trillion in 2026.”
Taken together there is still a slight decline: total defence and security spending will fall in nominal terms by 2.32% and more significantly in real terms by 6.68% from RUB17 trillion to RUB16.7 trillion ($203.3bn, 7.2% of GDP) due to inflation outpacing the security increase.
The rationale for the cut in defence, or at least the halt in its steady increases, is not clear. Some argue that now the Russian economy is fully militarised the need for continued heavy investment is falling away. Others say that steady progress on the battlefield has also taken the pressure off the need for more heavy spending. And at the same time, MinFin itself has been pushing for less military spending, simply to reduce the distortions to an overheating economy that will cause long-term damage that could undermine the campaign.
Deficit: the budget deficit has ballooned sharply on the back of unfettered military spending and falling revenues. The forecast has already been tripled from 0.5% set at the start of the year to 1.7%, or RUB3.8 trillion ($46.2bn), in the summer. (chart)
However, over the first eight months of this year it had already swelled to 1.9% of GDP, or RUB4.2 trillion ($51.1bn) blowing through the new official target….
-Russia wants to balance the budget while maintaining reserves
-VAT hike is under discussion, no decision yet
-Putin pledged no major tax changes before 2030
-Earlier VAT hike spurred inflation
MOSCOW, Sept 17 (Reuters) – The Russian government is considering raising the rate of value-added tax to keep the budget deficit in check and maintain reserves, four sources told Reuters, despite public assurances from President Vladimir Putin that there will be no tax rises.
The draft budget is expected to be submitted to parliament on September 29. Its key components are agreed with Putin beforehand and are unlikely to be significantly altered during the formal parliamentary debate.
Russia, in the fourth year of its war in Ukraine, has raised personal income and corporate taxes this year, but the government still had to triple its federal budget deficit estimate to 1.7% of gross domestic product (GDP) in May.
It is now set to exceed that target, according to an unnamed official quoted by state media this month. The 0.9% of GDP deficit for 2026 included in a budget law last year also looks likely to be exceeded.
INCREASE COULD HALVE THE PROJECTED BUDGET DEFICIT
Four sources close to the government confirmed a report this week by The Bell, a media outlet based outside Russia, that the government is discussing lifting the value-added tax (VAT) rate to 22% from 20% to curb the deficit.
The report did not specify a possible timeline for a decision but one of the sources told Reuters it was being considered for the 2026 budget as long as the budget rule which sets aside windfall oil revenues remains in place.
“How can the deficit be reduced while adhering to the budget rule? Only by raising taxes, because there’s hardly anything left to cut, either military spending or social spending,” one source said.
VAT accounted for 37% of federal budget revenues in 2024 and the possible increase could halve the projected 2026 deficit, according to Reuters calculations.
Russia’s economy has continued to grow despite tightening Western sanctions over the war in Ukraine. But GDP is expected to slow to around 1% from 4.3% last year and inflation remains above 8% in a country where much of the workforce and 40% of revenues now go to defence and security.
Government spending is the key driver of economic growth in Russia, and with Putin expressing displeasure at the economic slowdown and the need to continue financing the war of attrition in Ukraine, spending cuts are unlikely.
NO FINAL DECISION YET
Finance Minister Anton Siluanov has insisted that the budget rule, under which energy revenues collected above Russia’s target oil price, currently $60 per barrel, are directed to the fiscal reserve fund, will remain in place.
After Russia sent troops into Ukraine in 2022, Western nations prohibited insurers and maritime service providers from facilitating Russian oil exports unless they were below $60 a barrel. India boosted its Russian oil imports sharply but now faces pressure from U.S. President Donald Trump to halt them.
The Russian fund, which is separate to the country’s central bank reserves, currently has about 4 trillion roubles in liquid assets, which can also be used to cover the deficit. This year the government plans to tap the fund for 447 billion roubles.
Putin, who in 2024 pledged no major changes to the tax system before 2030 following the tax hikes, which were introduced in 2025, has asked the government on September 5 to increase revenues through higher productivity, not taxes.
The source who said there was little room for cuts in the federal budget, argued that military spending could not be cut and minor cuts in the social sphere would not help much.
“It is like shearing a piglet—lots of squealing, not much use. If we could cut 1–2 trillion roubles, sure, but you can’t cut amounts like that, they just aren’t there. You can trim a few million, maybe hundreds,” the source said.
GROWING CONCERN ABOUT THE BUDGET
A two percentage point 2019 VAT hike contributed 0.6 percentage points to inflation that year, according to the central bank, which has pledged to halve inflation to return it to its 4% target.
However, central bank governor Elvira Nabiullina cautiously backed a tax increase, saying after the September 12 board meeting that it was better to raise extra revenue than to widen the deficit.
She linked the size of the deficit to the central bank’s ability to cut rates further from the current 17%, a level economists see as too high to revive growth.
Putin has said that Russia’s low level of debt allows it to borrow more and that new debt should not be feared, but rates even for the government are around 13%, with interest expenses expected to reach 2% of GDP in 2025.
***
Russia unveils ‘muscular’ budget changes to counter sanctions, oil price falls
By Gleb Bryanski and Darya Korsunskaya, Reuters, 9/18/25
Summary
-Finance Ministry unveils measure to ensure reserve replenishment
-Measure to be included in the 2026 draft budget
-Ministry says the measure will boost resilience to sanctions
-Draft budget to be submitted to parliament on September 29
MOSCOW, Sept 18 (Reuters) – The Russian Finance Ministry announced a new measure on Thursday that it said was aimed at shielding the state budget from oil price fluctuations and Western sanctions targeting Russian energy exports.
Under the new initiative, set to be implemented next year, the government will lower the cut-off price for oil above which oil revenues go into the fiscal reserve fund to try to ensure that the fund is sufficiently replenished.
“To make our finances more resilient, we are proposing a reduction in dependence on various constraints, whether price-related or volume-related, in the budget’s reliance on oil and gas revenues,” Finance Minister Anton Siluanov said at a public forum.
RUSSIA’S OIL AND GAS SALES ARE EXPECTED TO FALL SHARPLY
The measure comes as Russia’s state oil and gas sales in September are set to fall, opens new tab by around 23% from a year earlier on lower prices and a stronger rouble, according to Reuters’ calculations.
The draft budget is expected to be submitted to parliament on September 29. Sources told Reuters that the government was considering raising the rate of value-added tax to keep the budget deficit in check and maintain reserves.
The Kremlin declined to comment on the VAT hike, with spokesman Dmitry Peskov saying that the government was handling the draft. Key budget figures are traditionally agreed with President Vladimir Putin before the budget is made public.
Putin, who met key cabinet members this week to discuss the budget, expressed displeasure at the slow pace of economic growth, which is expected to slow to about 1% from 4.3% last year.
MEASURE WILL STRENGTHEN RUSSIA’S BUDGET, SAYS SILUANOV
Siluanov has been seeking to restore the oil price mechanism, known as the “budget rule”, which was abandoned after the start of the war in Ukraine, although Russian media reported that he had pushed for a bigger reduction in the cut-off price.
Under the rule, the taxes resulting from when the price exceeds the agreed cut-off price go to the fiscal reserve fund, while the rest of the income is used to cover budget expenses. When the price falls below the cut-off level, the reserves are used to cover the resulting shortfall.
If the rule, first introduced by Siluanov’s predecessor Alexei Kudrin in 2004, is not in place, the budget can become more vulnerable when the oil price is going down.
Siluanov said the new measure would help to bring the share of energy revenues in the state budget down to 22% from about 25% in the first eight months of 2025, making the budget more “muscular”.
The fiscal reserves created under the budget rule carried Russia through several downturns and helped it withstand Western sanctions.
Siluanov said the cut-off price would be lowered by $1 every year to bring it to $55 per barrel in 2030. The cut-off price is currently at $60 per barrel.
The fiscal reserve fund, which can be used to cover the budget deficit, currently has about 4 trillion roubles ($48.25 billion) in it. The government this year plans to tap the fund for 447 billion roubles ($5.39 billion) to cover part of the budget deficit, which is expected to exceed 1.7% of GDP.
The 2026 draft budget set the average price of Urals crude at $59 per barrel, Siluanov said, implying that the fiscal reserves would not be replenished at the same cut-off price.
Speaking alongside central bank Governor Elvira Nabiullina, Siluanov paraphrased a quote attributed to Tsar Alexander III, that the army and the navy are Russia’s best allies, adding that sustainable finances were a third.
Nabiullina said a more balanced budget would enable the central bank to lower its key rate to an average of 12%–13% next year from the current 17%, a level economists and business leaders see as needed to spur faster growth.
