13JUN

Russia plans record 17.1tn for defence

3 min read

11:07UTC

Russia's Finance Ministry cut its oil and gas revenue forecast by 1,335bn roubles, yet its draft still gives defence a record 17.1tn roubles next year.

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Key takeaway

Russia will spend a record 17.1tn roubles on defence while oil revenue falls short.

Russia's Finance Ministry now expects 7,584bn roubles of oil and gas revenue for 2026, 1,335bn short of the 8,919bn in its own budget law⁠¹. Its draft for next year still gives defence a record 17.1tn roubles, more than a third of federal spending, according to Reuters, which reviewed the draft⁠². That is about 27% above the roughly 13.5tn roubles the previous plan set for 2027.

The 2027-29 draft, sent to the State Duma, Russia's lower house of parliament, by 30 September, plans deficits of 5.5tn, 5.1tn and 5.3tn roubles, about 2% of gross domestic product (GDP) each year. The ministry expects a deficit of up to 3.2% of GDP for 2026.

The Russian Finance Ministry's preliminary January to September figures show the strain. The deficit stood at 5.19tn roubles, down from 6.46tn after July, against 3.47tn a year earlier. Oil and gas revenue fell 17.2% to 5,471bn roubles. Non-oil-and-gas revenue, up 18.8% to 24,168bn roubles, carries the rest, as it did in August.

The ministry says it finances the deficit "mainly without additional borrowing" in government bonds. That fits Sberbank's July warning that Russian banks can no longer buy them, so revenue outside oil and gas has to carry the war budget.

Deep Analysis

In plain English

Russia's government pays for the war mainly from taxes on oil and gas and from other taxes. This year it is earning much less from oil and gas than it planned. The Finance Ministry now expects to collect about 1.3 trillion roubles less from oil and gas than its budget law assumed. It spent more than it earned in the first nine months of 2026. Even so, its plan for 2027 gives the army more money than ever, 17.1 trillion roubles. To pay for it, Russia is raising other taxes and using its savings.

Deep Analysis

Root Causes

Oil and gas revenue has fallen through 2026. The ministry recorded a 38.3% year-on-year drop in January to April, and the January-September fall was 17.2%. Lower Urals prices, sanctions discounts and refinery damage all cut receipts.

Non-oil revenue grew because Moscow raised taxes, not because the civilian economy boomed. The 2027 draft extends 22% VAT (value added tax, Russia's main sales tax) to purchases from foreign online stores and raises tax on passive income.

Domestic borrowing has hit a ceiling. With banks unable to buy more government bonds, the state draws on reserves and special financing powers, which run down faster the longer the war lasts.

What could happen next?

Consequence
Russia will keep spending reserves in 2027, shrinking the cushion it would need for a shock such as a new oil price fall.
Meaning
A record defence line for 2027 shows Moscow's budget planners assume the war continues through next year.

Source Landscape

This story draws on mixed-leaning sources from Latvia

Latvia

Primary parallel: After the 1986 oil price collapse the Soviet Union kept military spending high and covered falling export revenue with foreign borrowing and money creation. The gap widened each year until the state could no longer pay its debts in 1991.

Counter-parallel: After the 2014-16 oil slump Russia itself cut military spending by about a fifth in 2017 to bring its budget back toward balance. That choice is closed while the war runs, which is why the 2027 draft adds to defence instead.

Immediate effect: a 2026 deficit of up to 3.2% of GDP, against plans for about 2% a year from 2027 to 2029, totalling about 15.9tn roubles over three years. Defence spending is planned at 16.6tn roubles in 2028 and 16.3tn in 2029, per Reuters.

Structural effect: higher VAT and income taxes shift the war's cost onto Russian households and small firms. Reopened diesel exports would add some export revenue, but nothing on the scale of the 1,335bn-rouble oil and gas shortfall.

Consensus view: Julian Cooper of the Stockholm International Peace Research Institute (SIPRI) found the 2026 budget gave defence and security 16.8tn roubles, 38-40% of federal spending and a share not seen since the Soviet era. The 2027 draft raises that to 17.1tn while oil and gas revenue falls, so the war budget now rests on non-oil taxes, which rose 18.8% in the first nine months.

Counter-view: Sberbank's finance chief said in July that Russian banks can no longer absorb government bonds. That turns the ministry's claim of deficit financing "mainly without additional borrowing" into a statement about necessity: the gap is met from the Russian National Wealth Fund and the up to 3tn roubles of "other sources" a June 2026 law allows. The Bell noted that the government's press release on the draft mentions neither the defence rise nor social cuts.

Key tension: Whether Moscow can fund three years of 5tn-rouble deficits with debt heading toward 21.7% of GDP, above the 20% its own ministry once called safe.

Sources:Meduza·Ministry of Finance of the Russian Federation

Mentions:Russian Finance Ministry →Government of the Russian Federation →State Duma →Russia →Sberbank →Julian Cooper →Reuters →SIPRI →Moscow →Russia National Wealth Fund →VAT →Urals →The Bell →Soviet Union →

First Reported In

Update #28 · US licenses Russian diesel and turns on Kyiv

Meduza· 12 Oct 2026

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Causes and effects

Caused by

Budget revenue rises as oil and gas receipts fall

January-September figures extended the fall in oil and gas revenue reported for January-August.

Reported 13 Sept 2026

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Banks stopped buying Russia's war debt

The ministry said it financed the deficit mainly without new borrowing after Sberbank said banks could not buy more bonds.

Occurred 31 Jul 2026

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This Event

Russia plans record 17.1tn for defence

Moscow is funding a larger war budget from taxes outside oil and gas as its energy revenue shrinks.

Led to

Bank of Russia poll sees 7.1% inflation

Wider deficit forecasts follow the Finance Ministry's cut to its oil and gas revenue forecast.

Occurred 14 Oct 2026

Read story →

Different Perspectives

DNV and Fassmer

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Belgian Ministry of Defence

Awarded Exail Robotics Belgium €9.87m on 14 September, without competition, for three TRIDENT systems carrying the K-STER C mine-disposal vehicle for Ukraine. It had tendered separately in July for twelve tethered ROVs, not yet bought.

IRGC Navy (Iran)

IRGC spokesman Hossein Mohebbi said the IRGC Navy seized a US Kingfish mine-hunting vehicle in the Strait of Hormuz on 27 September, valuing it at several million dollars. US Central Command calls the claim "clearly desperate"; no verified imagery exists.

UK Defence Intelligence and Kraken

Defence Intelligence said the 12 September clash "almost certainly marks the first time" Russian and Ukrainian USVs engaged directly. Kraken meanwhile trialled an unarmed Saab radar picket boat on 5 and 6 October.

Ukrainian forces and ARX Robotics

A Ukrainian Sargan-3000 destroyed a Russian robot boat on 12 September, and the first ARX GEREON ground robots reached Ukraine on 29 September. The Sargan-3000 carries a mounted gun.

Indian Register of Shipping

Certified Accurate Industrial Controls' ISACA collision-avoidance software to IMO standards after five audited milestones and 2,500 hours of trials. The firm plans to use it converting six Indian Navy patrol boats.

Written with AI from Lowdown's published reporting. Not individually reviewed by an editor. Editorial standards.