WASHINGTON, DC – Western allies have created a critical funding gap for Ukraine’s defense, potentially leaving Kyiv without billions in needed aid for the first half of 2026, according to economic analysts speaking on Thursday at the Hudson Institute, a Washington-based think tank.
Dr. Anders Åslund, a senior fellow at the Stockholm Free World Forum, characterized the financial shortfall as “a big financial gap right now, which is completely unacceptable.”
He pointed out that the US has “stopped all assistance to Ukraine” since January, and the European Council “just failed” to approve future funding packages.
“It’s now up to Europe to provide the $100 billion or so in foreign assistance to Ukraine that is needed to keep Ukraine going,” Åslund stated, confirming the immense scale of required support.
Long-war strategy and Russia’s war economy under strain
The analysts suggested that Russia’s strategic goal has shifted from achieving a rapid military victory to sustaining a protracted war of attrition that Vladimir Putin can maintain politically.
Åslund argued that ending the conflict would pose domestic challenges to Putin from returning veterans, stating: “My big argument is that for Putin, it’s better with a bad war than a good peace.”
He dismissed Moscow’s talk of a ceasefire as “just empty talk,” asserting that Putin’s ultimate aim remains to see Ukraine “wiped out from the map.”
The panelists argued that sanctions on Russia are performing a “slow squeeze,” systematically eroding Moscow’s resources and forcing politically sensitive decisions.
Volodymyr Lugovskyy, chairman of the Department of Economics at Indiana University, reframed the debate by asking: “What would Russia have done [or] achieved without sanctions globally and in Ukraine?”
He concluded that without sanctions, the Kremlin “has less resources to spend on all of these countries and to spread its international influence.”
Åslund characterized the current situation as stagflation, noting: “The Russian economy is mediocre, one percent growth this year and going forward, eight percent inflation now.”
Critically, he also highlighted that for the first time since the full-scale invasion began, “Russia is not increasing its military budget.”
Financial and fiscal strain
The core of the financial strain lies in two key “choke points”: the depletion of state funds and the increased cost of war financing.
Lugovskyy estimated that the liquid assets of Russia’s sovereign war-chest – its National Wealth Fund – have dwindled from approximately $200 billion to just $35 billion.
To cover the mounting budget deficit, Russia has increased its value-added tax (VAT) from 20% to 22%.
Åslund noted how this measure ensures that it is “the Russian population very directly that has to pay for the war.” He also described the Kremlin’s move of having state banks purchase government bonds as “printing money indirectly.”
Meanwhile, Lugovskyy reported that high enlistment payments – once up to “$35,000… an equivalent of three and a half years of Russian average salary” – have been cut down to “$10,000,” signaling serious strain on war financing.
Energy, political risk, and “choke points”
The second major vulnerability is Russia’s energy export sector, where profit margins are shrinking due to dependence on new, distant markets.
Lugovskyy noted the operational irony: “Russia now actually imports fuel, right? So it exports crude oil, but it actually imports fuel.”
Åslund pointed out the susceptibility of Russian oil infrastructure: “The Russian oil exports are very sensitive.” He asserted that Ukrainian strikes on these facilities all over Russia are “the most effective sanction.”
This financial pressure is exerting direct impacts on political stability. Åslund argued that the conflict is existential for Putin personally: “If Russia loses the war, what will happen? Putin will lose power.”
He contrasted it with Ukraine’s fight for survival: “Ukraine cannot afford to lose the war, then the country will cease to exist.”
Lugovskyy warned that once the government runs out of funds, it may be forced to rely on cheaper conscripts over expensive mercenaries, which “will actually increase these political risks” domestically. He summarized the political trap with stark words: “In Russia, weakness is dangerous.”
While the political will for direct financial support may be waning, analysts confirmed that existing sanctions are significantly degrading Russia’s capacity to wage war.
They suggested the West could inflict “more pain” by sanctioning refineries in China, India, and Turkey that process Russian crude, and by cracking down on the “shadow fleet” of tankers carrying Russian oil. Lugovskyy also suggested the oil price cap could be aggressively reduced from $60 to $50 or $45.
Security threat to Europe
The analysis concluded with a warning regarding the long-term security implications of a Russian victory.
Åslund reiterated that for Ukraine, the fight remains existential, and cautioned that a subdued Ukraine would give Russia “the enormous military potential of Ukraine,” leaving Europe “completely vulnerable.”
“For Europe, it’s really an existential question that Ukraine must win this war, otherwise Europe has no security whatsoever,” Åslund said.
The analysts agreed that sustained Western economic pressure and financial support for Kyiv are necessary to raise the internal costs of the war high enough to potentially incite political unrest in Russia.
“It’s not necessary to defeat Russia on the ground. It’s necessary to defeat Russia at home,” Åslund stated bluntly. He issued a stark warning about the consequences of aid fatigue, noting: “The US does absolutely nothing for Ukraine and Europe doesn’t do enough.”