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Russian President Vladimir Putin is facing increasingly difficult economic choices to sustain the Ukraine war even as he seeks to present a united front with India and China at a summit this weekend and counter any U.S. pressure on his trading partners.
Tension is rising among Russia's elite over the war's growing cost and the continuing threat of further sanctions, even though Putin returned from this month's red-carpet meeting with President Donald Trump in Alaska appearing to have bought time to stave off further measures.
Behind the bravado over the summit and Russia's apparent unwillingness to budge from maximalist positions to end to the war, Putin is facing an ever trickier balancing act as budget revenue falls and the economy teeters on the brink of recession, current and former Russian officials and economists said.
Indian officials have so far insisted they will not bow to U.S. pressure after the Trump administration imposed 50 percent tariffs on the country for being a major purchaser of Russian oil since the 2022 invasion of Ukraine.
But any move by India, which currently purchases nearly one-third of Russia's total oil exports, to reduce the volume it buys from Moscow "would have a major impact" on Russia's stretched budget, said Janis Kluge, an economist at the German Institute for International and Security Affairs.
"This year looks the most problematic since the start of the full-scale invasion," he added.
The economy has reached a point where a choice has to be made, said a former senior Russian finance official with close connections to the top of Russia's central bank. Even if India does not make any cuts to its purchases of Russian oil and "even if there aren't any additional sanctions, the situation in the economy is such that there needs to be some kind of resolution" to the war, he said, speaking on the condition of anonymity to discuss sensitive matters.
"To be in a situation where there is no growth at all and where real incomes are falling, of course the authorities don't want this. And the war itself is at a dead end," the former official added, referring to the only incremental gains Russia is making on the battlefield.
The Russian economy has been battered by inflation - now officially at 9 percent - stoked by Putin's wartime spending spree and the impact of sanctions. The central bank's efforts to rein in price hikes by imposing sky-high interest rates - now at 18 percent - have caused investment to dry up, non-payments to soar and economic growth to grind to a halt as Russian companies struggle to refinance mounting corporate debts.
The Economic Development Ministry reported on Wednesday that growth has practically stopped, with an annual rate of just 0.4 percent in July.
"If the government does not reduce spending on the war, then the central bank will have to keep interest rates very high and this will quietly kill the civilian economy," the former official said.
The budget has come under increasing pressure this year after both oil and gas revenue has already fallen 30 percent compared to the previous year, mostly due to falling oil prices and a stronger ruble, while non-oil revenue has also fallen steeply.
Additional pressure has come in the form of Ukraine's intensifying strikes on Russian oil refineries this month, taking out more than 17 percent of capacity and adding to the sense of unease. The strikes have pushed gasoline prices to record highs domestically and regions in the far east are facing shortages, economists said.
The Russian economy will most likely adapt to the attacks, said Sergey Vakulenko, a senior fellow at the Carnegie Russia Eurasia Center. Russia has moved to exporting more crude oil instead of refined products as a result of the strikes, but disruptions to domestic supplies will probably continue.
Amid these hits to revenue, the budget deficit is climbing. It has already exceeded this year's official projection of 2.5 percent of GDP, or $62 billion, and could reach more than 3 percent, a level not seen in years, Kluge said. "That would be a real problem and significant."
Spending on the war, however, is still increasing. Expenditure on national security and defense is forecast this year $213.4 billion. To maintain funding for the military campaign into next year, Putin must either cut social or other budget spending, further increase taxes - after already imposing heavy hikes this year - or borrow more money domestically.
Increasing taxes or borrowing more would further stoke inflation and all options carry political risks.
"It's a situation of pick your poison," Kluge said.
One Russian business executive was quite blunt that time was running out. "If the war doesn't end next year, there will be a risk of economic crisis," he said, speaking on the condition of anonymity for fear of retribution. "If the war continues, they will need to put more pressure on business."
In another sign of the growing pressure to make a deal, even one of the most pro-war backers of the country's imperial expansion, Russian billionaire Konstantin Malofeyev, suggested on Thursday that Russia should end the war by forfeiting the $300 billion in central bank reserves impounded under Western sanctions and receive in return the four Ukrainian regions it has illegally annexed, though does not fully control.
"This would be, as Trump likes to say, an honest deal. Win win," Malofeyev wrote in an article for his Tsargrad television channel, pointing out that purchasing the illegally seized regions in this way would be worth it since they would provide, according to his calculation, $10 billion in new taxes per year.
Russia has already diverted more than $60 billion from its extra-budgetary National Wealth Fund to help pay for the war effort, a move that also stoked inflation and left less than $50 billion in liquid assets in the extra-budgetary "rainy day" fund, not enough to cover this year's budget deficit.
Economists say that under the current level of sanctions, Russia can sustain its war effort for probably another 12 to 16 months - though falling oil prices and further sanctions - such as those on trading partners like India - could compress that time frame.
Many hawkish Russian officials nevertheless say they believe Russia can still outlast Ukraine - and its Western supporters - with strict state controls over the Russian economy that could enable it to defy gravity and extend the war for two more years.
"This is a lot more than the Ukrainians have," said one Russian official, also speaking on the condition of anonymity. The Russian hawks "look at what's happening with budgets in Europe and see how many problems there are in France and Germany."
He admitted, however, that the economic pressures facing Russia are "serious" and "there are significant forces who are advocating for the negotiating process and presenting the territory that's already been taken as a completely acceptable result."
At the same time though, they are balanced by another group with "significant economic interests who are for continuing the offensive."
"The final result will be determined by only one person," he said.
The fate of Russia's economy - and its ability to continue the war - also hangs on the decisions of another person, Trump, and especially his threats to impose further sanctions on Russia - which could be devastating but have yet to materialize.
Russia's elite are unsure about whether to take the American president's threats of imposing further sanctions seriously. "Trump has harmed himself a great deal because he says a lot but very little of it becomes reality," the Russian businessman said.
"It's very difficult to understand Trump's behavior - whether it's a clever tactic or just a bad understanding of the situation," the former finance official said.