Caught in the spiderweb
Ukraine’s covert drone operation hit military airfields deep inside Russia
Hello from the Bear Market Brief.
This week in the news:
Ukraine launched a major drone attack, codenamed “Operation Spiderweb,” that targeted military airbases thousands of miles inside Russia.
Moscow presented its peace memorandum during talks with Ukraine in Istanbul, but no major breakthroughs were reached.
The State Duma passed amendments to reduce budget spending on industrial development programs in response to declining oil and gas revenues.
— Sara Ashbaugh, Editor in Chief
Operation Spiderweb
On June 1, Ukraine executed the biggest clandestine drone attack of the war on Russian military targets. The operation, codenamed “Spiderweb,” involved 117 remote-controlled drones that were smuggled into Russia over an 18-month period. The drones were stored under guise in trucks and launched toward parked aircraft at five military airfields across Russia, including in the Irkutsk Region in Siberia, to degrade the Russian military’s long-range aviation assets.
Ukraine initially claimed that the attack, which took 18 months to plan and execute, damaged at least 40 aircraft. However, according to U.S. officials, only about 20 aircraft were hit and 10 were destroyed. Existing satellite images seem to suggest that the U.S. estimate is closer to the actual impact, which would still be about a 10% reduction in Russia’s fleet of such planes.
According to defense expert Pavel Podvig, speaking to Meduza, the operation—which was timed to precede the latest round of Ukraine-Russia talks in Istanbul—is unlikely to impact the course of the war directly. As Ukrainian sources pointed out, planes like the ones hit by the drones have been used to launch bombs against Ukrainian cities, but their role has been secondary, as Russia itself has increasingly relied on drones and ballistic missiles. The planes are also part of Russia’s reserve of strategic bombers, part of the nuclear triad. However, Podvig said that it was unlikely that the operation would trigger a nuclear response.
Apart from its defensive value from Ukraine’s perspective, the operation also sent a powerful message regarding the capabilities of Ukraine’s security services and military, as well as the gaps in Russia’s security posture, which may create doubts about the competence or loyalty of Russia’s security personnel. To reinforce this message, Ukrainian President Volodymyr Zelenskyy claimed that, in one Russian region, the base of operations was near the local office of the Federal Security Service. The operation—which the U.S. government claimed Ukraine had not informed the White House about prior to its launch—also took place in the context of discussions about the United States potentially limiting either weapons deliveries or intelligence sharing with Ukraine. It helped to counter claims that Ukraine would be unable to execute successful operations without U.S. help.
To underline this, two days later, the Ukrainian military also executed an underwater bombing attack against one of the supports of the Kerch Bridge, a key transit corridor between Russia and occupied Crimea (albeit the attack did not seem to disrupt traffic on the bridge for more than just a couple of hours). Russia also blamed “Ukrainian terrorists” for the collapse of two bridges in the Bryansk and Kursk Regions bordering Ukraine overnight on May 31. In the Bryansk Region, the bridge collapse led to a train derailment that killed at least seven people. However, the Russian Investigative Committee removed and subsequently restored the mention of an “explosion” in its report of the bridges collapsing, suggesting that the authorities were not set in their assessment of the matter.
Pro-Kremlin media in Russia tried to minimize the impact of Operation Spiderweb, with the Defense Ministry also focusing on the successful prevention of further attacks. President Putin himself framed the attack as terrorism and stressed that Russia “will not negotiate with terrorists,” likely referencing the ongoing negotiations with Ukraine. According to a social media post by U.S. President Donald Trump, who talked with Putin on the phone on June 4, the Russian President also vowed to retaliate.
— Andras Toth-Czifra
On Wednesday, the Ukrainian Security Service (SBU) released footage from their massive covert drone operation, Operation Spiderweb. According to Ukrainian sources, the 117 remote-controlled drones involved in the attack successfully damaged or destroyed 41 Russian aircraft, although Western estimates are much lower. Satellite imagery suggests that Russian Tu-95 and Tu-22 strategic bombers were hit, as well as Ilyushin A-50s—airborne warning and control aircrafts (AWACS) used to gather information and coordinate attacks. Russia is believed to have less than 10 A-50s in their fleet, making the loss of any of them a significant blow. According to the SBU, the operation hit 34% of Russia’s strategic cruise missile carriers, resulting in $7 billion of damage. (photo: Security Service of Ukraine)
Moscow’s peace memorandum
Ukrainian and Russian delegations met for peace talks in Istanbul on Monday, but no significant breakthroughs were reached. During the hour-long meeting, the Russian delegation presented its long-awaited peace memorandum, which outlines Moscow’s conditions for a ceasefire. The text of the proposal, published by Russian state media, includes demands that Ukraine is unlikely to accept, indicating that an end to the conflict may still be far off.
The first section of the document outlines the “key parameters of a final settlement.” These include, most notably, the complete withdrawal of Ukrainian troops from the occupied regions—Donetsk, Luhansk, Kherson, Zaporizhzhia, and Crimea—and international recognition of Russian sovereignty over those territories. It also calls for limiting the size of the Ukrainian military and prohibiting Ukraine from joining foreign military alliances and coalitions. Furthermore, it requires lifting all current economic sanctions on Russia and waiving any claims of reparations for damage caused during the war. Finally, it would make Russian an official language of Ukraine and ban the “glorification and propaganda of Nazism and neo-Nazism,” among other things.
The second section lists Moscow’s conditions for a ceasefire, for which Ukraine is presented with two options. In the first option, a ceasefire would begin upon Ukraine’s withdrawal from “the territory of the Russian Federation,” including the occupied Donetsk, Luhansk, Kherson, and Zaporizhzhia regions. The second option, the so-called “package proposal,” includes a sweeping list of demands, starting with immediate Ukrainian demobilization. It would require an end to all foreign military aid and intelligence sharing with Ukraine and the removal of any foreign military presence from Ukrainian soil. It also stipulates the lifting of martial law in Ukraine and the promise of an election for the president and Ukrainian parliament within the next 100 days.
The third and final section of the proposal suggests a timeline for implementing the peace process, beginning with a 2-3 day truce and ending with the ratification of the agreement with approval by the UN Security Council. In all, the memorandum includes a number of demands that Ukraine and its Western allies are likely to think of as non-starters, especially the ceding of Ukrainian territory to Russia. Even as a starting point for negotiations, Moscow’s provisions are maximalist and uncompromising, and Ukraine has previously rejected many of them outright. Ukrainian President Zelenskyy called the memorandum a “political performance” and accused Moscow of stalling for time by pretending to be engaged in the peace process. “The Russians understood that this was an ultimatum and that the Ukrainian side, or no one, would take it seriously,” Zelenskyy said during a press briefing on Wednesday. Putin, meanwhile, dismissed the idea of meeting with Zelenskyy directly. “How can such meetings be held under these conditions? What is there to talk about?” he said during a televised meeting with cabinet ministers.
Although the two sides did not make progress toward a ceasefire, they did agree to carry out another prisoner exchange. According to Zelenskyy, Russia will return 500 Ukrainian military personnel this upcoming weekend. Additionally, the two countries will each exchange the bodies of 6,000 fallen soldiers.
— Sara Ashbaugh
Two bridges collapsed overnight on Saturday in Russian border regions, killing seven people and injuring 116 others. In the Bryansk Region, a highway bridge fell onto a passenger train, resulting in casualties, and a rail bridge collapse derailed a freight train in the Kursk Region, injuring several rail employees. The Russian Investigative Committee initially described the event as being caused by “explosions” and a “terrorist attack” but later changed the language in its official statements. Ukraine has not taken responsibility for the incident, and the exact cause of the collapses is not known. (photo: Dmitry Radchenko / TASS)
Updates on the economy
The State Duma passed in the first reading amendments to the 2025 federal budget that will reduce spending on industrial and technological development programs, including shipbuilding and aviation, by more than 100 billion rubles and raise this year’s expected fiscal deficit more than threefold, to 3.8 trillion rubles. In spite of earlier discussions about it, the government will not change the so-called budget rule, which determines when the government is able to increase spending and when it needs to restrict it based on a cut-off price of a barrel of oil. In 2025, the price of oil has been consistently lower than the cut-off price specified in this year’s federal budget, which is $60. There has been discussion, however, about tax hikes.
The amendments come after the government’s fiscal income figures in May suggested a 35% year-on-year decline in oil- and gas-related revenues and a 14% decline in the value of the liquid assets of the National Welfare Fund (NWF), Russia’s rainy-day fund. According to the Ministry of Finance, revenues from the mineral extraction tax on oil—Russia’s main source of revenues from its fossil fuel industry—decreased by 43%, or 405 billion rubles, reflecting lower global oil prices. A tightening of sanctions on Russian oil by the EU and/or the U.S. and the stricter enforcing of existing sanctions could make the situation worse for the Russian federal budget by increasing the discount between the benchmark Brent oil price and the price of Russia’s Urals brand.
The amendments are another sign that Western sanctions are forcing Russia’s federal government to make tough choices in the budget. However, barring a much more significant drop in revenues, they are unlikely to force the government to cut war-related expenditures, since budget cuts to investments will have a negative impact on the development of the Russian economy only in the medium term. However, they do mean that, unless the global price of crude oil increases substantially or international sanctions are lifted, it is unlikely that the Russian government will be able to maintain its pace of fiscal expansion—currently the main engine of economic growth.
In parallel to the Duma’s cuts to federal spending, the Central Bank decided to lower its key rate from 21% to 20% on June 6. The cut is cautious and mainly symbolic, given that inflation expectations are still high, but it is notable that this is the first time that the Bank has decided to lower the rate since 2022. The rate cut came after months of immense pressure from the government and employers to make borrowing easier and boost economic growth.
— Andras Toth-Czifra
Report in Short: The War’s Impact on Russia’s Regional Power Dynamics
This week on Report in Short, Aaron Schwartzbaum speaks with András Tóth-Czifra about his recent report, “The Kremlin’s Balancing Act: The War’s Impact On Regional Power Dynamics.” In the report, Tóth-Czifra explains the shift of government control, highlights instances of pushback, and identifies limitations on the Kremlin's strategy going forward.
Quickfire: Regions
The Kremlin’s reform of municipal administrations has become the latest chapter in the ongoing conflict between Khakassia’s Communist governor, Valentin Konovalov, and the United Russia party. Khakassia’s regional legislature, dominated by United Russia, recently overrode the governor’s veto against a law curbing his right to suspend financial support to municipalities. In response, Konovalov introduced a draft law that would preserve the two-tier system of public administration in the region, using a clause in the recently adopted federal reform that empowers regions to do so. Meanwhile, United Russia presented a bill that, in line with the goals of the federal reform, would scrap the lower tier of municipal administrations. Konovalov now seems to have rallied the representatives of village councils (which would be scrapped) to his cause. While United Russia is likely to get its way, due to the importance of local leaders (whom the governing party has also tried to court), the issue may expose cracks in the ranks of the party.
The head of the Komi Republic chapter of the Communist Party (KPRF), Oleg Mikhailov, announced that he would attempt to run for office in the region’s gubernatorial election in September against the Kremlin-backed incumbent Rostislav Goldshtein. For this, however, under regional law, Mikhailov will need to gather the support of at least 10% of the region’s municipal deputies, which is more than the party’s current representation in municipal assemblies. This makes it unlikely that Mikhailov will be able to run without a nod from the Kremlin. Komi has been one of the regions where the KPRF has consistently tried to ally itself with local civil society against the region’s highly unpopular outsider governor, Vladimir Uiba, who was dismissed last year. Up until 2024, the local KPRF group included Viktor Vorobyov, a firebrand deputy who has since been labeled a “foreign agent” by the federal government and deprived of his mandate. The fate of Mikhailov’s candidacy will be interesting to watch, as the KPRF, in its attempts to remain Russia’s largest opposition force, has had to balance acting like actual opposition at the regional level with maintaining a cordial relationship with the Kremlin.
Last week, the federal government announced additional support measures for the struggling coal industry. These include a deferment of the mineral extraction tax and insurance premium payments until December or later, targeted subsidies to lessen logistics costs, and discounts on railway tariffs in the northwestern and southern directions for specific Siberian coal companies. The government also recommended cost-cutting measures and a moratorium on dividend payments, as well as “opportunities to revise the terms of credit obligations.” However, this will require the cooperation of banks. The Finance and Energy Ministries—the latter led by Sergey Tsivilyova, coal entrepreneur and former governor of Russia’s main coal-producing region, Kemerovo—will establish the conditions for state support this week. The industry has been struggling for the second consecutive year due to reduced prices and demand, sanctions, and clogged trade corridors, which affect the budgets of several coal-producing regions. The circumstances are forecasted to remain difficult in the foreseeable future, but the federal government has so far tried to limit direct financial support to the industry.
— Andras Toth-Czifra