Lions, tigers, and paper bears
Trump calls Russia a “paper tiger” after meeting with Zelenskyy
This week in the news:
The European Commission unveiled its 19th sanctions package against Russia, aiming to reduce Russian oil revenues and crack down on sanctions evasion.
The Russian government adopted the main parameters of the 2026 federal budget, including a planned deficit of 4.6 trillion rubles.
Ukraine continued its drone attacks on Russian oil refineries, exacerbating gasoline shortages in several regions.
— Sara Ashbaugh, Editor in Chief
New EU sanctions
European Commission President Ursula von der Leyen unveiled the EU’s 19th sanctions package against Russia last Friday, further targeting Russian oil exports. Under the proposal, the EU will completely halt all LNG imports from Russia by January 2027, moving up the previous target by a full year. The package also lowers the crude oil price cap from $60 per barrel to $47.60 and adds another 118 ships from Russia’s “shadow fleet” to the list of sanctioned vessels (now totaling more than 560). Transactions with Russian state-owned energy companies Rosneft and Gazpromneft will be fully banned, and the foreign assets of third country refineries, oil traders, and petrochemical companies that purchase Russian oil will be frozen. “Russia’s war economy is sustained by revenues from fossil fuels,” von der Leyen said, “It is time to turn off the tap.”
The package also aims to crack down on sanctions evasion by targeting a number of banks and, for the first time, crypto platforms. Additionally, new export restrictions will apply to 45 companies that have been providing “direct or indirect support” to the Russian military industrial complex. Finally, von der Leyen announced a plan to finance Ukrainian defense using frozen Russian assets in Europe. “This is Russia’s war, and the perpetrator must pay for it,” she said. The money will be provided in the form of a “Reparations Loan” that Ukraine will not be expected to pay back until it receives reparations from Russia. Ukrainian President Volodymyr Zelenskyy welcomed this measure in particular, writing about it in a post on X. “This is a crucial move that will strengthen our defense, resilience, and recovery,” he said.
The package still needs to be approved by the 27-member EU Council in order to take effect. Zelenskyy urged its “swift adoption,” as did von der Leyen, although this is far from guaranteed. According to reporting by Politico, the announcement of the new package was briefly postponed, perhaps hinting at disagreements within the bloc. It will likely face pushback from member states Hungary and Slovakia, who still rely heavily on Russian energy and have delayed the adoption of EU sanctions in the past. However, U.S. President Donald Trump recently changed his rhetoric on Russia, promising further sanctions from the U.S. if NATO countries stop buying Russian oil. Pressure from the U.S. may persuade Hungary and Slovakia to reduce their Russian oil imports, but Hungary remains reluctant. “Our duty is to secure Hungary’s energy supply. And without Russian oil through the Druzhba pipeline this is simply impossible,” Hungarian Minister of Foreign Affairs and Trade Péter Szijjártó said on Wednesday. “We welcome every effort by [Donald Trump] to achieve peace, but geography creates realities no one can change.”
— Sara Ashbaugh
U.S. President Donald Trump held a bilateral meeting with Ukrainian President Volodymyr Zelenskyy on the sidelines of the UN General Assembly in New York on Tuesday. In an abrupt about-face from his usual rhetoric, Trump was very critical of Russia in his remarks after the meeting. He called Russia a “paper tiger” and suggested that Ukraine could regain all of its territory currently occupied by Russia. “Russia has been fighting aimlessly for three and a half years,” he posted on Truth Social, “Putin and Russia are in BIG Economic trouble, and this is the time for Ukraine to act.” The Kremlin pushed back against Trump’s characterization. “Russia is not a tiger,” spokesperson Dmitry Peskov told RBC Radio, “Russia is more closely associated with the bear. There are no paper bears. Russia is a real bear.” (photo: Office of the President of Ukraine)
Another war budget and tax hikes
The Russian government adopted the main parameters of the 2026 federal budget with projections for the 2027-2028 planning period. Overall, the budget reflects both that the war remains an unquestionable priority for the federal government and also the growing realization that Russia’s economy is facing serious problems affecting fiscal flows.
Fiscal planners project that revenues will be 40.3 trillion rubles and expenditures will be 44.9 trillion rubles in 2026, 4% below and 2% above previous forecasts, respectively, with revenues planned to be lower than this year’s figures even in nominal terms. Direct military spending is projected at 12.6 trillion rubles—slightly lower than this year’s figure, albeit it is expected to grow again in 2027-2028. Spending on national security and law enforcement will, however, grow from 3.56 to 4.06 trillion rubles next year, with further growth expected in the following two years.
The planned federal deficit, 4.6 trillion rubles, is 1.6% of Russia’s planned GDP. However, this figure is very likely to change. For 2025, the federal government initially planned a deficit of 1.2 trillion rubles, which has since grown to over 4 trillion and is likely to be well above 5 trillion by the end of the year, according to the latest estimates. Similarly, the planned GDP growth of 1.3% should be taken with reservations; for the current year, the government initially expected the economy to grow by 2.5%, which has since been modified to around 1%.
The value of the National Welfare Fund’s liquid assets is currently around 4 trillion rubles, suggesting that the government plans to cover the deficit with other means. Finance Minister Anton Siluanov already confirmed that the government is going to ramp up borrowing (expecting the Central Bank to reduce interest rates further). The most important change, however, concerns VAT. The government announced this week that it will raise the tax rate on most goods from 20% to 22%, while also lowering the income threshold for small enterprises that can choose to pay VAT in a simplified system.
The changes are all the more significant as last year’s tax reform, which saw the government raise both corporate and personal income taxes, was widely seen as a settlement between employers and the government. The government received continued financial support for the war in exchange for a more predictable tax policy for businesses. Putin himself promised that the government would not touch the main pillars of the tax system before 2030, and, in June this year, Siluanov also said that the government was not planning a tax hike.
Apart from creating further doubts for employers, higher VAT can also lead to higher inflation, as retailers will likely pass the hike on to consumers. This comes at a time when high inflation has been a consistent problem for a large part of the population. According to the Central Bank, however, the tax hike will only lead to higher inflation in the short term and will, in the longer term, actually temper inflation.
The planned federal budget shows that, in the short term, the government can find the money to keep war-related expenditures at their current level. However, it also betrays an indifference, or lack of means, when it comes to the budget’s vulnerabilities in the longer term, including a lack of focus on domestic investments and an unstable tax policy.
— Andras Toth-Czifra
Vietnamese pop star Duc Phuc took home the trophy at the Intervision Song Contest in Moscow on Saturday—Russia’s alternative to the popular Eurovision competition. Vladimir Putin revived the Soviet-era singing contest after Russia was banned from Eurovision due to its invasion of Ukraine. Singers from 23 countries participated, competing for a prize of 30 million rubles ($360,000). Kyrgyzstan’s The Nomad Trio was awarded second place and Qatar’s Dana Al Meer came third. Australian-born performer Vassy was scheduled to represent the U.S. at the competition, but dropped out at the last minute due to political pressure from the Australian government. Ukrainian officials decried the event, with the Ministry of Foreign Affairs calling it “an instrument of hostile propaganda.” (photo: Sergei Fadeichev / TASS)
Ukraine keeps hitting Russian refineries
Ukrainian drones continued to conduct successful attacks against Russian oil refineries over the past week, thus increasing the pressure on the Russian domestic fuel market. On September 20, the Novokuybyshevsk Refinery in the Samara Region was targeted (just like earlier in August), as well as a facility in the Saratov Region. On September 22, Gazprom’s Astrakhan refinery suffered damage, and on September 24, drones hit Gazprom’s Salavat refinery in Bashkortostan. Drones also attacked distribution facilities in the Bryansk and Samara Regions.
The strikes have exacerbated an existing shortage of gasoline in several regions in August and September. As of this week, at least 25 Russian regions reported disruptions in fuel supply—mostly at small, independent gas stations. Fuel prices have also gone up, putting upwards pressure on inflation. The situation is particularly bad in occupied Crimea. According to local media, several regions announced restrictions on gasoline sales. Diesel provision has so far not been seriously disrupted, and industry expert Sergey Vakulenko said that he expected the situation to ease in October as refinery repairs are completed.
The strikes, however, may continue to cause disruptions and force the Russian government to adjust course. The government is reportedly considering extending an export ban on gasoline at the end of September. The maritime export of oil products already dropped by 18% in the first half of September. This is likely partly the consequence of a successful drone strike on the Ust-Luga seaport near St. Petersburg, highlighting the evolution of Ukraine’s drone warfare against Russia’s energy infrastructure.
— Andras Toth-Czifra
On the podcast
A flurry of back-and-forth diplomacy, a renewed Russian offensive, and a rare outburst of protest in Ukraine. The Kyiv Dispatch with Fabrice Deprez returns to break down what’s actually happening and, most importantly, how people on the ground are feeling about it.
For more reporting and stories from Ukraine, be sure to follow Fabrice’s newsletter, Eastern Radar.
Quickfire: Regions
The political power struggle in the Siberian region of Khakassia between the region’s Communist governor, Valentin Konovalov, and the ruling United Russia party, which has a majority in the regional parliament, continued this week with a tactical victory for Konovalov. United Russia withdrew a proposal from the regional legislature’s agenda that would have overridden the governor’s veto on a law implementing the federal government’s municipal reform (scrapping village councils in the region). United Russia had the necessary amount of votes to override Konovalov’s veto—and did it earlier this year when it took away the governor’s right to suspend regional transfers to municipalities—but two of its deputies were absent and apparently the party could not count upon the votes of other deputies. The ruling party will likely try again, however. The case highlights how, in regions where politics are relatively pluralistic, the federal government finds it more difficult to implement centralizing policies.
Police arrested businessman Alexey Bobrov in Moscow and transferred him to Yekaterinburg for interrogations this week. He stands accused of embezzling 508 million rubles. The arrest comes shortly after the Prosecutor General requested the nationalization of companies linked to Bobrov and his business partner Artyom Bikov. The prosecutors claim that the companies illegally monopolized electricity generation and waste collection in Russia’s Urals regions. Police also conducted searches in the offices of these companies. While the prosecutors’ bid to seize the companies fits into Russia’s ongoing wave of nationalization, it is notable that one of the 34 co-defendants of the case is Oleg Chemezov, acting Deputy Governor of the Sverdlovsk Region and an associate of Moscow Mayor Sergey Sobyanin. The case was launched at a time when Sobyanin’s position in the Urals Federal District, until last year widely considered to be Sobyanin’s political turf, started to weaken.
A school building collapsed over the weekend in the town of Tatarsk in the Novosibirsk Region. Fortunately, since the building was empty, there were no deaths or injuries. However, the collapse drew attention to negligent inspections and the lack of maintenance of social infrastructure. The almost 90-year-old building, in spite of its highly dangerous state, passed inspections shortly before the start of the current school year. This is a widespread problem in Russia. According to the regional news outlet 7x7, at least 31 schools collapsed, at least partially, in the past two school years, and inspections are often gamed. Education is a major heading in regional budgets, and many school buildings are municipally owned and maintained. Both regional and municipal budgets have become increasingly tight over the past years. Following the collapse of the Tatarsk school, Novosibirsk Governor Andrey Travnikov promised to “review priorities.” However, the region has also faced a large number of utility network failures over the past years. The potential of a tragedy due to chronic underinvestment in public services carries significant political risk, especially in the case of schools.
— Andras Toth-Czifra
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