Russia’s war budget got a brief respite this spring, when the Iran war pushed oil prices up. By July, it was gone. A single month swung from a rare surplus to an $8.8 billion deficit, leaving the seven-month shortfall already bigger than the entire deficit Russia ran last year, with five months still to run.

As oil money drains away, the Kremlin is covering the gap by taxing ordinary Russians harder and eyeing their savings.

Oil-and-gas income, long the war’s financial engine, fell by about a sixth from a year earlier to 4.6 trillion rubles ($56 billion), Finance Ministry figures show. Spending outpaced revenue, with state procurement up by nearly two-fifths.

The hole was plugged by value-added tax, whose receipts jumped by a quarter after Moscow raised the rate to 22% at the start of the year—a tax levied on ordinary Russians’ spending, not on oil prices or economic growth.

One month of relief, then the gap reopened

The reprieve proved brief. July’s deficit followed June’s surplus even though spring’s higher oil prices should have cushioned the books, Bloomberg calculations showed.

Much of the windfall never reached the budget: it went to subsidizing oil firms whose refineries Ukrainian drones keep hitting, Gaidar Institute economist Ilya Sokolov wrote in a July monitoring paper.

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With the economy barely growing in the first half, a second-half recession could knock out another chunk of tax revenue just as the shortfall widens. Yaroslav Kabakov of the Finam brokerage expects the full-year deficit to approach double last year’s by year-end. Even as revenue shrinks, the military reportedly wants roughly 40% more than planned.

Borrowing, the other fallback, is jamming too. Russia suspended government bond auctions in July after investors balked and it could no longer raise money cheaply at home, even as Finance Minister Anton Siluanov vowed to shield defense and social spending.

Moscow shifts the burden to households

The burden is shifting onto households. The VAT rise alone will raise about $13 billion a year—barely a month of military spending—yet, unlike seizures aimed at billionaires, it reaches nearly every Russian, columnist Agathe Demarais wrote in Foreign Policy.

A draft law would allow the state to move around $40 billion from private pension accounts, and Communist leader Gennady Zyuganov has urged Vladimir Putin to tap the savings Russians hold in banks. Moscow will not run out of cash soon, Demarais argued, but it is “running out of politically affordable ways to raise it.”

Ordinary Russians are already moving their money. Through the first half of 2026, they withdrew cash from the banking system at the fastest pace since the pandemic, and the Central Bank has begun allowing banks to flag and freeze “suspicious” withdrawals, Euromaidan Press reported.

Ukraine’s sustained drone strikes on Russian refineries have reversed the country’s position as a net fuel exporter. Moscow now imports gasoline from as far as India and Morocco while rushing crude oil through the Arctic to reach Asian buyers it can no longer supply with finished fuel. The flows are scaling up—and running on the same sanctioned, EU-listed tankers.

The reversal is tightening global fuel markets. Russia runs the world’s third-largest refining industry, and the combined disruptions have acted to squeeze supply worldwide, with Moscow banning exports of both gasoline and diesel to keep its own pumps supplied.

Russian refining falls to its lowest since 2002

Ukrainian drone strikes have driven Russian crude processing to 3.6 million barrels a day in July—its lowest level since 2002 and roughly a third below the seasonal norm, according to EA Analytics data cited by Bloomberg.

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Ukraine hit at least 24 of Russia’s 34 largest refineries in some 50 strikes, with five more struck last week and at least two this week. With refining at a 24-year low, Russia is exporting crude through the Arctic while importing refined fuel from India.

Fuel shortages and rationing now affect about 50 million people—a third of Russia’s population. Moscow is subsidizing both the damaged refineries and the imported fuel replacing their output.

Sanctioned tankers take crude toward the North Pole

Seven tankers carrying about six million barrels of crude were heading to Asia through the Northern Sea Route as of 11 August. That volume already amounts to nearly half the approximately 13 million barrels the route carried during the entire 2025 season.

The route cuts two weeks off the voyage to China compared with the Suez Canal, and ice conditions are relatively mild this year, one trader told Reuters.

But speed is only part of the surge. Tankers on the Arctic route bypass European waters, where enforcement has led to inspections and detentions of sanctioned vessels, and Ukraine’s strikes on Black Sea shipping and the Iran–US standoff at Hormuz have narrowed the alternatives.

Vessel-tracking data show the convoy following a route north of the Severnaya Zemlya archipelago rather than through the traditional and more southern Vilkitsky Strait—putting sanctioned oil tankers within 500 nautical miles of the North Pole. Maritime experts said commercial traffic at this scale has never operated that far north.

Russian crude returns home as Indian gasoline

In the opposite direction, gasoline refined from Russian crude at Nayara Energy’s Vadinar refinery in western India is flowing back to Russia through a chain of ship-to-ship handoffs at Egypt’s Damietta Port. At least three cargoes have cycled through the hub since June. The first reached Russia on 5 August.

Bloomberg’s tracking data show the tanker Cyclone loaded 42,000 tons of gasoline at Vadinar on 18 June, transferred the cargo to the Oman-flagged Garnet off Damietta on 6 July, and the Garnet reached Russia in early August. Two more tankers, Varg and Photon, followed the same route in July, with Photon’s cargo handed to the Russian-flagged Talisman on 28–29 July.

All these vessels are under EU sanctions. Garnet and Talisman are also under US sanctions.

Nayara’s refinery, which processes 400,000 barrels a day, is 49% owned by Rosneft. EU sanctions in July 2025 drove away its non-Russian crude suppliers, so the plant switched to processing only Russian oil and now buys and sells through traders—which is how its gasoline reaches Russia without a direct India-to-Russia sale, as Euromaidan Press reported.

The expected September launch of Rosneft’s Vostok Oil project could push more crude through the Northern Sea Route, traders told Reuters. NSR crude shipments fell 4% in 2025. This year’s opening weeks have already matched half the full-season total.

A Ukrainian drone strike shut the plant that produces 40% of Russia’s liquefied petroleum gas on 10 August, and the country’s fuel crisis snapped back across at least 16 regions within days.

The shutdown of the Sibur ZapSibNefteKhim complex in Tobolsk, western Siberia, removes about six million metric tons of annual LPG capacity from a fuel system that was already under strain.

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Gasoline restrictions had begun easing across Russia at the end of July, when Ukrainian drones temporarily shifted to other targets. When the strikes resumed in early August, fuel rationing returned immediately, the independent Russian outlet 7×7 reported.

Three industry sources told Reuters on Tuesday that the complex stopped operations indefinitely “while the extent of the damage and its consequences are being assessed.”

No LPG volumes were offered from the Tobolsk delivery point on Russia’s commodity exchange—a point that earlier this year handled about 4,000 metric tons of propane-butane mix per day. Sibur declined to comment.

A strike on one unit stopped the entire plant

Tyumen Oblast Governor Aleksandr Moor confirmed a fire at an industrial site following a drone attack but did not identify the facility.

Ukraine’s Special Operations Forces Deep Strike units, working with the Russian insurgent movement Chornaya Iskra (Black Spark), claimed the strike. The plant sits more than 2,200 kilometers from the front line.

Militarnyi’s OSINT analysis identified the specific target as the complex’s central gas fractionation unit—the plant’s entry point, where raw hydrocarbons are separated into usable products before anything else in the production chain can run. About half of ZapSibNefteKhim’s output feeds Sibur’s own petrochemical complex in Tobolsk; the rest goes to market.

Sibur held contracts to supply feedstock to defense-industry enterprises, including the Kamenskiy Kombinat, which produces solid rocket fuel and motors for the Grad, Smerch, and Uragan rocket systems.

Sibur also supplied the Perm Gunpowder Plant, which makes charges for multiple-launch rocket systems, air-defense complexes, and cruise missile boosters, Militarnyi also reported. The Sverdlov Plant and Biysk Oleum Plant, both explosives manufacturers, were also Sibur clients.

Fuel rationing returned within days

Across at least 16 regions, the fuel restrictions that had briefly eased in July are back, 7×7 reported.

In Sochi—Russia’s most famous beach resort—Mayor Andrei Proshunin said on Telegram that fuel was available at only 38 of the city’s 58 gas stations. Deputy Mayor Vyacheslav Bauer told residents and tourists to use public transport or stop driving, the Moscow Times reported.

In Bashkortostan, authorities banned gasoline sales in canisters, leaving at least one resident unable to fuel his lawnmower—as he complained to regional head Radiy Khabirov during a televised address, a Bashkortostan outlet reported. Production at the Ufa petrochemical complex is unaffected by the drone strikes, Khabirov said.

Still, the shortage persists for a different reason: every time a drone-alert protocol is activated, fuel tankers halt en route to gas stations, regional official Elena Prochakovsky explained at a briefing reported by Prufy. Three districts remain in a fuel “red zone,” and 19 of 26 gas stations in Sterlitamak are operating.

Lipetsk Oblast Governor Igor Artamonov told residents not to expect improvement for one to two weeks, Lipetsk outlet Ploshchad reported. “If you can leave 10 liters unfilled, the person arriving on empty will thank you,” he said.

Russia’s fuel system was already breaking

The Tobolsk shutdown lands on an already fractured system. By mid-July, fuel rationing had spread to more than half of Russia’s regions. Ukraine’s drone campaign had struck Russian refineries 194 times in the first half of 2026 alone—eleven times the previous year’s pace—knocking nearly half the country’s refining capacity offline, Ukraine’s General Staff reported on 4 July.

Repair timelines keep slipping because sanctions block the spare parts Russian plants need. To plug the gap, Russia has banned gasoline exports, permitted lower-grade fuel, and begun importing gasoline from India and Morocco, refined from its own crude—shipping it 14,000 kilometers home because its refineries cannot meet domestic demand.

The Tobolsk shutdown removes more LPG output than any single strike of the war. Russia was already rationing fuel in more than half its regions before this strike.