NextFin News - Since early July, Kyiv has lived under near-constant air-raid sirens. On August 27, the capital registered a record 13 alerts in a single day. On the night of September 8, one alert stretched for ten hours, from 7:39 PM until 5:40 AM. Roughly 100 civilians have been killed in the intensified bombardment, and the grim joke circulating on Ukrainian social media captures the mood: "Thank God I live in Kyiv, so I do not have to plan for the future."
This is not a tactical adjustment. It is a new theory of victory. Dmytro Kuleba, Ukraine's foreign minister from 2020 to 2024 and now a senior fellow at Harvard University's Belfer Center, argues that Moscow no longer expects to win by capturing cities or even by degrading Ukraine's energy infrastructure alone. Russia's aim is to make city life so intolerable that residents and businesses flee, to sever the logistical connections between metropolitan areas, and to turn Ukrainians against their own government. The ultimate target is not territory. It is the will of the Ukrainian people — and the staying power of Washington and Europe.
The financial arithmetic behind that bet is now visible in two budget documents. Moscow is planning 17.1 trillion rubles ($202.6 billion) in defense outlays for 2027, a 27 percent increase over the 13.5 trillion rubles originally budgeted and the highest figure since the full-scale invasion began. That would consume roughly 35 percent of a 48.8 trillion ruble federal budget, push the deficit to 2.2 percent of GDP from 1.2 percent, and lift state debt to 21.7 percent of GDP — above the 20 percent level Russian authorities themselves regard as safe. Kyiv, by contrast, says it needs about $52 billion in external financing in 2026 just to keep the state functioning, with a budget deficit of 18.4 percent of GDP. Russia is wagering that the price it is prepared to pay is unlimited, while the price the West is willing to pay is not.
The Arithmetic of Attrition: Why Air Defense Alone Cannot Win
Kuleba's central warning is one of simple arithmetic. Protecting Ukraine's skies cannot be the only strategy, because the exchange rate favors the attacker. The United States' stockpile of Patriot interceptors is running low, and Washington produces at most 840 per year — missiles that must be divided among the United States and all of its partners. Russia, by contrast, produces more than 1,200 new ballistic and quasi-ballistic missiles annually, then supplements them with missiles from North Korea.
The numbers explain why Russia can sustain a campaign that would exhaust a less patient adversary. On the night of July 30, Moscow fired more than 20 cruise missiles at Lviv, a city just 45 miles from the Polish border, killing a 35-year-old police officer and injuring 38. In mid-September, drones reached Lutsk and set a passenger railway carriage on fire. Attacks have also struck Ivano-Frankivsk, Ternopil, and Stryi — cities in Ukraine's interior that until recently could tune out the war. The message is deliberate: no place is a rear area anymore.
This is where the first-order reading of the conflict breaks down. The conventional wisdom through the first half of 2026 held that Ukraine had found a winning formula: better middle- and long-range strikes that halted Moscow's ground progress and inflicted unsustainable casualties. That assessment was not wrong, but it was incomplete. Ukraine's new strike capability could deny Russia victory on the battlefield; it could not deliver victory for Kyiv. Russia responded not by retreating but by shifting the target set — from the front line to the urban interior, from soldiers to civilians, from territorial gain to economic suffocation.
The second-order effect is what makes the shift dangerous. Every interceptor Ukraine fires is a scarce, expensive munition traded for a relatively cheap drone or missile. The European Commission approved €6.1 billion on September 11 for drones and PAC-3 missiles for Patriot systems, and the U.S. State Department approved a possible $2.7 billion air-defense sale on September 18. But procurement timelines run in years, not months, and European officials acknowledged in late September that member states failed to agree on additional interceptor deliveries even as the EU approved defense procurement plans totaling €28.3 billion within its €90 billion loan framework. Meanwhile, Ukraine's available generation capacity has fallen to approximately 14 gigawatts against an 18 GW winter peak demand, with all 15 large thermal power plants damaged or destroyed and 60 percent of hydropower capacity lost. Energy Minister Denys Shmyhal estimated in August that Russians have destroyed or damaged more than 80 percent of Ukraine's power generation. Air defense can blunt attacks; it cannot, at current production rates, erase the attacker's advantage in volume.
"Protecting Ukraine's skies cannot be the only strategy, because of simple arithmetic."
The Economic Endurance Contest
The war has become a contest of fiscal capacity, and the two balance sheets tell very different stories. Russia is financing its escalation by borrowing at home and raising taxes. The 2027 budget documents show total borrowing rising 43 percent to 7.7 trillion rubles, state debt climbing above the 20 percent threshold that Russian authorities regard as safe, and a new windfall tax on metals and mining companies expected to raise about 200 billion rubles annually. The Kremlin has accepted a hotter economy, higher household levies, and a shrinking fiscal cushion in exchange for sustained war production.
Ukraine cannot do the same. Its economy remains a fraction of its pre-war size, with growth projected at about 1.2 percent in 2026, its capital markets are closed, and its budget depends on external lifelines. The International Monetary Fund's newly approved four-year Extended Fund Facility puts Ukraine's cumulative financing gap at $136.5 billion over 2026–29, with a $52 billion hole in 2026 alone. Finance Minister Serhiy Marchenko has said the country needs approximately $52 billion in external financing this year to cover essential defense and social costs, having raised about $5.5 billion in the first months of 2026 through the Extraordinary Revenue Acceleration mechanism, which uses profits from frozen Russian sovereign assets in G7 countries.
The gap between need and commitment is the vulnerability Moscow is probing. Even full compliance with the G7 oil price cap would have reduced Russia's oil export revenues by only about 8 percent in August 2026 — roughly €853 million in that month alone, according to the Centre for Research on Energy and Clean Air. Russia's gasoline output is down 20 percent compared with 2025 levels and diesel production has fallen by nearly 30 percent, according to the International Energy Agency, and Ukrainian drone strikes hit a Russian refinery on average once every three days in the first eight months of 2026. Yet Moscow has absorbed those losses, banned diesel exports, and begun importing fuel. The sanctions pressure is real, but it has not yet reached the threshold that forces a strategic rethink.
The reconstruction bill underscores the asymmetry. The fifth Rapid Damage and Needs Assessment, released in February 2026 by Kyiv, the World Bank, the European Commission, and the United Nations, put the cost of recovery and reconstruction at almost $588 billion over the next decade — nearly three times Ukraine's 2025 GDP. That figure grows with every missile that gets through. Russia does not need to conquer Ukraine to make that number unpayable; it only needs to keep destroying faster than donors rebuild.
The Real Target: Western Political Will
This is the heart of the argument, and the piece's second-order insight. Moscow's principal target is the cohesion of Ukraine's partners. The Kremlin's calculation is that Washington and Europe face domestic political constraints — election cycles, competing budget priorities, fatigue — that Moscow does not. If Russia can make the war expensive and endless enough, the coalition holding Kyiv afloat will fray.
The evidence that this logic is already at work is mixed but concerning. Ukraine's 2026 counteroffensive — including Operation Vivaldi in the northern Donetsk region — liberated 26 settlements and more than 745 square kilometers across Dnipropetrovsk, Donetsk, and Zaporizhzhia, a six-month campaign aimed at disrupting Russia's spring-summer offensive. Yet even as Kyiv holds the initiative on parts of the battlefield, air-defense commitments lag. President Volodymyr Zelensky said on September 24 that Ukraine had agreed on a new package of Patriot interceptors with an unnamed partner; the next day he said President Donald Trump had made a final decision on granting Kyiv a license to produce the missiles. On September 26, Trump declined to confirm whether he had authorized Ukrainian production. The gap between announcement and delivery is exactly the space in which Russia's theory of victory operates.
There is also a domestic front inside Ukraine that Moscow hopes to exploit. Kuleba warns that Ukraine must improve public procurement, particularly in the security and defense sector, and eliminate corruption scandals such as the kickback scheme at the state nuclear operator exposed in November 2025. These problems are not systemic, he argues, but Ukraine cannot afford errors that erode donor confidence. Every corruption headline in Kyiv is a gift to Moscow's narrative that Ukrainian institutions are unworthy of support.
The Counter-Thesis: Russia's Economy Cannot Hold Forever
The strongest case against this reading is that Russia's war economy is already showing strain, and that the Kremlin's escalation is a sign of weakness, not strength. Long-term productivity looks bleak. The country receives limited foreign investment and cannot borrow on international markets. The ruble has weakened, inflation runs hot, and the labor shortage caused by mobilization and emigration constrains growth. A 27 percent increase in defense spending is not just a commitment; it is a distortion that crowds out civilian investment and stores up fiscal problems for later.
The energy war cuts both ways. Ukraine's strikes on Russian refineries have reduced fuel output enough to force export bans and imports — a tangible cost that would have been unthinkable two years ago. If Ukraine deepens those strikes and the West tightens enforcement against the shadow fleet and the banks that service Russian energy trade, Moscow's revenue base could narrow faster than its spending. The Lindsey O. Graham Sanctioning Russia and Iran Act, signed into law on September 18, 2026, imposes the most comprehensive package of U.S. sanctions and trade measures against Russia in recent history, including secondary sanctions on purchasers of Russian energy.
This counter-thesis is serious, but it rests on a conditional: it requires sustained Western enforcement and sustained Ukrainian strike capacity. Both are exactly the variables Russia is trying to break. Russia's theory of victory is, in essence, a bet that those dependencies will fail before Russia's fiscal capacity does.
The falsifying signal is specific. If Russia's 2027 defense budget is adopted near the planned 17.1 trillion rubles while core domestic spending is cut, inflation accelerates beyond the central bank's tolerance, and the ruble stabilizes only through capital controls, then Moscow has accepted a long-war footing and the endurance thesis is validated. Conversely, if the budget is scaled back, if fuel imports rise sharply, or if Russian regional governors begin openly rationing social payments, the thesis weakens. Watch the budget submission to parliament — expected by October 1 — and the monthly oil-revenue figures.
What Comes Next
The near-term outlook is grim but survivable. Ukraine has what it takes to endure the winter, as it has before. Air-defense deliveries will blunt the worst of the bombardment, and decentralized governance means cities can keep functioning even under fire. The medium-term picture is more dangerous: if the $52 billion financing gap for 2026 is not filled on time, Kyiv faces impossible choices between salaries, pensions, and ammunition. The long-term verdict depends on the structural question this piece has posed: is Russia's escalation a cyclical surge that will exhaust itself, or a structural shift to a permanent war economy?
Three scenarios frame the path ahead. In the base case, Russia maintains high-tempo strikes through the winter, Western aid arrives but lags requirements, and the front line moves slowly while both economies strain. In the upside case for Kyiv, deeper strikes on Russian energy infrastructure combine with tighter sanctions enforcement to shrink Moscow's revenue faster than expected, forcing the Kremlin toward a negotiated settlement on terms Ukraine can accept. In the downside case, aid delays stretch into 2027, Ukrainian air defenses run dry, and Russia's theory of victory begins to look correct — not because Ukrainian morale breaks, but because the state can no longer pay for the war.
The conclusion is clear: there will be no cease-fire in the spring. The task for Europe and the United States is not merely to help Ukraine survive, but to help it return fire — to act in concert so that Russia's theory of victory is disproved, and to turn Kyiv back into a city where people can plan for the future. The alternative is a war that ends not with a treaty but with the slow exhaustion of the side that believed in rules.
Russia's new theory of victory is not a military breakthrough but a financial one — a bet that autocratic patience outlasts democratic attention spans. Whether it succeeds depends less on what happens in the trenches than on what happens in Western budget offices.
Explore more exclusive insights at nextfin.ai.
