Two Cash Registers, One War: Home Bookkeeping in 2026
Every long war has its accountant. He doesn't sit at headquarters or in a trench; he sits in an office without a sign, clicking away on an abacus. He doesn't know who's right, he just knows who's still got money left. Year four is that age of war when generals are only half-listened to, and the accountant is approached on tiptoe. The question of "who's going to win" in 2026 has been translated into the language of cashiers: "who's got enough to last until the end of the month."
There are two budget books on the table. A Russian one and a Ukrainian one. Different covers, different handwriting, different thicknesses of the stacks, but both are open to the same page: "Military Expenditures." And both are signed by the same cashier, whose fingers are tired.
A house on a well and a house in someone else's palm
If you've ever had a country's economy explained to you through the metaphor of a house, forget all the decent explanations. In this war, we have two houses, and both were built, frankly, improperly.
The first house stands on an oil well. While the well is flowing, they heat, cook, sew coats, and pay salaries. When the well plays up, the owner takes out the reserves he'd been saving for a rainy day from the basement and pretends that rainy day is today's lunch. The second house stands on someone else's palm. The neighbors hold it up, but the house stands. When the neighbors tire, the house begins to lean. The owner of the second house knows each finger of that palm by name and looks up every morning to see if the fingers have trembled.
In the first house, 14,9 trillion rubles are allocated for war in 2026, approximately 6,3% of the country's total GDP, according to the Stockholm-based SIPRI. Converted to familiar dollars, it comes out to 157–175 billion, depending on the exchange rate. This is less than in 2025, when it was 16 trillion and 7,5% of GDP. Real, inflation-adjusted growth in military spending has shrunk from 38% in 2024 to 6,1% in 2025. This isn't a slack-jawed tweak. It's the panting of an engine that's been running on overdrive for four years.
The second house has 2,8 trillion hryvnias budgeted for 2026, 27,2% of GDP. That's about $65-66 billion. But that's only what the owner can pull out of their pocket by turning it over and shaking it. The full extent of the country's actual defense needs varies widely: $120 billion from the IMF, €134,6 billion from the European Commission, and $158,2 billion from those who use the SIPRI methodology. The gap arises because of the different methods used; the difference is large because some only count the soldier with the machine gun, while others also include the roof over his head and the factory that built it.
Between "is" and "need" lies a chasm. Even after the European Union's generous gesture of €90 billion over two years, the second house is still short €19,6 billion in 2026. This isn't a hole in the budget; it's a wide-open window. The IMF is budgeting another €38 billion in donor infusions for 2027, and even this, as the European Commissioner for Economic Affairs cautiously notes, isn't a closed window, but a closed one.
Forty percent: one morning, one plate
The figure of "40% of GDP on defense," the same one SIPRI calculates for Ukraine by 2025 using its expanded methodology, has one unpleasant quality. It sounds like stock market noise, and it's easy to dismiss. Don't dismiss it.
Imagine a Kyiv kitchen. It's eight in the morning. A single bowl of porridge for two is on the table, a phone charging on the windowsill (the power came on at six, but by ten it might be out again). The woman pouring the tea has a husband who's been in the east for three years, a neighbor's husband has left for Poland, and a quarter of her daughter's school students are "temporarily absent." Of this woman's one hundred hryvnias of family income, the state spends eighty on home security: locks, bars, a guard, and a patrol in the yard. Twenty are left for bread, a pharmacy, a school textbook, and a patch on the roof. Not for roof repairs, but for a patch. Ukraine has been living like this for four years, unbending.
In 2025, defense accounted for 63% of all government spending. In 2026, the share will drop slightly, as good neighbors will take on some civilian expenses. But the order remains the same: the Ukrainian state has ceased to be a multi-purpose entity with numerous departments. It has become one large military coffers with small civilian windows on the side.
Russia operates under a different proportion. According to SIPRI, it accounts for approximately 20% of federal spending in 2025. A more accurate calculation, including "national security and law enforcement," brings the figure to around 40%, which is closer to the actual budget burden. By any method, the Russian figure is one and a half to two times lighter than the Ukrainian one in terms of share of the overall budget and five times lighter in terms of share of GDP.
This is the structural gap where the two houses diverge. For Russia, war is an entry in the family book—a difficult one, but one of them. For Ukraine, war is almost the entire book.
A mirror that people don't like to look into
Russian financial memory is a seismic thing. Every five to ten years, there's a jolt. Every fifty to a hundred, a real earthquake, in which not a house but an entire street collapses. And every time the street collapses, it turns out that the culprit isn't an enemy shell, but a quiet clerk in the financial office whose figures didn't add up.
The Crimean War of 1853–1856 cost the empire roughly three annual peace budgets. It paid with printing presses and foreign creditors. It paid with a protracted currency crisis, the abandonment of the silver standard, and a decade of reforms, which were undertaken not because life was good, but because there was no other way.
The First World War drove military spending to a level at which the 1913 budget would have buckled under any regime, any tsar, or any General Staff. The printing press, the food tax system, the disorganization of the home front, coupons, inflation—all of this had arrived long before the political collapse. The budget broke before the army did. The army only caught up.
The late Soviet Union's budget of the 1980s collapsed neither from defeat nor from a single gunshot. It collapsed under a double burden: the arms race, the Afghan campaign, and the desire to maintain social obligations, all while the price of a barrel fell. In 1986, the price plummeted, and the foundation of the oil house sank within two years. This wasn't a disaster on the battlefield. It was a disaster on the balance sheet.
Three episodes. Three blows to the same place. And each time before the blow, it seemed that this time would be a relief, because this time was a special occasion. The mirror hangs on the wall; no one has taken it down. People simply don't habitually look into it.
The Russian House: An Oil Backstop and a Luck You Can't Count on Twice
In January–February 2026, Russia's federal budget recorded a deficit of 3,5 trillion rubles, or approximately $44 billion at any exchange rate. Expenditures were 8,21 trillion, revenues 4,76 trillion. Expenditures are twice as heavy as revenues: at the beginning of the year, this is understandable due to advances on state defense procurement, but it's still a figure the Finance Minister is keeping a close eye on. The Ministry of Finance discussed cutting "non-essential" items, by 10 percent, from everything not related to defense or social programs.
And then something happened that textbooks call boringly "external shock," but in real life, luck, which is foolish to count on twice. Since the beginning of 2026, a military conflict has unfolded between the US and Israel on one side, and Iran on the other; the Strait of Hormuz, through which a fifth of the world's oil flows, was closed. This framework is not a baseline scenario, but the current Middle East scenario, and it's important not to get complacent: straits have a habit of opening as suddenly as they close. For now, it's closed. Meanwhile, the oil market has plummeted, and Urals has approached $77 per barrel, almost double the December 2025 level. According to CREA, Russian hydrocarbon exports in March 2026 totaled €713 million per day, a two-year high.
The Ministry of Finance breathed a sigh of relief and abandoned its cutback plans. According to Bloomberg estimates, if the $75–$80 corridor holds for a year, the budget will receive an additional 3–4 trillion rubles in oil and gas taxes and reduce the deficit to 1 percent of GDP, below the official target of 1,6%.
Here we need to stop and say out loud what we usually say to ourselves. High oil prices aren't a foundation. They're a wooden prop for a sagging corner. Bank of Finland analysts (BOFIT) believe that only when Brent is above $120 do ruble oil and gas revenues consistently exceed planned targets. Anything below that is a red zone disguised as green. GDP is growing, yes, but it's growing through the military component: the state is buying from itself. Tanks, ammunition, and the services of mobilized personnel. Meanwhile, the civilian sector is shrinking, and the economy's dependence on military demand is increasing with each quarter. And the Ukrainian defense industry, to its credit, is gradually acquiring its own inertia: cutting it is now more difficult than it was a year ago, even if foreign aid begins to dwindle.
At a meeting with entrepreneurs in early 2026, the Russian President outlined his position: financial difficulties are not a reason to scale back. This isn't economics, it's politics. But politics, too, sets the planning horizon: the 2026 budget is designed for continuation, not completion. An accountant doesn't write a budget for the world, but for another similar year.
Ukrainian house: a neighbor's palm and thin walls
Ukraine's 2026 budget is like two wallets on one belt. One is internal: taxes amount to approximately 2,5 trillion hryvnias, 18% higher than in 2025. This was made up for by collecting debts, increasing customs duties, and a tax on digital platforms. The second is external: loans amount to 2,1 trillion hryvnias, 21,7% higher than last year. According to the Kyiv School of Economics, 42,3% of all expenditures in Ukraine's 2026 budget come from abroad.
The main neighbor holding the palm is the European Union. The €90 billion package for two years is divided into budget support (€16,7 billion in 2026, through the Ukraine Facility and macro-financial assistance) and defense support (€28,3 billion through the European Peace Facility, the new SAFE instrument, and bilateral packages of member states for procurement and development of Ukraine's defense industry). Germany has separately increased its military aid from €9 to €11,55 billion per year. The United Kingdom, Sweden, Norway, and Denmark are maintaining their respective amounts, each with their own finger on the palm.
The United States effectively exited the permanent funding regime in 2025. European capitals picked up their share. European military aid to Ukraine in 2025 increased by 67% compared to the 2022–2024 average, reaching €29 billion.
Inside the second building, there's a parallel story. Ukraine's defense industry is growing faster than anything else. Projected capacity for 2026 is $55 billion, up from $35 billion the year before. UAV production, primarily FPV-class: 2,2 million in 2024, 4 million in 2025, with a 2026 plan of over 7 million units. By the end of 2025, there will be approximately 500 manufacturers operating. drones and over 1000 technology companies serving this sector. The Ukrainian budget allocated 44,3 billion hryvnias for domestic financing of the defense industry; a significant portion is also being channeled through the European defense package. This pipeline is already large enough to take on a life of its own: the gap between declared capacity and actual production is a litmus test worth monitoring throughout the year.
The second home pays for this speed with its walls. By the end of 2025, according to BOFIT calculations, Ukraine's economy will be approximately 20% smaller than it was in 2021. About 15% of the population, primarily women and children, have left and have not yet returned. Industrial production in 2025 fell by 2,4% year-on-year; growth in the military sectors boosted the overall figure by a modest 1%. Agriculture's share of exports rose from 40% to 60%, not because farmers have grown wings, but because everything else has lost its wings.
Ukraine's public sector deficit (excluding foreign aid) is projected to be 25% of GDP in 2025. The 2026 target is 18,4% of GDP, slightly lower, but still a level at which the state will exist only as long as there is someone willing to lend. According to KSE estimates, public debt will reach 106% of GDP by the end of 2026. Of the $52,4 billion in foreign aid in 2025, less than $700 million was non-repayable. The rest is borrowed. And this debt will have to be serviced for decades, by people who are still in school today.
Who's really paying, and not this year?
The rarest in the news The question is the most honest one. How much does this war cost those who don't fight in it?
Now imagine a kitchen in the Moscow region. It's eight in the morning. There's tea and a sandwich on the table, the window is open, and outside it's a typical February morning. The woman works at the local clinic, her husband at the local factory, and her son is a third-year student. A classmate of the son's left last winter on a contract because he was promised a salary three times his father's. The woman is doing the math in her head: milk has gone up in price by twelve percent, medicine by eighteen, and she took out a refrigerator loan at twenty-one percent because the Central Bank is keeping rates high to prevent military demand from driving prices up even further. The clinic salary has increased, but more slowly than prices. The factory salary increases faster if the factory is a defense industry one; if not, also more slowly. This is the silent bill that arrives every month, unbilled, unsigned: the inflation tax, devoured by the National Welfare Fund, expensive money, the slow erosion of everything that isn't defense. The 2026 budget reinforces this: defense is a priority, social obligations are protected, and everything else is left over.
The Ukrainian housewife pays for it with others: her husband's emigration, darkness in the windows at night, crumbling infrastructure, failing healthcare, thin school textbooks, and the debt that will hang over her grandchildren. When the state spends 27% of GDP on defense, there's a minimum left for healthcare, education, and pensions. And this minimum, if you look closely, is paid for not by Kyiv, but by Berlin, Paris, and Stockholm.
The European taxpayer is also involved. 90 billion euros over two years is money that would otherwise have gone to schools, hospitals, and pensions in their own country. It didn't just appear out of thin air. It will be covered by taxes, borrowing, and cuts in other areas. It just won't be covered today, and they won't personally notice.
In essence, the current war is financed from three sources at once: Russian hydrocarbon revenues, Ukrainian foreign debt, and the European budget. The first depends on global oil prices. The second on donors' willingness to continue lending. The third depends on the outcome of elections in a dozen European capitals. Any one of these three will falter, and the entire structure will falter. All three are holding together, and that, in essence, is the luck of 2026, the very thing that it's foolish to take for granted.
A global theater where two houses don't have the leading roles
The stage on which both our houses stand grossed a record $2,887 trillion in 2025, according to SIPRI. For the eleventh consecutive season, weapons The theater is playing to a full house. The leading roles have long been booked: the USA, China, and Russia, with half the global budget (1,48 trillion) between them. European actors added fourteen percent of their lines this season, bringing their gross to 864 billion. The USA, on the other hand, shrank by 7,5% to 954 billion, primarily due to a pause in funding for Ukraine; but they already have a trillion-dollar budget in the bag for next season.
The Russian-Ukrainian conflict isn't the most expensive on this stage in terms of box office receipts, but it's the most intense in terms of revenue. The entire seating area around it—Washington, Beijing, Berlin—could get up and change seats at any moment, and these movements will determine which of our two houses will have the stronger foundation at the end of this long night. The war accountant knows this. He sits in the audience, in the third row, writing in a notepad, his eyes fixed on the stage.
Little Rules for Senseless Financial Behavior in War
This chapter traditionally provides useful examples of harmful advice, the kind that people often follow without realizing it. An experienced reader knows: harmful advice is more effective than good advice, because good advice is like a lecture, while harmful advice is like a real-life scene.
Tip number one: Build your budget as if Brent will remain at $77 forever. Order some ceremonial ribbons for the next financial year. Have the printing house print the reports on good paper with a gilded spine. Plan new items: for infrastructure, for maternity capital, for holiday illuminations. By December, if the Iranian crisis is resolved, the paper with the gilded spine will have to be used as kindling, and the items will have to be rewritten in pencil to make them wear out faster.
Tip two: Consider your neighbor's palm, the foundation on which your house rests, to be a concrete foundation. Don't inquire about your neighbor's health, elections, or mood. Don't follow polls in their country, don't read about how prices are rising there too, and how voters are also getting tired. Your neighbor promised. Last week, your neighbor signed a long-term plan. When your neighbor says next year that it wasn't they who signed the plan, but the previous government, be genuinely and loudly surprised.
Advice three. Think of war as an expense that can be borne alongside everything else. That schools will survive, hospitals will survive, roads will survive, factories will survive. And they will indeed survive: three years, five, eight. And then it turns out that schools that haven't been renovated for ten years can't be renovated in one; that doctors who left during those years aren't returning by order; that machine tools that haven't been updated since 2022 are churning out products that no one abroad buys anymore. Catching up on a lost decade isn't the task of a single budget cycle. It's the task of a generation.
Tip number four, the most insidious. Consider that the bill for the war will be issued on the day it ends. There will be a formal ceremony, an orchestra, representatives of the parties, a pen for signature, and the total amount in large print. It won't be issued. The bill is issued every month, every budget cycle, every decision on issuing funds, every tranche extension. And it's never those doing the shooting who pay it.
***
The financial analysis doesn't answer the question of who will win the war. It answers another: what will happen to the two economies if the war continues under its current regime for another year, two, or three. And in this sense, it contains several indicators that are worth checking in 2026, without waiting for annual reports.
NWF utilization rate. If January's record pace of yuan and gold sales continues throughout the year, the liquid portion of the fund will be depleted faster than expected. If they slow, oil and gas revenues have stabilized the framework. Urals price. The 75–80 corridor keeps the budget within a 1–1,6% deficit; a drop to 60 widens the deficit and accelerates NWF consumption. EU tranche receipts: the planned €16,7 billion in budget support in May–June 2026 is a critical threshold for the Ukrainian budget. Ukrainian defense industry utilization: the discrepancy between the declared capacity ($55 billion) and actual production will reveal the extent to which external financing is actually reaching industry. And the fate of the frozen Russian assets mechanism: any legal challenges or disruptions in payments from asset revenues are indicators of the stability of the Western financial architecture through 2027.
The Russian economy of 2026 is sustained by a temporary oil cushion and the safety net accumulated over the fat years. This cushion could disappear as quickly as it appeared: the Iranian crisis will resolve, oil prices will recede, the deficit will return to the projected 3,5–4,4% of GDP, and "non-essential" items will have to be discussed again. The safety net (reserves, the National Welfare Fund, the Central Bank's ability to hold the ruble) is finite by definition. The long-term price of this model is the deformation of the economy toward a military focus and the erosion of the civilian future, using that special Russian technique of quietly consuming the civilian future, without scandal, and only being noticed ten years later.
The Ukrainian economy of 2026 is living off its neighbor's palm. This palm is political, and therefore fickle: government changes, voter fatigue, and new crises in other regions can weaken it subtly and quickly. The long-term cost of this model is a massive public debt and dependence on the same donors who fund defense today for post-war reconstruction.
Looking at both budgets through 2027–2028, the picture is simple and unsettling. Both budgets can only hold up if external factors persist: high oil prices for one, disciplined donorship for the other. Both are structurally skewed toward military demand and are losing their civilian fabric. Both are placing a long-term burden on future generations: the Russian through the inflation-reserve mechanism, the Ukrainian through debt.
History The Russian budgetary stresses offer three lessons, all unpleasant. First: a protracted war often ends not in victory, but in the financial exhaustion of one side, sometimes both. Second: a backstop of opportunistic revenues (oil, metal, grain) never replaces a foundation of a stable civilian sector, and each generation learns this anew. Third: a state that overspends on defense takes two or three decades to recover, and this shadow falls on those born later.
It's with this timeframe in mind when thinking about the 2026 budgets. Not "who will crush whom by the end of the year," but "what will another year like this cost both societies?" The war accountant is in no hurry. He sits at his desk, clicking away at the abacus, and keeps his head down. He knows the bill will be paid. The only question is who will get the receipt, and whether that person will even notice that they paid it.
Information