Russia has the “strength and means” to bring the Ukraine war to its desired conclusion, according to President Vladimir Putin in recent remarks to state media. He also said that he “hoped” nuclear weapons would not be needed – in one of many nuclear threats since he reinvaded Ukraine in 2022.
At this point, few observers on either side of the war are expecting a ceasefire despite the Trump administration’s efforts. But a ceasefire is a low bar – and still seems the likeliest outcome based on Russia’s national interests.
The Russian economy is in dire shape. Potential GDP growth stood at 0.9% in 2021 before Putin’s vast expense of blood and treasure set the country on an even worse trajectory.
Private sector borrowing has grown by $396 billion in excess of the pre-war trend since 2014, while public has grown by $164 billion, implying that the war has cost at least $560 billion in new debt (an increase of 30% of GDP).
That is not to mention the reduction of the National Wealth Fund from $211 billion in June 2022 to $140 billion in March 2025.
The fertility rate is 1.4, down from 1.7 in 2013, well below replacement and among the worst ten countries in the emerging world. The working-age share of Russia’s population is falling from 72% in 2010 to 61% in 2030.
Productivity has continued to grow at a reasonable clip, at least according to official statistics. But total factor productivity – the most important measure today because it reflects the benefits of education, technology, and innovation – shrank by 1.12% since 2022, much worse than the European Union’s 0.22% contraction.
The Russian budget balance swung from 0.8% to -2.3% as a share of GDP from 2021 to 2024. Government war spending surged by 188% (from year-end 2021 to 2024), while revenues have grown by only 32% since the war began.
About 31% of revenues come from energy and commodity production. But the global benchmark crude oil price has fallen from $94 per barrel in February 2022 to $61 this month.
Saudi Arabia is leading OPEC to increase oil production by 411,000 barrels per day in June as the U.S. puts pressure on Russia and Iran to negotiate deals that would stabilize their regions.
The Russian budget supposedly requires an oil price of merely $41 to break even. But the huge debt buildup belies rhetoric about a healthy budget.
Oil and gas revenues have already fallen beneath defense spending. The discrepancy is worsening in 2025, as defense spending rises 14% over last year yet the oil price falls by 26%.
Meanwhile, the ruble’s value has declined by 6% relative to the dollar since February 2022. The central bank raised interest rates from 8.5% to 21% while imposing capital controls to prevent outflows from sinking the currency further and causing worse inflation.
Higher interest rates penalize household consumption and business investment, which grew by 14% and 20% each year since 2022, compared with an annual average of 22% and 28% from 2000 to 2013.
Foreign direct investment has cratered, with inflows of $25 billion on average from 2014-21 tumbling to a -$3 billion trickle over 2022-24. The EU states cut investment due to their own national interests. They tried over and over to emphasize trade, but the Kremlin chose war.
Will China come to the rescue? Only partially – and at a price.
The two sides will eventually reach an agreement on building the Power of Siberia II natural gas pipeline. But China holds all the leverage.
China now makes up 48% of Russia’s imports, 25% of Russia’s exports, and 4% of Russia’s direct investment since 2022. That compares with Russia’s 5% share of Chinese imports, 3% of exports, and 0.1% of foreign investment.
Russia has not yet accepted the strategic consequences of full dependency on China. But the longer it exhausts its resources on the war, the deeper that dependency will become.
Russians like to say that they can maintain the war forever and win at any cost. But there is no reason to kill 24 million people, as in World War II. Hitler is not invading. NATO has already admitted that Ukraine will not join. The strategic objective – Ukraine’s neutralization – has been obtained.
NATO and the EU could try to admit Ukraine in future, but that is unlikely since extending full security guarantees to Ukraine is to ensure war with Russia.
True, Russia faces the huge strategic costs of declining trade with Europe and a larger and stronger NATO touching its borders. But invading further into Ukraine does not mitigate those risks – it exacerbates them.
Moreover, if Russia expands its invasions, Trump will be humiliated, and that is not a good thing for Russia’s security or economy.
Trump’s net approval rating has fallen from 6.2% to -4.3% since taking office for a second time. His approval on handling foreign policy has fallen to 41%, compared with a 45% general approval. If Putin swats away his olive branch, Trump’s political standing will fall further and he will become more inclined to wage heavy sanctions and tariffs against Russia and those who trade with it. The Senate is already proposing a 500% tariff on buyers of Russian oil.
More to the point, if Putin rejects the Republican Party’s extraordinary overture, the national security hawks will regain the ascendancy within the party and rejoin hawks in the Democratic Party to create a unified American front in support of Ukraine. The two parties would regroup with Europe to launch a new package of military and financial aid.
Russia would need not only to match but to exceed that effort. Yet it has already killed at least 100,000 boys and wounded almost ten times as many. If that does not convince the Kremlin, then consider the war’s total estimated price tag so far of $1.3 trillion.
To put that into perspective, the U.S. killed 0.05% of its working-age population and spent 0.94% of GDP fighting the war in Vietnam. Russia has killed 0.27%, five times more, and spent 20% of GDP, about twenty times more.
Yet Vietnam permanently divided the U.S. populace and led to social unrest and inflation in the short run, followed by decades of extreme polarization – from which the U.S. still suffers today. Russia’s social divisions will be even worse, judging by these numbers.
Now compare all of the above to the alternative: a ceasefire built on the war’s existing stalemate.
If Putin declares victory while it is diplomatically possible, he will not be forced to give back much territory but instead will claim to legitimize his conquests by signing them in ink with foreign powers. He can keep the American people and the transatlantic alliance divided over Trump’s abandonment of Ukraine and the fear of global American retreat. And he can turn from managing the war to managing the domestic economic fallout – which ultimately threatens his regime’s security and must be dealt with sooner or later.
In short, the U.S. public has deemed Ukraine a bridge too far, just as Cuba was a bridge too far for the Soviet Union. Putin is no longer embattled and has no reason to risk everything. The result will be a ceasefire.
Of course, ceasefires come and go. Trump will not achieve a peace treaty since Russia will not return the territory it stole. Russia and Ukraine will reconstitute their forces, positioning ahead of the U.S. election in 2028 and other contingencies.
The sad thing is that because of Russia’s decaying economy and society, the long-term pattern of domestic instability leading to international belligerence will continue well after a Ukraine ceasefire.
So will the Russo-Chinese de facto alliance, which prevents the EU from going back to the way things were with Russia, even if there is eventually some sanction relief in the wake of a ceasefire.
More importantly, that alliance prevents the U.S. from truly re-engaging with China. That is true even if these two should agree to any “phase two” trade deal. The U.S. cannot afford to transfer capital and technology to its greatest geopolitical competitor, especially when allied with Russia.
Matt Gertken is Chief Geopolitical Strategist and Senior Vice President at BCA Research, the world’s leading independent provider of macroeconomic research. At BCA, he is responsible for the firm’s Geopolitical Strategy and U.S. Political Strategy, offering clients the geopolitical insights they need to build successful, global, multi-asset portfolios. Prior to joining the firm, Matt was a Senior Analyst at Stratfor, a leading geopolitical intelligence platform, and has held various academic roles at prestigious institutions worldwide.
