Throughout history, funding war, with its inherent unknowns, has always risked bankruptcy. From ancient times until our own era, defence economics have played a huge, if unsung, role in warfare. At its geographical peak around 150 AD, the Roman emperors Hadrian, Trajan and Antoninus Pius found they were spending on military operations around 80 percent of all the taxes they collected.
When Rome’s empire was growing, slaves, loot and plunder also helped offset the running costs of its military ambitions. Spain and Portugal leant on the same solution in their conquests of the Americas in the 16th and 17th centuries, an easy strategy, also mirrored by Napoleon in the 19th century. Hitler fine-tuned it to include the mass use of slave labour in 1939-45, the Third Reich somewhat unwisely finding 25 percent of its workforce, including domestic staff, precision manufacturers and miners, from the slave nations it had conquered.
Archaeologists and numismatists can also follow the fortunes of regimes and nations by the quality of their coinage. When state finances were stretched due to conflict, the percentage of gold or silver used often declined, and the difference was made up with base metals such as copper, zinc, nickel or lead. In the Prussian wars of national survival, the German middle classes were encouraged to hand to the state their valuables and instead proudly wore jewellery of iron, hence the origin of Iron Cross military decorations. In recent wars, Western nations have funded their defence and security through higher taxes.
When William Pitt first introduced income tax in 1798, starting at a rate of two old pence in the pound (less than one percent), it was to fund Britain’s defences against Napoleon. In the twentieth century, the rate rose from 5.8 percent in 1913 to just over 30 by 1918. The threshold was also lowered, increasing the dragnet of those liable to pay income tax. During 1939-45 the rate again rose from 29 percent in 1939 to 50 in 1945, with Pay As You Earn (PAYE) arrangements imposed in 1944. War Bonds also became popular, with governments taking money up front for repayment with generous interest after ten years. However, if the majority of the population are too poor to generate substantial extra wealth, other preferably non-inflationary methods have to be found to pay for weapons and equipment, supply food and other provisions, transport it to where it needs to be, and remunerate manpower.
On 19 November came the news, reported by numerous outlets including Reuters, that sales of gold bullion by the Russian central bank from its National Wealth Fund (NWF), had reached around 57 per cent of the stock of 405.7 tonnes held at the beginning of 2022, before the full-scale invasion of Ukraine. Since then, the Finance Ministry has liquidated 232.6 tonnes of that stash, to shore up state expenditure. As of 1 November 2025, the NWF’s gold holdings have fallen to 173.1 tonnes, although the prices realised (currently the rouble equivalent of $4,130 per ounce), have been the highest ever. Gold has leapt from its pre-invasion high of $1,900/ounce in February 2022, in an unprecedented war-induced rise, which puts Chancellor Gordon Brown’s 1999-2002 sale of 395 tonnes of UK gold, at an average price of $275/ounce, into perspective.
Admittedly, the Moscow regime has been selling secure in the knowledge there are other sources of gold stacked in Russian vaults not part of the NWF — currently around 2,300 tonnes in total, the fifth-largest stockpile in the world — but these fire sales underline how heavily the Kremlin is leaning on its bullion buffers to keep its military endeavours going. Additionally, as one of the world’s most significant gold producers, ranking second behind China, the Russian Federation produces approximately 300-330 tonnes of gold annually, a substantial portion of global supply, but due to post-invasion sanctions, much of this is sold to China at far lower rates, or evasively traded through Dubai and Armenia, again heavily discounted. The Kremlin has also liquidated roughly $30 billion worth of Chinese yuan in 2025, and announced it will release another $15 billion in 2026, serving the broader goal of injecting foreign currency into the domestic market to stabilise the rouble. Analysts assess most of these proceeds are spent on military equipment.
Putin might have relied on diamonds to fund his special military operation in Ukraine, of which Russia is the world’s second largest producer after the Democratic Republic of the Congo (formerly Zaire). Most originate in Siberia, are known for their quality and considered among the best in the world. However, since the 2022 G7 ban on direct imports of Russian-origin gems, natural and synthetic, and restriction on third country cutting and processing of stones over 0.5 carats mined in Russia from 2024, supported by lesser producers like Botswana and Angola, analysts estimate an 80 percent drop in Russian exports, especially to Antwerp, global hub for the precious stones, with expectations of a further decline. New worldwide certification, giving each non-Russian diamond shipment a number, now accompanies the stones along their production chain, to prevent them from getting assimilated with Russian diamonds in a trading hub like Dubai or a polishing centre like the Indian city of Surat. The financial implications to Moscow are substantial, and with an inability to find alternative markets, losses have reached billions of dollars.
Russian exports are clearly catastrophic, but so too are the federation’s domestic finances
The Kremlin turned to shifting physical gold because its revenues from diamonds, but more importantly oil and gas, have imploded. Generating around 50 percent of GDP, and from an average price listing of $71.10 per barrel of Urals crude in November 2022, due to sanctions on Rosneft and Lukoil, reliance on its aging and inefficient “shadow tanker” shipping fleet, and a G7-imposed price cap, just three years later, traders report the price of Russian oil has slid to $36.61 per barrel, with other OPEC producers replacing the Urals output. With key export buyers, notably China and India, threatening to search for suppliers elsewhere, by November 2025 Russian sellers had been obliged to discount their black stuff to an average of $23.52 a barrel.
Russian exports are clearly catastrophic, but so too are the federation’s domestic finances. The state statistics service Rosstat reported that consumer prices rose 0.5 percent in October 2025, bringing annual inflation to 7.7 per cent. However, most households believe prices are rising far faster than official figures suggest, with estimates of inflation over the past 12 months at around 14.5 percent and expectations for the year ahead of 13.3. At the same time, Russian one-year bank lending rates increased to 19.01 percent in September 2025 for commercial loans and 27.85 percent for personal arrangements. These statistics touch everyone in Putin’s Russia, from the wealthiest oligarch to the poorest pensioner. No one is happy, and many Russians correctly see their hard living as the direct result of their Master’s war in Ukraine and the world’s response to it.
It comes as no surprise therefore, with Russia fast running out of funds and staring at a deep financial abyss, possibly of 1917 proportions, that peace proposals to end the Ukrainian adventure have suddenly materialised in Washington D.C. The 28-point plan, which has been widely leaked and reported on, appeared after a meeting in Miami between Putin’s envoy, Kirill Dmitriev, and Trump’s man, Steve Witkoff. Nothing about it is new, with even Putin, in a recent address to his security council in Moscow, admitting the American proposals were a “modernised version of the plan he discussed with Trump at the Alaska summit in August”. The BBC’s man in Moscow, Steve Rosenberg, observed that to him the 28 points seemed literally “like a poor translation of an original Russian document”. Putin demanded Ukraine formally cede to Russia the Crimea and those parts of the Donbass still under Kyiv’s control; that Ukraine’s armed forces reduce in size, and that Kyiv will vow never to join NATO. Fresh elections should be held in the hope of ousting Zelensky, which is unlikely.
Realising he must be seen to engage in a peace process, however unlikely a positive outcome might seem, Zelensky sent a Ukrainian team led by his trusted chief of staff, Andriy Yermak, and National Security and Defence Council secretary, Rustem Umerov, to Geneva over 22-23 November. There they met with US secretary of state Marco Rubio, Army secretary Dan Driscoll, Trump’s special envoy for Russia Steve Witkoff, and Jared Kushner. Together, they pared the original 28 proposals down to 19 points, more in Ukraine’s favour, with the ceiling on Ukrainian armed forces numbers removed.
“The Russian military’s effective work should convince Zelensky and his regime that it is better to strike a deal and do it now,” says Putin’s spokesman Dmitry Peskov, offering a Narnia-like interpretation of the geostrategic situation on his doorstep. Yet, the real reason for the timing is Moscow’s dire economic situation. In this light, Trump’s pressure and deadlines on Kyiv’s leader to agree a deal make no sense, unless he wants to give Putin an early Christmas present by allowing Moscow to win this war. He warns that Zelensky “is going to have to approve” his plan, whereas Ukraine is in the strongest position it has been for years, with aid, intelligence and weaponry mostly paid for by Europe, but originating in the United States, flowing into Kyiv. Trump must know that any cancellation of US participation would cost American arms manufacturers and service providers dear, and damage Republican fortunes in future elections. Most of the EU nations also have a stake in the outcome, worried as they are by an awakened, vengeful and resurgent Russia.
So, beware of any imminent hyped-up claims of “the end of hostilities in Ukraine”. Whatever we may wish, these things have a habit of falling apart, however many peace treaties the Man in the White House may claim. Cyber-attacks by Russia’s GRU (military intelligence bureau) on Western governments and businesses will not miraculously terminate. SVR (foreign intelligence service) espionage on potential overseas infrastructure targets, personnel and industry will not suddenly cease. Its armed forces, media influencers and rabid deputies will not be silenced and forgive or forget. The FSB (internal security service) and OMON (armed riot police) will not instantly respect foreign visitors again. Kremlin-owned media channels like Sputnik and RT, and private military companies like Wagner will not suspend their influence operations around the globe, seeking the election of their friends and confusion of their foes.
The militias in the Donbass, which oversaw the downing of Malaysia Airlines Flight 17 in July 2014, killing all 298 aboard, are unlikely to abruptly desist in their propaganda war. Neither will their friends and allies in Belarus, Hungary, Iran, North Korea and elsewhere. The UN cannot simply wind back the clock and pretend that events following 24 February 2022 did not happen. Western banks, insurers and businesses, their fingers once burned, will not speedily return to Moscow or St Petersburg, except perhaps the gilded hotel chains of the Dealmaker-in-Chief. A wiser world will be fearful and watchful of the Russian Federation for a generation, certainly within the remaining lifespan of Putin. Perhaps the best short-term outcome we can wish for is a Christmas ceasefire while something more lasting is hammered out.
Meanwhile, the war grinds on, with Putin demonstrating his commitment to peace by hitting apartment blocks nightly with his missiles, killing innocent civilians, and continuing relentless military pressure on the former mining town of Pokrovsk, now deserted, but once home to 60,000. It is an important logistics hub in eastern Ukraine where the urban battle has ebbed and flowed for more than a year. Stoutly defended by Ukraine’s 7th Air Assault Corps, its 425th Assault Infantry Regiment, a unit trained in urban warfare tactics and deployed as a “fire brigade” in critical sectors, are in the vanguard. Its infantry fireteams, backed by drones and artillery over the weekend have reportedly cleared the town centre and railway station of Kremlin troops, but Moscow’s news organisations claim the same for their men and the situation remains unclear.
We should not set too much store by success or failure at Pokrovsk, for both sides have elevated this urban slog to strategic status, which it is not. In recent wars, the outcomes in the sieges of Tobruk, Leningrad, Stalingrad, Bastogne and more recently Sarajevo, were claimed as strategic victories and seemed so at the time, but their contexts appear different now. With Kremlin casualties in this sector alone running at over 1,000 a day, Russian success at Pokrovsk would certainly be pyrrhic. Equally, its retention by Ukraine would undermine any Russian claims of military effectiveness, but come at a cost Kyiv could ill afford.
There is a vast gulf between the Kremlin’s one-sided security aspirations and the needs of Kyiv and Europe
Meanwhile, Zelensky is visibly rooting out corruption in his own country (some say this has taken too long), which has become a candidate member of the EU. The Ukrainian president will not concede anything without meaningful security guarantees in place, the presence of some kind of assistance or peace enforcement force, arrangements for the prosecution of war criminals, a Russian commitment to pay reparations and substantial help in decommissioning the millions of mines and unexploded ordnance in his country. He rightly needs far stronger security assurances than Ukraine believed it was getting in exchange for giving up its nuclear weapons via the Budapest Memorandum of December 1994, signed by Ukraine, Russia, America and Britain. In Zelensky’s mind this means membership of NATO — and who can blame him? Alas, the presence or absence of these will constitute red lines for one side or other.
There is a vast gulf between the Kremlin’s one-sided security aspirations and the needs of Kyiv and Europe, which President Trump, who “does not do detail”, seems to refuse to acknowledge. Any plan must have the free and unfettered agreement of Kyiv — otherwise the unfortunate ghost of Czechoslovakia in 1938 appears. In addition to the UK estimate of 1,118,000 Russians killed and wounded since 2022 (including 332,000 up to 25 November this year), the extortionate losses of irreplaceable hardware, a successful drone and missile campaign against Russia’s transport, manufacturing and energy infrastructure, and long-range assaults on airbases and seaports, a financial timebomb is ticking ever louder in Moscow that fills Putin and his gang with dread. We must let it tick.
