GLAVNOE: The Past Month in Russia, June 2026

A Diminished Forum

Following the Victory Day parade in May, June saw another flagship event in Russia that the authorities have, in the past, generally used to showcase the country’s international connectedness and economic dynamism: the St. Petersburg International Economic Forum (SPIEF). In recent years, with Russia’s growing international isolation and the strain that the war put on the economy the forum had become a shadow of its former self, but the organizers had kept up appearances: foreign guests were invited and paraded around in the media, governors announced business deals that they had negotiated with private sector partners, futuristic gadgets were presented, and the leaders of the wider government’s economic block, together with Putin, made predictions about the future of the Russian economy. While many of the above still happened - there was even a small US delegation led by the head of the US Commission of Fine Arts, Rodney Mims Cook Jr., who is overseeing the construction of Donald Trump’s White House ballroom - this year, even this facade seemed to be cracking. 

A couple of hours before the forum’s opening a successful Ukrainian drone strike hit an oil facility in Kronshtadt, next to St. Petersburg, highlighting the growing dangers to Russia’s industrial establishments. The US delegation included manifestly unserious people such as the conspiracy theorist Candace Owens, with even the Tate brothers, who are under investigation for human trafficking, turning up in Russia. Russian speakers included figures such as Konstantin Malofeyev, an ultraconservative businessman, and the illiberal philosopher Alexander Dugin who were musing out loud about nuclear warfare. Elvira Nabiullina, the head of the Russian Central Bank and one of the key technocrats watching over wartime domestic stability, on the other hand, was notably missing from the diminished forum, amidst rumors that she wants to retire from public life next year when her mandate expires. When Nabiullina resurfaced two weeks after the forum, she sent a very open warning to the government about the imminent threat of rising inflation and slowed down intrest rate-cutting program, reducing the key rate by only 25 basis points to 14.25 percent in June. 

One of the main drivers of the inflation that Nabiullina warned about is the domestic fuel market problem. Over the past two months Ukraine has ramped up its drone attacks against Russian oil processing and storage facilities, and the attacks have grown both in frequency and - according to sectoral experts - in precision, making repairs more difficult. While fuel shortages are not unprecedented and usually seasonal, the strikes began to worsen the situation even before the typical summertime demand increase on fuel. With gasoline rationing introduced in some form in more than half of Russia’s regions as of late June and three regions having introduced a situation of high alert due to the fuel crisis, the shortages are now affecting even the networks of large firms. So far a full-blown supply chain crisis is only seen in occupied Crimea and the surrounding border regions. But the combined effects of the fuel shortages and the more frequent drone strikes reaching several Moscow targets at the end of June, are begining to shape people’s negative perception of the war both domestically and abroad, which is likely precisely what Ukraine’s goal was. 

Another major driver of the negative public sentiment is the federal government’s inflated spending on the war. According to a recent Bloomberg report, the government is planning to increase war-related expenditures by another 4-5 trillion rubles (or 10-11 percent of the total federal budget) even as the Audit Chamber warned of a more than 5-percent shortfall in planned revenues for the year, a government-adjacent think tank announced that Russia had entered stagflation, and Finance Ministry officials reportedly told the Kremlin that war spending was unsustainable. There are no signs that this is going to change in the foreseeable future. 

Bait and Switch

The Kremlin seems to be aware of the simultaneous decline of the economy and public finances. However, the answers offered over the past month suggest that it is only willing to make small and symbolic concessions at most, e.g. the freezing of a gradual tax hike on small businesses after almost all of those surveyed had complained about sharply worsening conditions for doing business. At a June meeting, employer representatives called on Putin to strengthen property rights protection, consider a revised federal investment tax deduction and, implicitly, to put more pressure on the Central Bank to lower its key rate. Of these, the investment tax deduction may still happen; as mentioned above, the Central Bank is actually slowing down its rate-cutting policy due to war-related causes that the federal government is unwilling or unable to change. And, while the State Duma did adopt a law establishing a ten-year statute of limitations on challenging privatization transactions in May, this still leaves ample leeway for government prosecutors to pursue asset seizures, e.g. for illegally mixing private interests with public office, as in the case of Vadim Moshkovich, whose assets were seized in May. This also affects reprivatization: the gold mining company Yuzhuralzoloto, for example, sold for 42 percent below the original asking price and only at the fifth attempt, reflecting the continuing uncertainty of property rights in Russia. 

The Kremlin, thus, reassures business owners that it is sympathetic to their concerns about the state of the domestic economy and is concerned about an unprecedented drop in capital investments. But at the same time it sends the message that the main structural cause of these, an unwillingness to consider a pathway towards a negotiated compromise to end the war in Ukraine, is there to stay as a shadow organizing principle of economic policy, quietly moving the authorities closer to de facto economic mobilization, and, possibly, another round of military mobilization if the Kremlin’s stated war aims are not reached by the fall. 

Amendments to the Budget Code, adopted in June, authorize the government to exceed both its 44-trillion-ruble spending cap specified in this year’s federal budget, and its debt ceiling, as long as there are funds in the Unified Treasury Account at the Central Bank, without asking the Duma. The same amendments also allow - in fact, encourage - regions to spend more of their own funds on war-related expenditures, as these will, in the future, be covered by the federal government’s ongoing debt forgiveness program (as well as restarting subsidized lending to regional budgets and deferring pending payments to avert skyrocketing debt servicing costs). This could technically also allow regions to free up funds to cover investment programs, but financially stressed regions will find this difficult without improving their own tax base. The deputy prime minister of the Novosibirsk Region openly admitted this month that the regional government was freezing all construction projects to be able to meet social obligations to soldiers' families and others. 

Yet, at the federal level, once again, the war is seen not as the source of problems for domestic policy, but as the main organizing principle for adopting solutions for them. 

Before the Silly Season

In a democracy, the above concerns - the inflationary cycle exacerbated by the developing fuel crisis that will have a downstream effect on other industries, the ballooning deficit, the growing uncertainty about the trajectory of the war in Ukraine and the safety of industrial establishments, etc. - would dominate public discourse three months before a planned legislative election. In Russia this is barely the case. While political parties have made some noises about other major issues, such as increasingly severe internet restrictions, there is little that they can say to the public about Russia’s social and economic development without talking about the prospects of the war. 

The governing United Russia party formally nominated its candidates for the State Duma on June 28, with Putin attending the congress, but without releasing a formal program. The party’s “primaries”, which took place over the past weeks, ended up suggesting 61 Ukraine war veterans, or war participants (or, to be more precise, people having the “war participant” stamp, regardless of whether or not they actually performed frontline service) for nomination to the Duma, and more than 400 in lower-level elections. With other parties now also touting their promotion of war participants, it is not unlikely that the new federal legislature will indeed have at least 100 “war veteran” members (out of 450). But rather than empowering the returnees from the war, this should be seen as an attempt at their political co-optation and the demonstration of the Kremlin’s normative power over the acceptable or desirable social discourse and elite formation. The purpose is to suggest that the Kremlin’s wartime social contract - advancement in exchange for buying into the war symbolically or actively - is still intact and working. But between the silencing of bread-and-butter issues in official political discourse, stubbornly uncertain property rights, and clogged promotion pipelines where war service increasingly seems to be the only available accelerator, these contracts, with the population and the elite, seem to be eroding.

Featured Image: screen grab from the official Kremlin website http://en.kremlin.ru/events/president/news/79956/videos