There is little doubt that the war in Ukraine and the weight of Western sanctions are placing the Russian economy under growing strain, making it reasonable to assume that this pressure has begun to shape Moscow’s negotiating position in the ongoing peace talks. In light of these pressures, Moscow has shed its maximalist aims. According to my Russian sources, what remains are the minimum conditions Vladimir Putin can accept while still being able to present the war as some form of success at home.

The Russian government reportedly needs to find an additional $16 billion (0.5% of GDP) this year in order to finance the war without a mushrooming of the budget deficit. Inflation is increasingly eroding living standards, as well as the real value of the elevated military pay that has enabled Russia to recruit hundreds of thousands of volunteers for the war. The value of Russian oil exports has declined steeply as a result of the drop in world prices and increasingly tough Western sanctions. And mortgage costs are soaring; the only reason this has not become a far larger problem is that one of the few tangible gains of the early Nineties for ordinary Russians was full ownership of the homes they already occupied.

That said, the Russian economy appears nowhere near collapse. The spring and summer of 2025 saw a flurry of Western reports about soaring inflation and imminent collapse, but since then, inflation has in fact moderated, and the price of certain staple foodstuffs has dropped significantly.

Western hawks like to claim the unreliability of Russian official figures and cite the impressions of ordinary Russians instead, but as a recent article in the independent Moscow Times points out, this discrepancy is true across most of Europe. In Russia, the official inflation rate from 2022 to 2025 was 9% while the “observed” rate was 16%; but in Ireland, the figures for that period were 4.6% against 7.8%, and in Italy, 4.2% against 8%.

Nonetheless, the war is not going well for Russia. On the front line, the situation appears frozen. In part, this is because of the winter conditions, but throughout the whole of last year, Russian advances were extremely slow, and at a cost of heavy casualties.

The Ukrainians are also suffering, but since they have abandoned their hopes of reconquering their lost territories, all the Ukrainians have to do is hang on. The tremendous advantages that contemporary drone and satellite technology give to the defensive side mean that so far, they have been able to do this with remarkable success. And last spring, as Western analysts were predicting imminent Russian economic collapse, I was being told that Russian generals were instead assuring Putin that Ukraine would suffer a military collapse by year’s end — a prediction that likewise failed to materialize. Indeed, there remains a possibility that Ukraine’s outnumbered and outgunned army could break. But it no longer appears that Putin is basing his strategy on that outcome.

The Russians are no longer calling for Ukraine to give up the whole of Zaporizhia and Kherson provinces. They have accepted that there will be no meaningful cap on the size of the Ukrainian armed forces or the arms that the West can supply to Ukraine. They have accepted that Ukraine can join the EU. They have agreed in principle to Western security guarantees. They reject Western troops in Ukraine — but given European military realities and distrust of the US, the idea of a European “reassurance force” is, in any case, looking increasingly fantastical.

The only remaining serious sticking point in talks is admittedly a very big one: the Russian demand that Ukraine hand over the remaining part of the Donbas region that it still holds. This is a mere 2,500 square miles and a few largely ruined towns (though still containing around 200,000 people). In practical terms, it is of little value to either side.

Morally, however, it is extremely difficult for Ukraine to surrender national territory that it still holds, and for Putin to accept that four years of a bloody war have not even succeeded in “liberating” the whole of the Donbas. However, the Trump administration is working assiduously to try to find a compromise over this issue, and given the growing exhaustion of both sides, there is reasonable hope that they may succeed. Future historians may well judge the sacrifice of tens of thousands more lives for Pokrovsk and Kramatorsk as among the starkest examples of what Barbara Tuchman called The March of Folly.

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Anatol Lieven is a former war correspondent and Director of the Eurasia Program at the Quincy Institute for Responsible Statecraft in Washington DC.

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