Kyiv remains deeply dependent on foreign backing for its war effort and has accepted tough concessions to maintain U.S. support
Despite the ongoing occupation of its territory, relentless missile strikes, and the immense human toll of war, Ukraine’s economy has shown remarkable resilience. Its robust military resistance against a more powerful aggressor has been enabled, in large part, by sound economic management. Rather than succumbing to institutional paralysis or collapse, Ukraine’s state capacity has, in many respects, been reinforced by the conflict.
Through effective tax collection and expansive grassroots fundraising, the state has significantly expanded its armed forces, boosted defence manufacturing, and upheld essential infrastructure. Government spending—particularly on soldiers’ salaries, logistics, and infrastructure—has had a multiplier effect on the civilian economy. Frontline troops earn well above the national average, injecting disposable income into local markets.
Meanwhile, Ukraine has cultivated an innovative defence sector that blends legacy state enterprises with a burgeoning ecosystem of drone startups. Together, these efforts have stabilized the economy and reoriented it toward the overriding imperative of national survival.
Ukraine deserves credit for its wartime economic achievements, but it still lacks the domestic resources to shoulder the full financial burden of the conflict. External aid has been essential to keeping the economy afloat. In this sense, Ukraine’s resilience rests on a paradox: while state capacity has grown significantly, it has done so through deep reliance on foreign financial support. A stark indicator of this is Ukraine’s negative gross domestic savings rate—reflecting an economy that consistently spends more, particularly on the war effort, than it produces. This imbalance is sustained only through the continued flow of international assistance.
As I explore in my recent report, Russo-Ukrainian War: The Political Economy of the Present Balance of Forces, Ukraine has made the most of this constrained situation. Meanwhile, Russia’s economic position, often portrayed as stable or even thriving, is more vulnerable than it appears.
Russia is frequently seen as the economic “winner” of the war so far—largely for avoiding the collapse many predicted in response to Western sanctions. But this resilience masks a different kind of dependency: not on allies, but on hydrocarbons. Oil and gas have contributed between 30% and 50% of Russia’s government revenues in the past decade, propping up public finances and much of the broader economy. In essence, Russia remains a petrostate, with all the vulnerabilities that entails.
In 2022, soaring global oil prices helped Russia stabilise its economy. But with oil demand now declining, Moscow’s domestic options are tightening. The balancing act between sustaining the war effort and maintaining the civilian economy is becoming increasingly fraught.
Long-term trends in global energy markets deepen this challenge. The International Energy Agency forecasts an unprecedented supply surplus in the coming years, which will erode the price-setting power of petrostates and further weaken Russia’s fiscal foundation.
Unlike Ukraine, which has secured a multiyear package of aid and loans extending to 2027, Russia is depleting its liquid reserves in the National Wealth Fund to bankroll the war. Signs of strain are already visible: a shrinking current-account surplus, rising inflation, elevated interest rates, and growing pressure on the banking system. In a striking reversal, Ukraine—despite being the battlefield—now maintains a lower real interest rate than Russia, suggesting greater monetary stability and a more resilient financial sector.
On paper, then, Ukraine appears to have the economic upper hand. Yet the recent minerals agreement with the United States complicates that picture, highlighting the structural dependency underpinning Ukraine’s position.
The deal establishes a joint investment fund to exploit Ukraine’s mineral wealth but on terms skewed in Washington’s favour. Ukraine is required to contribute 50% of all revenues from new mineral licenses to capitalise the fund, while the U.S. has no obligation to match this contribution. Despite this, it retains equal decision-making power. The agreement even allows for U.S. military aid to count as a form of capitalisation—potentially giving the U.S. a legal claim to future profits without committing direct investment capital.
While the final version of the deal is seen as a political win for Kyiv—especially after earlier, more exploitative proposals were scrapped—it still reflects the unequal dynamics at play. From a commercial perspective, its success is uncertain. Mineral extraction is inherently risky and expensive, and with parts of Ukraine’s resource-rich territory under occupation, investor confidence remains low. There is widespread scepticism about whether the fund will generate meaningful returns.
This may help explain Ukraine’s motivation: the deal serves a largely symbolic function, keeping the U.S. engaged in Ukraine’s defence at a time of geopolitical uncertainty. Ukrainian officials highlight several hard-won concessions: U.S. recognition of Russia as the aggressor, a commitment to renegotiate the fund’s terms to align with EU accession requirements, and formal respect for Ukraine’s constitutional claim that mineral resources belong to the people. These provisions offer potential avenues to revise the deal in Ukraine’s favour down the line.
Still, optics matter. The minerals agreement feels like a throwback to the Trump-era worldview of transactional geopolitics and “great power competition.” For a nation fighting to preserve its sovereignty and democracy, surrendering strategic resources should never be the price of survival. Yet, in signing the deal, Ukraine is buying time—securing continued U.S. alignment as Russia faces a narrowing economic horizon. With oil revenues under pressure, the clock may ultimately favor Kyiv.
