Henry Kissinger wrote that “a bluff taken seriously is more useful than a serious threat interpreted as a bluff.” It is well past time to call Vladimir Putin’s bluff.
President Donald Trump’s response to the highly-anticipated release of the Russia-Ukraine peace proposal, led by the U.K., France, Germany, and Ukraine, indicates how wide the gap between the two warring parties really is. Land concessions in Ukrainian-held territories, control of the Donbas region, security assurances, and autonomy over military capacity still seem to plague negotiations.
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The standstill should come as no surprise. The Russian President has refused to publicly share what he could accept or reject in the U.S.’s 28-point peace plan—which directly drew from Russia’s own documents—after a five-hour negotiating session with Special Envoy Steve Witkoff and Trump’s son-in-law Jared Kushner. Many foreign government officials view the U.S. plan as heavily favoring Russia and something that the Ukrainians or Europeans would never accept.
Therein lies the trouble. Putin wants even more than the generous starting point established by the Trump Administration. Ukrainian President Volodymyr Zelenskyy has his priorities but is willing to make concessions through constructive negotiations—although a seat at the table would be a good start.
While Trump seems to believe that Russia is “much stronger” than Ukraine, the truth is that most of the Russian landmass is uninhabitable, their economy is disintegrating, and their military prowess is inferior to that of Ukraine with the backing of its allies.
Russia is overplaying its hand
Trump’s perception of Russia as a geographical Goliath is skewed. Excluding Russia, Europe takes up about 4 million square miles. Meanwhile, Russia spans over 6.5 million square miles, but more than 4 million of those are uninhabitable due to permafrost. Which means the livable portion of the country is 40% smaller.
And Russia’s economic might is also often overestimated. The Russian economy, at its peak in 2013, has only ever accounted for a meager 15% of the European Union’s GDP—$2.3 trillion versus $15.4 trillion. The Russian economy is not even a top 10 economy and is highly dependent on revenues from oil, gas, and other raw materials.
Russia holds fewer cards than Trump believes. And so far, Trump-led discussions have not put the Ukrainians, Europeans, or Americans in a strong negotiating position. For instance, over 40% of Ukrainian critical minerals deposits are in territories occupied by Russia, which Trump is proposing Zelenskyy forfeit. Skilled negotiators, the Russians are doing what they do best—delay, confuse, and distract until they have nothing else to take from their counterparts.
So far, Trump has capitulated to the strategy, sometimes to the bewilderment of those inside and outside the White House. There have been numerous periods where Putin appeared to welcome peace proposals or ceasefires, only to turn around and reject them, add impossible conditions, or launch major military campaigns simultaneously.
The time has come for Trump to call Putin’s bluff. Just as important, it is time for the president to recognize that Ukraine holds more cards, relative to Russia, than he might have realized.
The illusion of growth
The Ukrainian frontlines can outlast Putin’s crumbling economy.
Russian GDP growth projections for 2025 range from 0.6% to 0.9%, with long-term estimates cut from 2.5% to just 1%, a sharp decline from 3.6% in 2024. However, these figures obscure a fundamental distortion: output is directed toward low-productivity goods necessary to sustain the war effort. Ammunition, uniforms, and fortifications contribute to GDP but do not improve long-term welfare or capital formation. The headline numbers conceal a deeper decline in productive capacity.
The loss of over 1,000 major non-Russian firms exiting the Russian market upon its invasion of Ukraine represented one of the most costly penalties exacted on Putin. Western sanctions have shuttered access to international financial markets, frozen assets overseas, depressed key commodity prices, and frozen trade relationships for finished goods—leaving only select raw materials for export.
The fiscal situation is even bleaker. Russia’s 2025 budget deficit has surged from a planned ₽1.17 trillion ($15 billion), or 0.5% of GDP, to an estimated ₽5.7 trillion ($72.5 billion), about 3% of GDP. In the first eight months of 2025, Russia’s deficit totaled ₽4.2 trillion, four times the amount for the same period in 2024. Defense spending has reached an estimated 6% to 8% of GDP, the highest since the Cold War, accounting for roughly 40% of total budget expenditures when combined with internal security. The Stockholm International Peace Research Institute estimates total Russian military spending was ₽15.5 trillion ($195 billion) in 2025—a 125% increase since 2021.
Meanwhile, liquid assets in Russia’s National Wealth Fund (NWF) have fallen from $115 billion in January 2022 to about $35 billion by mid-2025.
And though the ruble has increased by 46% since the beginning of the year, this strength is not a sign of health but of desperation. The currency has been propped up through capital controls, interest rate hikes—currently at 16.5%—and forcing exporters to sell foreign exchange. Since Russia receives most foreign payments in yuan, euros, or rupees, a strong ruble means selling ever more oil and gas just to earn the same revenue or dipping into the dwindling NWF to cover shortfalls. The challenges were recently acknowledged by a senior Russian economic official, notably as inflation is expected to persist.
It is well known that energy revenue accounts for 60% of the Russian government’s income, but less recognized is that those revenues are collapsing under the expanding sanctions regime. According to Goldman Sachs, oil export revenues have dropped 50% this year, shrinking from 7.6% of GDP to just 3.7%. Gas exports have also been downgraded by 25% from annual targets.
Furthermore, Ukraine’s drone operations have worsened the situation, damaging half of Russia’s key oil facilities and decreasing refining capacity by 10%. Rosneft, Russia’s leading producer, has reduced processing output by 22% compared to July. Currently, around 350 million barrels of Russian oil are stored in tankers with nowhere to go. Europe has committed to ending all energy exports by September 2027, and the “pivot to Asia” has not materialized as hoped.
Russia’s trade dependencies also reveal a profound asymmetry. China accounts for 30% of Russia’s exports and 50% of its imports, while Russia only accounts for 3% and 5% of China’s exports and imports, respectively. This imbalance has painful consequences, with Russia paying markups close to 90% on sanctioned Chinese goods. Indian refiners have extracted significant discounts for their expanded oil imports. Other countries—Turkey, the UAE, Kazakhstan, and Armenia—have become key hubs for avoiding sanctions, as Turkish exports of dual-use goods to Russia tripled in 2023. Still, even these secondary sources extract hefty premiums on banned items.
A hollowed-out manufacturing base fuels these trade dependencies. Russian automotive, aviation, and semiconductor manufacturing capabilities are all floundering—just like the rest of the Russian economy.
The war economy trap
Russia’s struggling economy is both damaged by, and dependent on, the war in Ukraine. But this kind of war economy comes at a high cost.
As lives are tragically lost, Russia has suffered a decline in human capital, significantly diminishing its workforce. Over one million Russian workers have been removed from the civilian economy through mobilization or emigration since 2022, many of whom are educated, highly-skilled, youngprofessionals.
Military spending has become a fundamental part of Russia’s economy—and an increasingly unsustainable one. Enlistment bonuses, crucial to recruitment, are being slashed as 67 of 89 Russian regions report severe deficits. Bonuses have dropped from over ₽3 million to the federally mandated minimum of ₽400,000—from roughly $50,000 to $5,000.
Russia’s wartime economy is collapsing under the strain of shrinking energy revenues, the loss of human capital, and a declining manufacturing base. Putin’s position is much weaker than his bluster indicates, and the economic fundamentals underlying his economy are likely to worsen as sanctions tighten and reserves dwindle.
But Ukraine alone cannot exploit these vulnerabilities—ongoing support from the U.S. and Europe remains essential to outlasting a regime willing to sacrifice its future for territorial conquest. This is not merely a contest over spheres of influence or lines on a map. It is a defining test of whether Western democracies possess the resolve to defend the rules-based order they built. The West’s cards are far better than Trump and Putin believe, but only if the U.S. has the will to play them.
This article included research assistance from Jake Waldinger and Steven Zaslavsky.
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