The conflict around Ukraine has reached what all sides increasingly acknowledge as a stalemate. Yet the challenge facing parties is not primarily finding a resolution to the conflict itself, but rather discovering an exit from the economic impasse that constrains all involved. This proves exceptionally difficult because the number of directly and especially indirectly involved parties continues to grow – each with distinct interests that complicate any unified approach. US policy shifts unpredictably between administrations, Europe experiences a rightward political turn that questions support commitments, and across Asia multiple beneficiaries of the conflict remain beyond effective Western pressure. Understanding the economic positions of each party reveals not who will win, but rather the narrow parameters within which any exit must be negotiated.
As the Ukrainian conflict enters its fourth year, the question shifts from military tactics to economic sustainability. This is fundamentally a war of economic endurance, where the capacity of each party to maintain its position depends on budgets, export revenues, and industrial capacity rather than battlefield developments. The economic constraints binding each party create a complex equilibrium that will determine the conflict's trajectory more decisively than any single military operation.
Ukraine's existential dependency: Western support is critical
Ukraine represents the most financially vulnerable party, with zero capacity to sustain operations without continuous external support. The numbers tell a stark story: Ukraine's 2025 budget projects a deficit of 19.4% of GDP (approximately $39 billion), while defense spending alone consumes 26.3% of GDP at $53 billion – the highest military burden globally. Domestic revenues cover barely half of necessary expenditures. In 2024, external financing of $41.6 billion covered 75% of budget needs, the highest dependency ratio in three years of war.
This dependency extends beyond defense to basic civilian functions. Social aid and pensions account for 12.6% of GDP, infrastructure investment receives just $2.1 billion – a mere drop in the bucket for a country requiring massive reconstruction. Ukraine's GDP in 2024 reached only 77% of pre-war levels despite 2.9% growth, with projections suggesting no recovery to 2021 levels before 2030.
Western support takes three critical forms, all indispensable: defense funding, budget support for civilian governance, and crucially, continued access to Western markets for Ukrainian exports. Agricultural exports of $18.1 billion in 2024 depend on the Black Sea corridor and EU Solidarity Lanes. Through December 2024, Western supporters provided approximately $280 billion over three years. The EU's Ukraine Facility commits €50 billion through 2027, and the G7's $50 billion loan mechanism provides essential financing. Yet critically, no financing mechanism exists beyond 2027, creating profound uncertainty.
Russia's narrowing fiscal window
Russia's 2025 military spending of $140-145 billion represents just 7.2% of GDP, seemingly sustainable. Yet mounting pressures threaten sustainability within 12-24 months absent significant changes. The National Welfare Fund, Russia's primary buffer, declined from $113.5 billion in January 2022 to just $36.4 billion by June 2025 – a two-thirds reduction. Economists project potential depletion by late 2025 or 2026 at current oil prices of $50-52 per barrel, far below the budget assumption of $69.70.
Hydrocarbon revenues have fallen dramatically. Oil and gas revenues in the first five months of 2025 dropped 10% year-over-year, with a 34% collapse in May alone. The budget expected 10.9 trillion rubles; actual collections track toward just 8.3 trillion – a 24% shortfall. Russia earned approximately €640 million daily from fossil fuel exports in February 2025, down from peaks above €800 million in 2022.
The fiscal squeeze manifests in social spending cuts. Social welfare expenditure is projected to decrease 16% in 2025, with healthcare and education increasing only nominally while inflation runs at 8-10%. Defense spending now consumes nearly 40% of the federal budget when including security and law enforcement, up from 15% pre-invasion. From late 2025 onward, Russia faces the classic "guns versus butter" tradeoff with increasing severity. Most economic forecasters assess Russia can sustain current war intensity through 2025, but will face critical constraints in 2026 absent major shifts.
Europe's complex calculation
The EU has provided close to $186 billion in total assistance through August 2025, with over $65 billion in military aid. Approximately 6.3 million Ukrainians reside in Europe, with 4.2 million holding temporary protection status. The immediate fiscal costs are substantial: housing, social services, education, and healthcare for millions.
Yet the economic calculus has shifted unexpectedly. Ukrainian refugees filled critical labor market gaps across Europe, arriving as post-pandemic recovery created severe shortages. The demographic profile – European, predominantly skilled, culturally closer than alternative migration – made integration smoother than historical waves. Remarkably, less than 50% now want to return home, with 19% holding or applying for citizenship. This represents a demographic windfall for aging European societies: working-age additions who increasingly intend to remain permanently.
The European defense industrial sector has received multibillion-euro orders reversing decades of decline. Total EU military expenditure reached €693 billion in 2024, a 17% increase. Defense investment surged 42% to €106 billion. Europe has shifted from depleting stockpiles to new production: Germany now sources 75% of military aid from industrial orders rather than existing inventory.
Direct expenditures of roughly $60-70 billion annually represent less than 0.5% of the EU's $17+ trillion collective GDP. Yet political sustainability faces challenges from rightward shifts in multiple member states questioning support commitments, even as economic benefits from migration and defense production become apparent.
America's transactional transformation
The United States has provided $66.9 billion in military assistance, but the nature of support has transformed under the current administration into an explicitly transactional relationship. The April 2025 minerals agreement exemplifies this: Ukraine commits 50% of revenues from future mineral exploitation to a joint fund, with US companies receiving preferential access to resources valued between $500 billion and $14.8 trillion depending on estimates.
Energy exports constitute the most immediate benefit. The US supplied 45% of EU LNG imports in 2024, rising to 55% by early 2025, exporting approximately $13 billion worth. The price differential is substantial: Europe paid $15.28 per million BTU versus $8.12 domestically in February 2025. Russia's expulsion from European energy markets created this opportunity, with the US capturing much of the displaced market share.
The defense industrial base has been revitalized through Ukraine-related contracts totaling $28.6 billion across 37 states. Secondary sanctions represent another critical contribution, arguably as important as direct aid, constraining Russian trade globally through threats to financial institutions and entities across 17 jurisdictions. The US thus provides substantial military aid while extracting concrete economic benefits and enhanced leverage over global financial systems.
China's asymmetric advantage
China has emerged as perhaps the biggest beneficiary among major powers not directly involved. Russian energy flows to China at favorable prices: China imported 108 million tons of Russian crude oil in 2024, a 30% increase since 2022, paying discounted prices below international benchmarks. Natural gas via the Power of Siberia pipeline reached 38 billion cubic meters annually.
China captured dominant market share across Russian sectors after Western exits. Chinese automotive brands held 54-62% of the Russian market in 2024, selling 900,000 of 1.57 million vehicles. Chinese smartphones, electronics, machinery, and consumer goods fill vacuums left by departed Western brands. Dual-use goods exports provide both profits and strategic leverage: China supplies 51% of goods critical to Russia's economy, including $1.9 billion in "high-priority" items in just six months of 2025.
Total bilateral trade reached $245 billion in 2024, more than double 2020 figures. Yet the relationship is profoundly asymmetric, with Russia increasingly occupying the role of China's "resource vassal." China has extracted these benefits without providing direct financial support, maintaining plausible deniability regarding military assistance while avoiding sanctions that would jeopardize its $196 billion EU trade or $690 billion US trade. This positioning grants China leverage in broader negotiations over Taiwan, technology transfer, and trade relationships worth trillions.
Third countries profit from intermediary roles
Turkey, Gulf states, and Central Asian nations extract benefits while avoiding direct involvement. Turkey maintains the most complex balance: as a NATO member providing drones to Ukraine while deepening economic ties with Russia. Bilateral trade reached $68.1 billion in 2022, double 2021 figures, with Russia supplying 65% of Turkey's oil and 45% of gas.
Gulf states benefited enormously from energy price spikes, with windfall profits strengthening sovereign wealth funds precisely as opportunities emerged in an increasingly multipolar order. Central Asian countries experienced explosive growth from redirected capital and goods flows – Armenia's exports to Russia increased 193% in 2022, Kyrgyzstan's machinery exports surged 2,343%.
This "gray zone" trade serves multiple parties' interests. Western countries sometimes find it beneficial not to scrutinize flows too closely, as abrupt cutoffs could cause severe disruptions. The Netherlands provides evidence: Dutch exports of sanctioned goods to "elevated risk" countries increased 74% in 2022 and 90% in 2023. Russia gains access to necessary imports while intermediary countries profit – and Western pressure on these Asian beneficiaries remains limited and often ineffective.
Conclusion: No exit without addressing the economics
The conflict's current stalemate reflects not military balance but economic constraints creating a complex equilibrium that all parties struggle to escape. Ukraine faces absolute dependence with no self-sufficiency timeline and uncertain Western commitment beyond 2027. Russia approaches critical fiscal constraints within 12-24 months absent major shifts. Europe balances costs against unexpected benefits amid rightward political pressures. The United States extracts concrete gains while its commitment fluctuates with political winds. China captures maximum advantage while avoiding costs, fundamentally strengthening its position. Third countries profit with impunity.
The path forward requires not finding a resolution to the conflict itself – the stated positions remain too far apart – but rather discovering economic arrangements that allow all parties to exit the current impasse. This means addressing not just Russian and Ukrainian positions, but also managing Chinese interests, accommodating European domestic politics, stabilizing American commitment despite political volatility, and either co-opting or neutralizing the numerous third parties profiting from continued turbulence. The economics reveal that the stalemate's exit depends less on battlefield outcomes than on whether this diverse coalition of interests can construct arrangements that allow simultaneous face-saving withdrawals from economically unsustainable positions.
