Russia is preparing to pour more money into its war on Ukraine, boosting planned military spending next year by more than a quarter as the costs of the intensifying conflict mount and both sides strike deeper into each other’s territory.

The government’s new draft budget sets military spending at 17.1 trillion rubles ($202 billion) in 2027, 27% above the previous target, according to a person familiar with the plans who asked not to be identified because the information isn’t public.

That would put war-related spending at about 35% of the government’s planned 48.8 trillion rubles in total expenditures, the highest share since the invasion began, though the comparison excludes 2026 because equivalent data aren’t yet available.

Reuters was first to report the increase in defense spending.

The surge in planned war spending underscores how the escalating conflict is forcing Moscow to spend more both to defend itself and as it expands its own attacks on Ukraine.

Kyiv has increased its missile and drone strikes deep within Russian territory, targeting oil refineries, logistics hubs and warehouses, forcing Moscow to bolster costly air defenses. Russia has also stepped up attacks on Ukraine’s crucial Black Sea ports, energy infrastructure and urban centers, including on Kyiv with expensive ballistic missiles. That appears to coincide with an increase in outlays for drone and missile production.

The impact of Ukraine’s campaign is increasingly visible. Strikes on Russian oil facilities have caused a gasoline crunch across the country, and contributed to disruptions in global fuel markets. Large-scale drone attacks have also tested Russia’s air defenses, including the advanced systems protecting Moscow. Most incoming drones are intercepted, but some still manage to reach their targets.

Kremlin spokesman Dmitry Peskov on Monday said Kyiv would have to pay for “actions taken in recent months,” the Interfax news service reported.

The rise in spending “comes as no surprise,” said Evgeny Suvorov, the chief economist at Moscow-based CentroCredit Bank. “It’s not just about ‘retaliatory strikes.’ Simply put, more munitions are needed if the goals of the Special Military Operation are to be achieved,” he said, using the Kremlin’s term for the war.

Russia’s military is incurring massive casualties for little progress on the battlefield, while U.S. efforts to negotiate an to end the war don’t appear to be making progress. That’s stoking worry among ordinary Russians that Putin may order a new mobilization for the war now that this month’s parliamentary elections have concluded.

The additional spending will push next year’s budget deficit to 2.2% of gross domestic product, compared with an earlier target of 1.2%. The government plans to cover the gap through another increase in taxes on households and businesses.

The Finance Ministry’s press service didn’t immediately respond to a request for comment.

The ministry last week said the budget plan would “ensure the provision of necessary weaponry and military hardware to the armed forces, the payment of allowances to military personnel and support for their families, and the modernization of defense industry enterprises.”

The Finance Ministry earlier proposed an additional tax on income earned by producers of gold, some base metals and fertilizers as a result of higher global commodity prices. The planned rate would be 20% for gold producers and 30% for some other miners and fertilizer producers.

Russia is also set to end this year with a budget deficit twice as large as initially planned, at 3.2% of GDP compared with 1.6% envisaged in the budget law, as government spending on the war, now well into its fifth year, outpaces initial estimates.

Net borrowing in 2026 could reach 5 trillion rubles, 26% higher than what’s expected by the end of this year. The government also plans to spend 459 billion rubles from the National Wellbeing Fund to help plug the gap.

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