Putin Faces ‘Explosive’ New Humiliation

Vladimir Putin may be staring down a potentially devastating new crisis at home as Russia’s costly war in Ukraine puts the country’s banking system under mounting pressure, according to a leaked European intelligence report.

The Russian president launched his full-scale invasion of Ukraine in early 2022, describing it as a “special military operation.” More than four years later, the conflict has dragged on, with Ukraine continuing to resist Moscow’s efforts to seize territory and expand Russia’s influence.

That prolonged war is costing the Kremlin enormous sums of money — and the financial strain may now be creating a dangerous economic bubble that could suddenly burst.

A European state intelligence assessment reviewed by Reuters reportedly warns that excessive bank lending has created an “explosive” risk inside Russia’s financial system, particularly as Western sanctions continue to squeeze the country’s economy.

The document, titled “Note on the probability of a banking crisis in Russia in 2026,” claims Russian banks have been pressured into handing out subsidized loans to defense contractors, homebuyers and other borrowers.

According to the report, state-supported lending programs, repeated loan restructurings and government assistance are helping conceal serious weaknesses across the banking sector.

Many of those loans may never be repaid.

“The situation creates the illusion of a dynamic economy that, in reality, conceals an explosive situation which an economic shock, such as an ambitious package of sanctions against banks … could trigger,” the report warned.

The bleak assessment comes as the European Union prepares to introduce another round of sanctions against Russia sometime in July.

Russia’s own Economy Ministry has also sharply downgraded its expectations for the coming years. The ministry cut its projected economic growth for 2026 from 1.3 percent to just 0.4 percent. Its forecast for 2027 was slashed from 2.8 percent to 1.4 percent.

The dramatic revisions offer another sign that the consequences of Putin’s war are increasingly being felt inside Russia, despite the Kremlin’s efforts to project strength and economic stability.

Fuel shortages have already become one of the most visible examples of that growing pressure. Cars were seen lining up at a gas station in Sevastopol, Crimea, on June 1 after authorities restricted fuel sales following Ukrainian attacks on supply and logistics routes.

Ukraine has also launched several drone strikes against targets in and around Moscow, including an attack on an oil refinery in June that sent thick smoke and flames into the air.

Still, Russian financial officials insist the country is not on the verge of a banking collapse.

Russian Central Bank Deputy Governor Filipp Gabunia said in June that “vulnerabilities in the financial sector are not critical.”

Chris Weafer, a Russia specialist with the consulting firm Macro Advisory, also offered a less alarming assessment. He told Reuters that Asian countries have largely ignored Western sanctions, providing the Kremlin with an important economic lifeline.

Weafer also noted that Russia’s massive military spending has helped keep unemployment low while pushing wages higher.

Some Russian banking executives say the country has simply adjusted to operating under sanctions.

“All major banks are already under sanctions … and when they were introduced in 2022, there was stress,” Taras Skvortsov, the chief financial officer of Russia’s largest bank, Sberbank, told Reuters.

“By 2026, everyone has become so used to it. Many clients of the sanctioned banks do not even know about sanctions.”

But the leaked intelligence warning suggests the apparent calm may be misleading — and that Putin’s attempt to fund an increasingly expensive war could ultimately trigger one of his most humiliating crises yet.