The Kremlin Takes the Keys: Russia’s Quiet Nationalisation of the War Economy

By Matthew Parish

Saturday 29 August 2026

There are moments in wars when apparently technical changes in domestic law reveal more about the progress of the conflict than movements on the battlefield. President Vladimir Putin’s decree of 24 August 2026 concerning Russia’s critical infrastructure may prove to be one of them. On its face, the measure is administrative. Owners of important infrastructure who fail adequately to protect their property, particularly against drone attacks, or who fail promptly to repair damaged facilities may find their assets placed under temporary state management. Yet beneath the bureaucratic vocabulary lies something considerably more significant. Russia is beginning to alter the relationship between private property and the state because Ukrainian attacks have made the ordinary commercial operation of parts of the Russian economy increasingly difficult.

The measure is Presidential Decree No. 604, entitled On Measures to Ensure the Security of Critical Infrastructure Facilities of the Russian Federation. It is remarkably broad. It covers fuel and energy infrastructure, industrial facilities, communications, utilities, transport and logistics, nuclear and other energy facilities, life-support infrastructure and potentially other assets deemed particularly important to Russian security, economic stability or the functioning of the population. Where an economic operator fails to take adequate security measures, violates official security requirements, adopts measures against unmanned aerial attacks that are judged ineffective, or fails to restore damaged infrastructure sufficiently quickly, the Russian Government may — upon the President’s instruction — impose temporary management over its property.

The powers extend considerably further than taking charge of a damaged factory. Temporary management may encompass movable and immovable property, securities, shares in Russian companies and other property rights. Ordinarily the temporary administrator will be Rosimushchestvo, the Federal Agency for State Property Management, although another administrator may be appointed. The decree provides no fixed period after which the property must be returned: temporary administration ends when the Government decides, again following an instruction from the President.

Russian officials insist that this is not nationalisation. First Deputy Prime Minister Denis Manturov has said that there will be no general change of ownership and that intervention will be targeted at particular security problems. Kremlin spokesman Dmitry Peskov has meanwhile complained that private owners frequently devote insufficient attention to anti-drone protection.

Formally, these statements may be correct. Economically, the distinction is less reassuring.

Property ownership matters not merely because one’s name appears upon a share certificate or land registry. It matters because the owner expects to control the asset, receive its profits and decide whether additional capital should be invested in it. If the state can assume those powers whenever it concludes that the owner’s security measures are inadequate — under conditions in which no civilian company can guarantee protection against repeated long-range drone strikes — private ownership becomes increasingly conditional upon political favour.

And therein lies the real significance of the decree.

The drones have reached the balance sheet

Ukraine’s long-range strike campaign has developed considerably beyond attacks upon conspicuous military targets. Oil refineries, fuel installations and logistics facilities have become increasingly important objectives. In recent weeks the campaign has extended particularly dramatically to the warehouse networks supporting Russian e-commerce. At least two dozen warehouses belonging to Wildberries have reportedly been attacked since 18 July, while Ozon has also suffered attacks upon several logistics hubs. Putin had already ordered the Russian Government to establish a programme to assist with rebuilding damaged commercial warehouses before issuing the new decree.

Oil refining is particularly revealing. The Afipsky refinery was reportedly attacked for the eighth time within a year on 25 August while Novoshakhtinsk had been targeted four times. This creates an economic problem quite different from simply destroying a refinery once.

Imagine the decision confronting the private or semi-private operator. A Ukrainian drone attack damages equipment costing hundreds of millions of roubles. The operator repairs it. Several weeks later it is damaged again. The company repairs it again. Insurance becomes prohibitively expensive or unavailable, spare parts may be difficult to procure under sanctions and specialised equipment may have lengthy replacement times. Meanwhile the facility requires additional expenditure upon electronic warfare, physical protection, detection systems and perhaps anti-aircraft defences.

Eventually a perfectly rational company asks an awkward question: why rebuild? From the perspective of the individual shareholder, it may make more economic sense to postpone investment until the security environment improves. From the Kremlin’s perspective, however, a refinery, railway terminal, communications centre or warehouse cannot simply decide to await the end of the war. The Russian war economy requires these assets to function continuously.

Hence Decree No. 604.

The Kremlin is effectively telling the owners of strategically important Russian businesses that they must continue investing irrespective of ordinary commercial calculations. Repair the refinery. Rebuild the warehouse. Purchase anti-drone protection. Restore the railway terminal. Do it again if Ukraine destroys it again. Otherwise the state may take control.

One Russian analyst summarised the logic rather neatly: companies repeatedly rebuilding damaged refineries may naturally wonder why they should spend billions if the facilities might simply be struck again. Analysts quoted by the Associated Press have interpreted the decree partly as a device for forcing companies to spend their own money upon repairs and protection rather than transferring those costs to the federal budget.

This is therefore not merely an air-defence policy. It is a mechanism for transferring part of the financial cost of the war from the Russian state to Russian capital.

The creeping militarisation of Russian property

There is a historical familiarity about all this. States fighting prolonged wars progressively discover that markets do not necessarily produce the outcomes required by military necessity. A businessman wishes to maximise returns; a wartime government wishes factories, railways, fuel depots and communications networks to continue functioning regardless of cost. The longer a war lasts, the more acute the contradiction becomes.

Russia has been travelling down this road for some time. The state already dominates strategically important areas of the economy and the boundaries between oligarchic wealth, political loyalty and state authority have never been especially secure under Putin. The departure or expropriation of Western businesses after February 2022 accelerated this process. The new decree nevertheless introduces a different principle. It makes inadequate resilience against enemy action a potential basis for intervention in the control of privately owned Russian assets.

That principle can expand almost indefinitely.

What constitutes adequate protection against Ukrainian drones? The decree expressly contemplates the possibility that measures directed against unmanned aerial attacks may be judged ineffective. (⁠rg.ru) Yet effectiveness is a peculiar standard in wartime. A company may spend enormous sums upon protection and still be hit. If a Ukrainian drone penetrates the defences, was the company’s protection necessarily inadequate? Who decides? Upon what technical criteria? And what opportunity does an owner have to challenge that conclusion when the ultimate mechanism depends upon presidential instruction?

The consequence will be uncertainty — and uncertainty about property rights is poison to investment.

Russian entrepreneurs contemplating a new logistics centre, refinery upgrade or industrial facility must now calculate not merely conventional commercial risks but military and political ones. An asset sufficiently important to justify major investment may also become sufficiently important to attract Ukrainian drones. If attacked, the owner must repair it rapidly. Failure to do so might produce state intervention. Successful operation may therefore increase both the military vulnerability of the asset and the state’s interest in controlling it.

That is hardly an incentive for entrepreneurial enthusiasm.

Capital will behave accordingly

The first probable consequence will therefore be lower private investment in precisely those sectors Russia most needs to modernise.

Capital does not need formally to flee Russia for this effect to occur. Owners may retain earnings rather than undertake expansion. They may move funds into less strategically conspicuous sectors. They may construct smaller and more dispersed facilities. They may extract dividends rather than reinvest. Where possible, wealthy Russians will continue to diversify assets abroad through whatever channels remain available to them.

The second consequence will be declining efficiency.

State administrators are not magicians. Rosimushchestvo can assume control of an oil refinery but it cannot manufacture experienced engineers, sophisticated replacement components or competent managers by decree. Indeed, removing management from owners with detailed knowledge of their businesses may make reconstruction slower rather than faster.

Nor are Russian state corporations famous for frugality. Once enterprises believe that their survival ultimately rests upon political intervention, incentives change. Money will increasingly be spent upon relationships with officials, compliance departments, politically connected security contractors and demonstrations of loyalty. Managers will seek to prove that every conceivable protective measure was taken — not necessarily because each measure is economically sensible but because documentary evidence of compliance may become protection against confiscatory intervention.

The result is the familiar pathology of bureaucratic economies: expenditure increasingly designed to satisfy the state rather than the customer.

There will also be corruption. A power to decide whether an extremely valuable company has provided “adequate” protection creates an extraordinarily valuable administrative discretion. Rival business groups may discover that accusations of inadequate security are useful weapons. Officials responsible for inspections acquire influence over enormous pools of wealth. Politically connected competitors may see opportunities to obtain management of attractive assets.

Temporary administration, moreover, has an interesting habit in authoritarian systems of becoming rather less temporary than its name suggests.

The fiscal trap

There is an additional paradox. The decree appears partly intended to protect the Russian Treasury. Moscow does not wish to finance the reconstruction and defence of every refinery, warehouse, communications centre and railway installation exposed to Ukrainian attack. Russia is enormous. Defending every economically important site against low-flying drones would require resources of staggering proportions.

Hence the attempt to make companies shoulder more of the burden. The state is effectively privatising some of the costs of air defence while reserving the right to socialise control of the underlying assets.

But if the threat of takeover causes private investment to decline, the state will ultimately inherit more responsibility, not less.

A refinery under temporary state administration still requires repairing. Workers still require salaries. Replacement machinery still needs purchasing. Warehouses still require rebuilding. Railways still require maintenance. If Ukrainian attacks continue, the state may find itself acquiring responsibility for a growing portfolio of damaged, capital-hungry enterprises precisely when the federal budget is already carrying the immense expenditure of a prolonged war.

Russia is already confronting the fiscal consequences of the conflict through higher taxation and increased domestic borrowing. The new system therefore risks becoming circular. Ukrainian attacks make private infrastructure uneconomic. Moscow threatens state control to compel continued private expenditure. Investors respond by reducing exposure. More infrastructure becomes dependent upon the state. The state consequently incurs still greater expenditure.

This is how wartime economies gradually consume their civilian sectors.

Ukraine’s strategic objective

The development also illustrates why Ukraine’s deep-strike campaign cannot sensibly be measured only in tonnes of destroyed petroleum or square metres of burned warehouse space.

The larger purpose is to change Russian economic behaviour.

Every refinery that must install additional protection represents capital diverted from productive investment. Every warehouse that must be dispersed or hardened increases logistics costs. Every railway installation requiring enhanced security absorbs manpower and equipment. Every industrial company wondering whether reconstruction makes economic sense introduces friction into Russia’s war economy.

Most importantly, every Ukrainian drone flying hundreds of kilometres into Russian territory forces Moscow to defend an enormous geographical space.

Russia may protect Moscow, major military installations and particularly sensitive strategic facilities reasonably well. It cannot cheaply provide equivalent protection to every refinery, railway junction, warehouse, telecommunications centre, power station and industrial plant from the Black Sea to Siberia. The economics favour the attacker in an important respect: relatively inexpensive unmanned systems can force the defender to distribute enormously more expensive defensive resources across thousands of potential targets.

The Kremlin’s decree is therefore an indirect admission that the problem cannot be solved exclusively through conventional air defence.

Instead Russia is attempting to mobilise the balance sheets of private companies into the national defensive system.

From market authoritarianism to command economics

None of this means that Russia is about to recreate Gosplan. Private enterprise will remain, shops will trade, businessmen will accumulate fortunes and market prices will continue to perform much of the economy’s allocative work. Modern wartime authoritarian economies rarely transform themselves overnight into textbook command systems.

The change is subtler.

Russian capitalism under Putin has always rested upon an implicit bargain: businessmen may become wealthy provided they do not challenge political authority. The war is modifying that bargain. Wealth is increasingly tolerated not merely upon condition of political obedience but upon condition of service to the strategic requirements of the state.

A refinery owner is no longer simply expected to avoid politics. He must defend his refinery. A logistics company must maintain its warehouses despite repeated attack. An industrial proprietor must rebuild when instructed. Private capital must assume part of the cost of national defence — and failure may expose the proprietor to loss of effective control.

That is a significant evolution in the Russian political economy.

The Kremlin will undoubtedly describe the arrangements as exceptional, targeted and temporary. Perhaps in many individual cases they will be. But economic actors respond not merely to what governments do; they respond to what governments possess the legal power to do.

As of August 2026, every substantial Russian investor in critical infrastructure knows that the state possesses another mechanism by which control of his property can be removed.

That knowledge has a price.

The deeper irony

There is finally a profound irony in this development.

Russia began her full-scale invasion of Ukraine in February 2022 expecting, among other things, to demonstrate the overwhelming superiority of Russian state power. Four and a half years later, Ukrainian unmanned aircraft are helping determine the internal organisation of the Russian economy. Warehouses hundreds of kilometres from Ukraine require protection. Refineries must repeatedly be repaired. Businesses are being encouraged to acquire their own anti-drone capabilities. The Kremlin is rewriting the rules governing private property because it cannot guarantee the physical security of strategically important enterprises across the Russian Federation.

Ukraine therefore does not need to destroy the Russian economy to impose serious costs upon it. Indeed that would be an unrealistic strategic objective. It needs instead to compel Russia continually to spend more money, deploy more personnel, disperse more defences, rebuild more infrastructure and impose increasingly inefficient administrative controls upon its own businesses.

Decree No. 604 suggests that this process is already under way.

The immediate consequence may be that Russian companies spend substantially more upon security and reconstruction, which is presumably what the Kremlin intends. The medium-term consequences are less attractive: weaker investment incentives, greater capital flight, increased corruption, politicisation of commercial management, inefficient allocation of resources and a growing expectation that strategically important private property exists only at the sufferance of the state.

The longer-term consequence may be more important still. Russia is gradually constructing an economy optimised not for prosperity but for endurance.

Those are not the same thing.

An economy organised around surviving drone attacks, sanctions, military expenditure and state security directives may indeed survive for a considerable period. Russia has immense natural resources, a large population, substantial industrial capacity and a political system capable of imposing sacrifices upon citizens and businesses that democratic governments would find difficult to sustain.

But survival carries an opportunity cost. Every rouble spent protecting a warehouse is a rouble not spent improving it. Every engineer repairing bomb damage is an engineer not developing something new. Every businessman worried about whether the state may assume control of his company is a businessman less inclined to invest his fortune in Russia.

War does not always impoverish states through one spectacular economic collapse. More commonly it does so through thousands of small distortions — another tax, another regulation, another security guard, another damaged refinery, another postponed investment, another competent young engineer leaving the country and another official acquiring powers previously exercised by an entrepreneur.

The Kremlin’s new critical-infrastructure decree is one more such distortion. Ukraine’s drones may destroy buildings. Their more enduring achievement may be to persuade the Russian state to damage the incentives upon which its own economy depends.