U.S. and European debt suddenly became more expensive — new aid packages to Ukraine become politically costlier

Supporting Ukraine is getting more expensive for the West not only because of arms costs. The price of money itself has surged for the U.S. and Europe's largest countries: long-term government bond yields have risen to decade-long highs. The more governments spend on servicing their own debt, the tougher the fight for each new billion in foreign aid becomes.

The yield on 30-year U.S. Treasuries rose to 5.33% on August 18, the highest since 2007. Germany's equivalent reached 3.78%, the most since the eurozone debt crisis in 2011, and France's hit 4.9%, the highest since 2008. The Financial Times cites high inflation, huge budget deficits and expensive oil among the reasons.

Ukraine already depends on money that Europe borrows itself

For Kyiv, this story has direct relevance. The huge volumes of European aid are not financed from free money sitting in EU accounts, but through borrowing.

For example, the EU-approved support package for Ukraine for 2026-2027 amounts to €90 billion and is financed by issuing EU-wide debt on capital markets under the EU budget guarantee. About €60 billion is earmarked for military support, and €30 billion for Ukraine's budget and economy. Up to €45 billion is available for 2026.

The already approved €90 billion is not canceled by the current bond sell-off itself. The problem starts next. If expensive borrowing becomes the new norm, the next major programs have to be adopted amid conditions where servicing their own debt already consumes an ever-larger share of European countries' budgets.

At the same time, they have to finance their own rearmament, compensate for the energy crisis and fight inflation. Against this backdrop, a new package of tens of billions of euros for Ukraine turns not only into a foreign policy question, but also into an increasingly heavy domestic political choice.

In the U.S., this choice is already even harsher

American debt has approached $40 trillion, and at the recent 30-year auction Washington had to offer investors a yield of 5.22% — the highest for such an auction since 2001. The longer rates stay high, the more the federal budget must redirect to creditors instead of other spending.

This creates an additional argument for American politicians who already demand shifting the main cost of supporting Ukraine onto Europe. Even during the preparation of the U.S. defense budget for 2026, the Pentagon shortened the Ukraine Security Assistance Initiative program, explaining the revision of part of foreign aid by the need to redistribute spending and a greater burden on allies.

The economic cost of war increases pressure on Kyiv

There is no direct evidence that the current spike in yields is already forcing the U.S. or Europe to change the terms of a possible peace with Russia. But the financial logic works in that direction: the more expensive a prolonged war becomes for Western budgets and voters, the stronger the position of politicians who propose cutting spending and achieving a cessation of hostilities faster — even if the terms of such an agreement do not fully satisfy Kyiv.

Moreover, the influence of economic interests on Ukraine's military decisions is already apparent. The Financial Times reported that U.S. Vice President JD Vance asked Kyiv to stop strikes on tankers using a Russian Black Sea port linked to the Caspian Pipeline Consortium. Washington feared additional problems in the global oil market amid the crisis around Hormuz.

This is a telling episode: when Ukraine's actions begin to raise economic costs for Western countries themselves, geopolitical support runs into a very concrete price of gasoline, inflation and interest rates.

Expensive oil simultaneously helps the Russian budget

For Ukraine, the situation is especially unpleasant because one factor in the current debt crisis — high oil prices — works in Moscow's favor.

According to Reuters calculations, Russia's budget oil and gas revenues in July could have risen by about 60% year-on-year, partly due to higher world oil prices. Oil and gas provide about a fifth of Russia's budget revenues and remain one of the main sources of war financing. However, for the first seven months of the year, oil and gas revenues still remained below last year's levels, so it is too early to speak of a full recovery in Russian finances.

An unfavorable combination for Ukraine emerges. The oil crisis increases inflation and the cost of government borrowing in the U.S. and Europe, making new aid programs politically and financially harder. At the same time, higher oil prices can increase Russian budget revenues.

If high rates and expensive energy persist for a long time, the main risk for Kyiv will not be that already agreed aid disappears tomorrow. Much more important is the next round of decisions: how willing the U.S. and Europe will be to take on new tens of billions in spending, and whether instead they will try to pressure the parties harder for a faster end to the war.

Sources: Financial Times, Council of the EU, European Commission, Reuters