Newsletter 33: Ukraine’s DefTech Unicorns and Strategic Solitude, Kyrylo Budanov – New Head of Administration, and Russian Oil

MARCH 2026

NEWSLETTER 33: Ukraine’s DefTech Unicorns and Strategic Solitude, Kyrylo Budanov - New Head of Administration, and Russian Oil

Newsletter was prepared by Anastasiya Shapochkina, Daryna Patiuk, and Bohdan Kostiuk, illustration by AI

Strategic solitude vs market demand: the impact of the war in the Middle East on Ukraine

A P1-Sun FPV interceptor drone takes off during a test fly at a training ground, amid Russia’s attack on Ukraine, in an undisclosed location, Ukraine March 6, 2026. REUTERS/Valentyn Ogirenko/

The U.S. and Israeli bombing of Iran and Teheran’s response spreading the war across the Middle East in the last two weeks had a mixed impact on Ukraine.

Lions and unicorns

On the positive side is a demand in the Middle East for Ukraine’s arms and experience, resulting in a recognition of Ukraine as an important defense producer on the global market with a needed expertise on the changing nature of conventional war. This was reflected in the market valuations of Ukrainian defense companies. In the first week since the U.S.-Israeli bombing of Iran, in early March, UFORCE became the first private Ukrainian deftech unicorn with market valuation reaching 1 billion dollars. Most known for its naval drones Magura and Sea Baby, the company’s products include other USVs (anti-ship USV Mykola-3) combat UAV and bomber drones (Nemesis, R18, R34, R36), UGVs (combat UGV Fury-2, logistics UGV D21, automated remotely operated turrets D12, D14), and advanced systems (gyro-stabilized platform Predator, laser-CUAS Sunray, and C2 system Sich). Companies like Skyfall and Wild Hornets, announced $1000-$2000 prices for their counter-Shahed drone systems, met with high demand. While the first public listing of a Ukrainian company Swarmer saw 1100% surge in share price in the two days following the IPO.

Export ban – and ban bust

From the outside, the demand spike for Ukrainian counter-drone systems and expertise looked like a long-sought opportunity to increase the investment into domestic weapons production capacity and develop relations with the Middle East. The harder it made to explain Ukraine’s initial reaction to regional leaders’ requests for help with a weapons export ban to the region, supposedly aimed to nudge the Middle East leaders to pressure the Kremlin to end the war in Ukraine. An ally call from Washington deblocked the situation and Kyiv was sending consultants to the Middle East soon enough. But then Kyiv decided to publicly share the U.S. call for help to fight the war in the region. This second communication blunder in a week just irked Donald Trump, who retorted in kind: reminding the world that America is the best, including in drones, and does not need anybody’s help.

The changing perception of Ukrainian deftech

More broadly, Ukraine’s new relevance in the Middle East changes the perception of Kyiv as a Western partner. It has opened new defense contracts opportunities with the U.S. Department of Defense and the Middle East market to Ukraine, where Kyiv’s battle-proven tech can rival traditional European players in a distinct product category, where NATO allies are at a disadvantage both in price and quality. This allows to diversify the much-needed cash flows to the country through private investment, at a moment when the promised 90 billion loan to Ukraine from Europe has been stuck in Brussels indefinitely. But the more weapons export ban ideas Kyiv entertains, the faster its competitive advantage will dissolve, and the more Ukrainian companies will be moving their headquarters and IP abroad to have a freer hand in strategy decisions.

Strategic solitude

At the same time, a new war in the Middle East has left Ukraine in a situation of strategic solitude. First, it shifted mass media attention to the region, erasing Ukraine from the front pages of the media space. Furthermore, the Middle East has fixed the attention of Donald Trump, moving the negotiations with Russia to the background.

Most importantly, the regional war sent the oil prices beyond $120/barrel at times and knocked out Qatar’s LNG exports from the world markets, both of which play into the hands of Russia and have cut further cracks in the European support for Ukraine. Facing the prospects of oil rationing and record prices at the pump, the European Commission has increased the pressure on Ukraine to repair and reopen Druzhba oil pipeline from Russia, tying (through the useful “bad cop” of Hungary) the 90 billion euro loan to fulfilling this condition. In the meanwhile, on March 3, London lifted sanctions on the British accountant John Michael Ormerod, who had bought over two dozen tankers in 2022-23 on the money advanced by Lukoil through shell companies, which tankers have since joined the Russian shadow fleet. On March 5, the U.S. Dept of Treasury lifted the sanctions against Rosneft Deutschland GmbH and

RN Refining & Marketing GmbH, main suppliers of petrol to Berlin and Brandenburg and owned by Rosneft.On March 13, the U.S. lifted all sanctions on the Russian oil sector for one month (so far). While this week the EU is deliberating on weeding out some names of Russian oligarchs and Dutch oil traders from the sanctions list as the Russia sanctions renewal deadline is coming up. In other words, de facto lifting of sanctions against Russia is already in progress, mirrored in the reintroduction of the Russian flag at the Paralympic games.

This leaves Ukraine in a growing strategic isolation, where it is moved to the background of priorities for all its allies in the face of a geoeconomic force majeure, where Russian war goals meet European economic fears. As it has been understood long ago in Kyiv, Ukraine’s own weapons are its only security guarantee, and they can become an economic one too. As long as the private deftech sector is allowed to develop Ukrainian brands in Ukraine.

What the appointment of Kyrylo Budanov to lead the administration means for the political system

Kyrylo Budanov, Head of the Office of the President in Ukraine since 2 January 2026, ex-head of Ukrainian military intelligence

Source of photo: Al Jazeera

In January 2026, the President of Ukraine, Volodymyr Zelenskyy, appointed Kyrylo Budanov (ex head of military intelligence in Ukraine, or HUR in Ukrainian), as the new Head of the Presidential Office. He replaced the long-serving chief of staff Andriy Yermak, who held the position from February 2020 to November 2025.

During the years of war, the Head of the Office became the center for policy coordination and decisions, as well as international negotiations. A new leader may mean a new system. Or not.

Through appointments and influence over key institutions, Andriy Yermak created a system of loyal managers in ministries, regulators, state companies, and regional administrations, concentrating a lot of political power in the hands of the head of the Administration. The question now is whether the removal of Yermak neutralized him enough to trigger systemic changes, redistribute the influence among Ukrainian political elites, and if the system is renewed, what place Budanov will take in it.

To answer this question, we need to understand why Kyrylo Budanov was removed from the leadership role in the most influential security agency in Ukraine and what his placement in the Office of the President means for his political position within Ukrainian elites.

First of all, Budanov’s new position is a consequence of Zelenskyy “power redistribution strategy”, defined by breaking the power networks formed in the last 7 years. The president is consolidating control by curbing the power of political heavyweights through inner-government musical chairs.

Second, end of 2025, Ukrainska Pravda journalist Roman Romaniuk in his article mentioned two names of people who could potentially replace Andriy Yermak as head of the Presidential Office: Mykhailo Fedorov (then Minister of Digital Transformation) and Kyrylo Budanov (then head of HUR, Ukraine’s Chief Intelligence Directorate).

The choice of Fedorov (who went to become the Defense Minister) risked reforming the President’s Office too much (that style was left for the Defense Ministry instead). The choice of Budanov implied a transformation of the Presidential Office into a center for peace negotiations, based on his network of contacts in Western security circles and communication channels with Russia, while keeping the old team.

The Budanov appointment may mean a form of political insurance for Zelensky. If peace negotiations succeed, the president scores a victory. If they fail, the responsibility rests with Budanov.

For Budanov, the move carried clear risks. But not without rewards. First, if negotiations succeed, Budanov can become a peacemaker-in-chief, with all positive political externalities for future presidential elections, where he is now positioned second, behind former Chief of the Armed Forces Valeriy Zaluzhnyi. Ending the war was Budanov’s personal mission, which convinced him to take up the new role and which he believes he can achieve. Second, the new post is a CV-booster and a school of applied politics, the experience former security operative was lacking, despite public trust. That hick-up is now removed, and a new position brings new influence opportunities in every sphere of government.

Things have to change for everything to remain the same

Budanov’s replacement of Yermak avoids any HR upheaval. Key figures of the government system remain in place: from the all-powerful curator of the law-enforcement system Oleh Tatarov to the leader of judicial reform and the special tribunal Iryna Mudra.

Three former Yermak deputies swore allegiance to Budanov and are now his deputies: Viktor Mykyta (also Colonel of the Security Service of Ukraine), Iryna Vereshchuk (also Deputy Prime Minister and Minister for Reintegration of the Temporarily Occupied Territories of Ukraine), Pavlo Palisa (Deputy Head of the Office of the President, Brigadier General) . Given their former boss’s management style and personality, Budanov brings a refreshing change.

The shadow center of power

Therefore, Budanov has to fit into the system Yermak had built. In it, Oleh Tatarov in addition to controlling the security services is now also handling regional elite appointments.

In the parliament, Budanov has to partner with influential Davyd Arakhamia, the old pair of hands leading the ruling party’s faction. Sources suggest their relationship functions smoothly, with Budanov delegating much of the day-to-day parliamentary coordination to him.

Who is Kyrylo Budanov

In public space, Kyrylo Budanov represents a new generation of Ukrainian military leaders whose public image and reputation have been shaped by the war with Russia.

As an intelligence officer, he has taken part in many operations against Russian forces since 2014, including HUR amphibious raids into the occupied Crimea since 2016, the defense of the Kharkiv region in 2022, the invasion of Kursk region, and poaching a Russian helicopter pilot to defect to Ukraine, together with his Mi-8.

During his leadership of military intelligence, Budanov supported direct cooperation between the military and Ukrainian defense technology companies. The development of the Magura family of naval drones, which, together with other USVs, have been credited with restoring the freedom of commercial navigation (and the export of grain) in the Black Sea and have grown to a group of companies (UFORCE) with diversified family of products beyond USV, becoming Ukraine’s first “deftech unicorn” in March 2026.

However, leading special services operatives on the battlefield and managing the state bureaucracy are very different tasks that require different skills. While the Office of the President opens far-reaching possibilities, it is a question how Budanov’s leadership will impact the existing power structures.

Magura V5

Source: hisutton

Political developments to watch under Budanov:

Potential reshaping of political elites around security and defense institutions.
Preparing for the future presidential elections (whenever that may be): Kyrylo Budanov’s approval ratings stand at 70% trust rates, tailing Valerii Zaluzhnii by only 2%.

Russia’s advance of attrition

Russia continues to wage a high-intensity war in Ukraine despite slower territorial gains and technological setbacks, sustaining operations through continuous assaults and expanded recruitment. With American deadlines set for the summer of 2026, Russia is trying to portray Ukraine as unwilling to compromise. At the same time, the Middle East escalation has indirectly benefited Moscow by raising oil revenues and diverting air-defense resources away from Ukraine. Meanwhile, the Kremlin offers Iran little direct support while positioning itself diplomatically as a mediator, as prospects for trilateral negotiations on ending the war in Ukraine remain uncertain.

Russia’s manpower drive

In February, Russian forces captured about 126 sq km of Ukrainian territory, which is half the amount gained in January and the lowest monthly increase since July 2024. The number of attacks did not decline significantly and assault activity was only 4 percent lower than in January, which means the operational tempo has remained almost unchanged. Earlier in the winter, hostilities were expected to slow, but now attacks continue year-round, making the traditional seasonal distinctions largely irrelevant.

Russian losses in February were estimated at 26,090 killed and wounded, which means that, on average, Russia lost around 207 soldiers for every square kilometer of territory occupied. Such high losses are sustained by the military system Russia has built, which relies on a steady supply of manpower and the rotation of assault groups. Although individual units involved in attacks are often smaller than before, the tactics ensure that the frontline experiences a near-continuous cycle of assaults rather than clearly defined seasonal offensives.

To support this approach, the Russian leadership appears to favor limited, rolling call-ups instead of another large mobilization like the one in September 2022. A recent decree №139 dated 04 of March 2026 by President Vladimir Putin set the total strength at 2,391,770 personnel, including 1,502,604 active military members, a net increase of 2,604 compared with the previous year.

Taking into account the losses and the decreasing availability of foreign mercenaries (against the backdrop of diplomatic pressure, in early 2026 Russia issued a “blacklist” of around 36–40 countries whose citizens are now prohibited from being recruited as mercenaries for the war in Ukraine), Russian authorities began expanding their domestic mobilization campaign, particularly targeting students. Recruitment efforts have included over 200 meetings across universities, colleges, and occupied territories of Ukraine. Several institutions have already publicly reported sending students into service.

Recruitment has combined financial packages that promise at least 5 million rubles for the first year (55 thousand euros), including bonuses for “destroying enemy military assets”. Students are also offered academic leave during service. At the same time, reports indicate heightened exam requirements, shortened deadlines for retakes, and refusals of academic transfers for those resisting enlistment.

This active recruitment campaign can be partially explained by the leaked Ministry of Defense documents outlining the plans to recruit 78,800 personnel for the new unmanned systems troops by the end of 2026. Of these, 58,000 are expected from students, UAV course graduates, former aviation personnel, and trained women; 10,800 will come from converting conscripts; and the remaining 10,000 will be transferred from existing military units. According to a Russian speaker at a recent French Institute of International Relations (IFRI) event based on a report on the Russian economy, the Ministry of Defense even created an opportunity for citizens to sign contracts in the Moscow subway, illustrating the intensity and reach of the recruitment campaign.

Communications Constraints and the Starlink Problem

Against the backdrop of an active recruitment campaign and preparations for the State Duma elections in September 2026, including in occupied Ukrainian territories, the Russian government confirmed that Telegram (the widely used messaging app) will be permanently blocked on April 1, 2026. However, the ban will not apply in combat zones, preserving a crucial element of front-line communication after Elon Musk cut Starlink access for Russian forces. This led to the end of the Russian innovation of using Starlink terminals on its drones, which destroyed Ukrainian energy facilities, factories, residential buildings, and infrastructure.

Russia’s military says this had no detectable impact on its operations. However, comparing Starlink outages, subsequent registration of Ukrainian Starlink terminals, and Russian frontline losses reveals several peaks, around 1,000 losses, between February 7–9, 13–15, and 23–26.

Source: General Staff of Ukraine Data

These spikes likely reflect both Ukrainian counteroffensives and Russia’s heavy reliance on Western satellite technology with no local substitute. Early reactions to SpaceX’s deactivation of unverified Starlink terminals indicate that Russian forces in Ukraine used them far more intensively than previously assumed (the number of live video streams transmitted from Russian drones to their operators for targeting has decreased elevenfold).

Alternatives exist but are less effective, reliable, and cost-efficient. For short-range communications, tens of kilometers, Russia can use fiber optics, Wi-Fi based radio bridges, or digital radio modems. Russia also has domestic satellite communications, such as the Gazprom Space Systems or Gazprom Kosmicheskie Sistemy in Russian, network, but it is limited. GKS operates just five geostationary communication satellites, offering restricted coverage, low bandwidth, high maintenance complexity, and field deployment challenges requiring precise antenna positioning.

Also, Russia is developing a low-orbit satellite constellation through the private company Bureau 1440 with Roscosmos support. Initial launches were planned from the Plesetsk Cosmodrome in December 2025, beginning with 16 satellites then the date shifted to 2026. The low-orbit constellation, named “Rassvet”, “Sunrise” in English, will eventually include 300 operational satellites with the gradual increasing to 950 in 2029-2030. However, this remains a distant prospect without clear outcomes and definitely can not be compared to Elon’s Musk Starlink, which already operates almost 9,5 thousand satellites.

Middle East Escalation Boosts Moscow

Russia has emerged as the first clear winner from the continuous bombing of its own ally Iran, largely due to the disruption of global oil flows caused by US and Israeli attacks. The Iranian blockade of the Strait of Hormuz, paralysing the oil tankers’ maritime traffic, has grounded a fifth of global oil supplies, raising oil prices and intensifying the talk of lifting Russia sanctions to facilitate the flow of Urals crude to fill the gap left by Teheran.

Thus, the United States granted a temporary waiver allowing Indian refiners to buy Russian oil that had already been loaded onto tankers, effectively letting Moscow sell barrels that were previously frozen by sanctions. Indian buyers, eager to secure supply amid Middle East disruptions, are paying premiums (price without any discounts) for these cargoes. This sudden surge in demand has strengthened the Kremlin’s finances just as Western sanctions were beginning to bite, providing an unexpected windfall for President Vladimir Putin’s war in Ukraine.

Germany also secured a US exemption from sanctions for the Rosneft-owned Schwedt refinery to prevent a major fuel supply disruption in Berlin and the surrounding Brandenburg region. The Schwedt plant produces about 90% of the petrol, kerosene, and heating fuel used in the capital and its airport. Originally, Germany had obtained a six-month exemption when the US first imposed sanctions in October, but that was set to expire in late April. Without the extension, the Schwedt refinery risked insolvency, which could have forced Berlin to nationalize it and organize large-scale fuel logistics. The exemption allows transactions with Rosneft’s German subsidiaries despite US sanctions on Russian oil companies.

These moves with Russian oil reflect a broader discussion in Washington about easing certain oil-related restrictions in order to stabilize global energy markets during the conflict with Iran. U.S. officials, including President Trump after his recent phone call with Putin, President of Russia, have signaled that limited sanctions waivers could be used as a tool to prevent further spikes in oil prices.

Militarily, the conflict in the Middle East is emptying global air-defense stocks. Gulf states facing Iranian attacks require Patriot and other interceptors, diverting potential supplies away from Ukraine. Officials from the Trump administration told lawmakers in a closed‑door briefing that Iran’s Shahed attack drones pose a significant challenge to U.S. air defenses and that the United States will not be able to intercept all of them. Acknowledging this challenge highlights the importance of layered air defense systems, as examined in separate reports and in analyses for NATO. Zelenskyy, President of Ukraine, says that during three days of the attacks, 800 Patriot missiles interceptors were used, more than Ukraine has received in the 4 years of war since 2022, pointing where the true Western foreign policy priorities lie. Russia gains indirectly as fewer interceptors for Kyiv weaken Ukrainian defenses, and the spike in oil revenues strengthens Moscow’s war capacity.

Amid Ukraine appearing to seek intangible strategic leverage, Russia, benefiting from the situation, has offered little meaningful support to its ally Iran. Russian-supplied S-300 air-defense systems failed to prevent US and Israeli strikes, exposing Moscow’s inability or unwillingness to defend Tehran while providing the intelligence to target American forces. Despite having signed a strategic cooperation pact in January 2025, Russia’s commitments to Iran do not include mutual defense, and the country’s military losses in Ukraine leave it with little capacity to assist Tehran.

The Kremlin’s response to attacks on Iranian targets has been limited to public statements, blaming the US and Israel and condemning attacks on civilians and civilian infrastructure, whether in Iran or Gulf Cooperation Council countries. Putin, President of Russia, has conducted phone calls with the leaders of Gulf Countries claiming Moscow is “ready to use all opportunities to stabilize the situation”, once again positioning himself as a potential mediator between Washington and Iran’s leadership. In this context, Russia’s messaging echoes China’s preference for de-escalation and dialogue, allowing Moscow to align rhetorically with Beijing while reinforcing the image of a non-Western bloc that promotes mediation rather than direct military involvement.

The situation on the frontlines, combined with Russia’s prospective gains from US and Israel involvement in the Middle East, has led Moscow to adopt a relatively strong stance ahead of the trilateral negotiations, originally scheduled for March 5–6 in Abu Dhabi (UAE) but now postponed indefinitely. At the same time, Ukraine’s refusal to trade territory for an end to the war, brought Trump’s public criticism of Zelenskyi’s position up again, making him the one who doesn’t want peace, raising serious doubt on the prospects for a near-term settlement. In this context, the Trump administration is likely to scale back its mediation efforts, especially as strategic focus shifts to the conflict with Iran and the upcoming congressional midterm elections.