Dr Helmut Marko says Red Bull-Honda has been caught out by Mercedes' engine boost for 2020.
The energy drink owned team had hoped to propel Max Verstappen to his first title this year, and Marko insists that target remains in place.
But he admitted to Bild am Sonntag newspaper: "It was surprising to us that the Mercedes has become significantly more powerful over the winter.
"The way Hamilton went past Albon at the start of the first race was terrifying," he added. "But that's just the way it is and we have to see how we can deal with that in the short term."
Already, it is clear that the gloves are off between the two teams, with Red Bull protesting not only Mercedes' DAS system but also Lewis Hamilton's ignoring of yellow flags last weekend.
"It's about a world championship, so we demand equal treatment," Marko insists.
"It has nothing to do with harshness, but we will certainly not bow to Mercedes."
He said he doubts Ferrari can join that title fight.
"If you look at the fact that all the Ferrari teams have slowed down by between eight tenths and one second, you can draw a clear conclusion," said Marko.
"They're usually strong enough to work their way out of it, but you really can't make up that big a deficit in one season."
Finally, Marko was asked about the fact that while Alex Albon kneeled on the grid in Austria last weekend, Verstappen chose to keep standing.
"We left it up to the drivers," he explained of the gesture organised by Lewis Hamilton. "Our view is that we should not mix in too much politics with a sporting event."
As for whether Verstappen contributed to F1 appearing to be politically divided rather than unified, Marko said: "I can't force anyone to make a symbolic gesture by coercion.
"But just because someone doesn't kneel is far away from someone being a racist."
