The theoretical background and finite element simulations of Red Wildmoor sandstone hollow-cylinder experiments performed under various axial and radial loading conditions are presented together with borehole failure predictions. A non-linear, stress dependent elastic, Mohr-Coulomb elastoplastic constitutive model generalized for three-dimensional Cosserat continua is employed. The failure predictions are based on the bifurcation theory and incorporate the effect of microstructure. Two bifurcation instability criteria are formulated, one for lateral and one for axial failure modes. The effect of fluid flow on borehole failure is investigated with reservoir depletion and drawdown simulations and the results are corroborated through experimental data.