Russian President Vladimir Putin in Moscow on July 10. Alexander Kazakov/Russian Presidential Press and Information Office/TASS via Picture Alliance
Vladimir Putin is squeezing Russia’s economy to finance the war of aggression against Ukraine.
That’s what experts we spoke to about the topic say.
Economically, Russia is already doing much worse than the official data from Moscow would have it appear.
The West has imposed sweeping sanctions on Russia and its economy since the war against Ukraine began in February 2022. A majority of economic problems of Russia but is much more due to Vladimir Putin’s leadership of the country, say economists.
Before the war began, Russia was the 11th largest economy in the world and provided almost 40 percent of the European Union’s natural gas imports and a quarter of its crude oil. A year and a half later, Putin has transformed Moscow into a state ostracized in much of the world, isolated from the global financial system and cut off from the most lucrative trade routes. Russia is also losing many skilled workers. Its currency, the ruble, is depreciating. Experts told us the damage to Russia’s economy was largely self-inflicted.
Speaking to Business Insider, researchers at the prestigious Yale University Jeffrey Sonnenfeld and Steven Tian said Putin lost the war economically. Now he’s fighting to at least maintain the status quo. “The lion’s share of the economy is controlled by the state, the energy and financial sectors, and Putin is taking the seed money from these companies to use in his war chest,” the economists said.
Russia’s economy will never be the same
Russia does ship more oil and coal to countries like China and India, but at lower prices. Russia is barely making ends meet in energy trading, the researchers said. The country also has to sell most of the other important raw materials such as wheat, wood and metals cheaper today than before the war. The lack of income from exports would have prompted Putin to levy draconian taxes on companies and individuals. The Yale scientists see it as an a “cannibalization” of the economy.
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“The high taxes don’t help the country’s economic health, but they do allow Putin to pay the bills,” Sonnenfeld said.
Putins have miscalculated with the invasion of Ukraine. Its economic and political missteps are a direct result of this misjudgment, Tian said. Russia’s status as a trading partner may never be the same. “It is becoming increasingly clear that other countries can do well without Russia as a trading partner.”
“Putin is destroying the historical foundations of the Russian economy,” Tian said. “The main export goods have always been raw materials, but now nobody needs to buy Russian raw materials.”
From the Yale data that the researchers provided to us, it appears that Russia in particular is permanently losing the market for natural gas.
The initial supply shock in spring 2022 was quickly overcome. The projects for liquid gas terminals in Europe with a volume of almost 100 billion cubic meters of natural gas played an important role. Germany also put new terminals into operation in record time and connected them to the gas grid.
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While China and India have emerged as major buyers of cheap Russian crude since last year, deep discounts and long transportation routes prevent these sales from providing any meaningful support to the Russian economy.
“If Putin were to call us today, he could not name a single political or economic advantage for himself, the Russian people or the economy,” said Sonnenfeld.
Soviet-style collapse
Volodymyr Lugovskyy, an economics professor at Indiana University, told me he expects dramatic economic change in Russia in the next three or four months.
“Many people are still unaware of how dire the situation in Russia could be,” he said.
Official government data suggests the economy has weathered the costs of the war well, but the numbers below the surface, such as retail sales, air travel and business activity, suggest otherwise.
“The situation is much worse than the reported 2 percent increase in GDP,” Lugovskyy said. Sales of new cars and computers have fallen by 40 to 60 percent. And when you take military activity out of the data, production looks a lot worse than reported.”
The country’s currency, the ruble, seems particularly vulnerable. After attempted mutiny the Wagner Group in June, the ruble plunged to a 15-month low. It was just above 90 per dollar on Monday, but could fall as low as 149 rubles per dollar, according to Lugovskyy.
A change of power, a civil war or a another mutiny attempt, according to the professor, could weigh on the exchange rate and ultimately lead to the collapse of the economy Moment an empire with a central power. Extreme events are entirely possible.”
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“Twelve years after Afghanistan, the Soviet Union was history. It’s going faster this time”: top economist sees Russia’s economy on the brink
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