Russia's Economic Fears Are an Opportunity for Ukraine
Ukraine’s current stalemate with Russia has frustrated many people, including the former’s military chief. A largely stymied counteroffensive this year gained little ground, especially as Ukraine still lacks certain technology that could help with meaningful breakthroughs. But one important aspect of the struggle against Russia has been surprisingly absent from the recent debate on how Ukraine can win.
Ukraine’s current stalemate with Russia has frustrated many people, including the former’s military chief. A largely stymied counteroffensive this year gained little ground, especially as Ukraine still lacks certain technology that could help with meaningful breakthroughs. But one important aspect of the struggle against Russia has been surprisingly absent from the recent debate on how Ukraine can win.
I’m talking about the Russian economy—and the people who hold it together, like Elvira Nabiullina, the head of the Central Bank of Russia. It’s tempting to say that Nabiullina is often overlooked because she is a woman, but then again, talented Nazi economist Hjalmar Schacht is not exactly the star of many documentaries, either. Economists may keep the wheels of a war machine greased, but because they’re not the people in snappy uniforms, it’s easier to disregard them.
As an economist, Nabiullina has a long track record of saving Russia from sanctions following Russia’s initial attack on Ukraine in 2014. Her decisions, which included inflation targeting, and, more specifically, floating the exchange rate, earned her fawning interviews with the International Monetary Fund even as her bosses continued to kill Ukrainians prior to the mass-scale 2022 invasion. She was furthermore praised as an effective communicator of Russian economic policy—thus helping prevent panic.
https://foreignpolicy.com/2023/12/11/russia-central-bank-chief-ukraine-war-ruble-value/
The whole article's worth reading for some insights into Nabiullina's skilful economic sleights of hand that have kept Russia's finances looking superficially and artificially cheery (if you don't have a subscription, you can see the whole thing by using your browser's Reader View or any equivalent it may have, but maybe slip them some bucks if you can afford it).
More long-term background to Russia's economic ills has been covered by Harvard's Davis Center, from which I'll quote just a few paragraphs:
Russia’s Economy, War in Ukraine, and Hopes for Post-Putin Liberalization
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Putin’s attempts to build up “macroeconomic Fortress Russia,” as noted before, predated the war, but they weren’t necessarily made in preparation for war, Guriev pointed out. Instead, they fit into the Russian leader’s idea that his country must be strategically independent, without needing “to call [the] IMF and ask for permission to do something.” Hence, Putin’s policymakers prioritized a textbook version of macroeconomic stability: low debt, high currency reserves, a large sovereign wealth fund. In part for this reason, the impact of the 2014-2021 sanctions on Russian GDP “was not zero, but it was very, very small,” Guriev said.
The punitive measures initiated in 2022 were “a completely different set of tools,” leaving Russia with “more sanctions imposed on its economy than all other countries in the world combined,” according to Guriev. Yet, despite unprecedented moves like the freezing of $300 billion in Russian central bank assets, Russian coffers continued to fill up. This was due largely to high oil prices and continuing energy sales to Europe, which did not introduce oil sanctions until December of last year. Thus, 10 months after its all-out attack on Ukraine, Moscow closed out 2022 with a $230 billion trade surplus.
This is not to say that oil sanctions, once Europe’s came into effect, had no impact on Putin’s ability to finance Russia’s war against Ukraine. They affected the ruble, inflation, and, in particular, the Russian budget for the first half of 2023, when oil and gas revenues “came down by half year on year.” Circumventing the sanctions is also costly, requiring layers of intermediaries and additional expenses, like Russia’s reported fleet of environmentally dangerous “shadow tankers.”
Today, however, Russia is not running a budget deficit and Guriev believes Putin will be able to keep funding his military machine if oil sanctions aren’t tightened. Guriev noted that in the third quarter of 2023 Russia started selling oil at prices above a Western-imposed cap and the country’s planned 2024 budget “is really scary,” boosting military spending to its post-Soviet high — an estimated 6% of GDP, which Guriev contrasted with NATO’s benchmark of 2% for its own members. Russia, with its combination of petrodollars and forex reserves (including yuan), will be able to ramp up its own production of weapons and munitions, while buying what it can’t make from suppliers like Iran and North Korea and continuing to pay for intermediaries that help it evade sanctions.
In the long run, Guriev says, Putin's economy is not great, plagued by capital outflow and lack of access to modern technologies, but Russia’s revitalized repressive apparatus can easily tamp down discontent for now. Rosy GDP figures are misleading during wartime, Guriev pointed out, because they reflect ramped-up military production, which doesn’t contribute either to quality of life or to future economic growth; some indicators, in fact, suggest a grimmer economic picture for ordinary Russians — for example, a 10% drop in consumer spending in 2022. But, ultimately, diminished quality of life becomes less of a political liability when the regime openly punishes its critics with years-long prison terms.
https://daviscenter.fas.harvard.edu/insights/russias-economy-war-ukraine-and-hopes-post-putin-liberalization
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