Russia’s economy in crisis, but “Putin can’t afford the war in Ukraine to end” | The world | News

Russia became so dependent on its war economy that Vladimir Putin is unlikely to accept a large-scale peace agreement in Ukraineexperts warned last night.

It follows the announcement last week of a record £100bn defense budget for next year – worth around 40% of Russia’s total economy and an increase of more than £40bn from 2023.

This means that more will be spent on Russia’s military and security forces than on healthcare, education and social services combined.

“Russia They simply cannot afford this war to end unless it wants to be a vassal of China – the consequences for its economy would be catastrophic,” said economist Dr. Renaud Foucart, from Lancaster University last night.

Regional expert Mark Galeotti added: “We should expect any deal brokered by Presidents Trump and Zelensky with Putin to be little more than a ceasefire. Putin will use this time to continue revving up his war machine because he needs to rebuild his devastated armed forces.”

Putin cited his transition to a wartime economy as a success story in breaking sanctions, with arms factories across the country working around the clock to support Russiahis war machine Ukraine.

in reality, RussiaIts economy is fragile, too dependent on volatile energy exports and at high risk of overheating.

RussiaIts currency, the ruble, continued to slide last week, falling to 110 against the US dollar, its lowest level since the start of the war in Ukraine.

Its initial collapse was caused by capital flight from the country following the February 2022 invasion.

RussiaHis central bank responded by ordering all exporters to convert 80% of their foreign currency into rubles and limiting individual foreign currency withdrawals to just £7,900.

Russia it has also found ways to circumvent lax sanctions and take advantage of high energy prices in its exports to China and India.

However, this was offset last year by the tightening of sanctions and the decision by the G7 countries to cap the price of Russian oil, limiting foreign currency flows into the country.

Now new US sanctions have added to Moscow’s worries, targeting for the first time major lender Gazprombank as well as 50 small and medium-sized Russian banks that have been banned from doing business with the US and its allies.

The slide of the ruble will again convince people to move any remaining capital from Russia and forces the central bank to use its reserves while raising the cost of imports – increases that cannot realistically be passed on to Russiastruggling consumers.

Already, Russiathe annual inflation rate reached 8.4% – twice the target – while the central bank’s moves to increase interest rates to 21% will only slow down the economy further.

Spiraling food inflation has already led to a spate of food looting. Last year’s egg thefts have given way to butter thefts this year, with the price of butter – £1.50 per 200g (up 30% on 12 months ago) “like gold now”, according to shop owner from Yekaterinburg. which was targeted.

RussiaIts nominal GDP stands at just £1.6 trillion, compared to the US’s GDP of £23 trillion.

Russia already dedicated 10% of this GDP to military spending last year. The new budget will see that increase – and it bodes ill for the long-term economic outlook.

Ammunition production, military equipment, soldiers’ pay, salaries and compensation delivered to the families of wounded or dead troops all contribute to this amount – i.e. Russiawart’s meme economy pays the wages of tens of thousands of people in the country.

“RussiaHis war economy means that every embryo of industry existing in Russia this was not for war and this was not for oil and gas was directed to war production,” said Dr. Foucart, last night.

“Food inflation is really what matters to ordinary people, so this is the time to overheat. There was a plan for several years to subsidize mortgages. This went away because it created a real estate bubble.

“Russia it should reinvent itself from a position of great weakness.”

Putin has high hopes for the BRICS group of nations – Brazil, RussiaIndia, China, South Africa, Iran, Egypt, Ethiopia and the United Arab Emirates – are developing their own currency to bypass the dollar.

This has already proven a challenging prospect and now we have to contend with President-elect Trump’s vow to impose 100% tariffs on BRICS exports to the US should this happen.

“In any case, this does not work for the promised secondary sanctions – and the Chinese banks are very worried about being hit with secondary sanctions. This will affect Russia energy exports to China, a major source of revenue,” said Dr. Foucault.

“So, no matter how you look at it, I think it’s very difficult for Putin to end the war because it means becoming more of a vassal state of China. This is the only way Russia will be able to exist.”

The end of the war will see real incomes fall for all, but RussiaIts elite families, like 300,000 entrenched veterans—many released from long prison terms to “volunteer” for the front—are returning home.

Putin’s only levers to deal with the resulting social instability are a shrinking national social protection fund against which promises of pension reform and higher wages have already been made, as well as a strengthened police force.

“One thing we know from the history of the two Chechen wars is that it is not easy to reintegrate people who have been at war into Russian society,” said Dr. Foucault.

Following the war in Afghanistan, 150,000 Russian veterans were deployed to the Soviet Union – twice the current Russia.

“Which is really amazing Ukraineunlike Afghanistan, is that the decision has clearly been made that there will be no high-profile heroes of this war. The people who are invited are either very young, regular soldiers, maybe sergeants up to a captain,” said Professor Mark Galeotti, author of the new book “Forged in War: A Military History of Russia‘.

“A certain number of veterans will want the regime to fall, because a true parliamentary democracy would not have this kind of stupid war in the future.

“But you’ll also have the turbo patriots who will say it was a stupid war because ‘we didn’t fight it right – because our fat cat politicians were out of touch.’

“After Afghanistan, veterans formed a kind of turbulent political force in their own right. Many also ended up in organized crime. We have already seen that the rate of organized crime has doubled since February.”

However, it would be a mistake to think that any peace deal would shut down Putin’s war machine.

“RussiaHis army was decimated. Now he uses trucks with armor plates glued on them or ATVs made in China. So there will be an extended period of military reconstruction. And that means further heavy spending on armaments,” Professor Galeotti said.

“What we’re likely to see is a weakening, but not a cliff edge, which would indeed be catastrophic for the economy.”

It means that Putin may end up finding a pretext to resume hostilities, albeit at a milder level.

“He might decide that keeping the war low is less dangerous for him than making a peace agreement,” Professor Galeotti added.

Russian expert Keir Giles, author of Who Will Defend Europe? An Awake Russia and a Sleeping Continent,” he repeated this opinion.

“This is a war to correct what he sees as the historical wrongs of 100 years ago, when so many countries in Eastern Europe were, in Putin’s view, wrongly created. So there is no reason to believe that if major combat operations in Ukraine reach the end Russia would have any incentive to stop building up its military and turning its economy into a war economy.

“He has to be ready for the next phase of the fight Ukrainewhich will soon follow for the subsequent assault on Europe”.