Russian President Vladimir Putin has managed to evade much of the economic damage intended by Western sanctions to punish and throttle his unprovoked war in Ukraine.
By revving up the arms industry to churn out missiles, warplanes, drones and battlefield hardware, Putin has doubled spending in 2023 for the military-industrial complex controlled by his cronies and employing millions of Russians in good-paying jobs.
But his aggression aimed at recolonizing Ukraine as part of an envisioned new Russian Empire has spurred Western allies to ramp up their own arms industries to levels rivaling Cold War-era military investment. European and North American weapons-makers are reporting record government orders for arms and equipment to boost NATO readiness and backfill the billions in military aid sent to Ukraine.
The new arms race threatens to end as did the old one more than three decades ago. Russian prioritizing of government investment in war-fighting capability over the needs of its population will end with the economic collapse of a state that can no longer afford to keep pace. The demise of the Soviet Union in 1991 was the result of Communist hubris that bankrupted the federation in its failed bid to out-power the United States.
No one is predicting Russia’s economic demise any time soon. But the depreciating ruble has sent alarm bells ringing as inflation looms because of Kremlin overspending. Hard currency deposits fell by more than $9 billion in June, to $152 billion, and are expected to continue tumbling after the political instability signaled by the Wagner mutiny that stunned complacent Russians in late June.
Last week, the value of the ruble dropped to 100 to the U.S. dollar, which is about half of its previous value. This happened after a month of stability, following a sharp decline in value at the beginning of the war in February 2022.
Fueled by defense industry hiring as the Kremlin scrambles to resupply depleted arsenals, Russia’s economy is expected to grow this year by as much as 1.5%, according to the most recent International Monetary Fund forecast. Russian GDP contracted last year by 2.1%.
Russia is now producing as much military hardware and equipment each month as it did in all of 2022, Deputy Prime Minister Denis Manturov boasted in July.
While that focus on supplying a stumbling war effort shows short-term advantage in maintaining stable employment, analysts point out that overspending on defense will come at the expense of social investment in education, health care and infrastructure. Russian exports have been steadily falling as Europeans weaned themselves from dependence on Russian oil and gas while demand for imported foreign goods increases in a well-paid work force.
“The defense industry is pulling other industries along with it, propelling demand for imports, sustaining GDP and putting money in ordinary Russians’ pockets,” writes Alexandra Prokopenko, a former adviser to the Russian Central Bank in an analysis for Bloomberg. “To retain personnel, other sectors are also having to raise salaries. The groundwork for runaway inflation has been laid.”
Shrinking export income curbed by Western sanctions that limit the price Russia can charge for energy will reduce the revenue Kremlin economists have for a national budget balancing the needs of the war machine and social services.
Russians have largely ignored the war’s impact on their standing in the world but may resent what Putin euphemistically calls a “special military operation” when it begins to divert resources from their everyday needs and the availability and affordability of imported goods they are accustomed to having.
Defense investment in the West is increasing, which improves NATO’s readiness and gives confidence to former Soviet republics that are now part of the alliance. This protection shields them from Russian aggression and ensures they are not forced back under the control of the Kremlin.
Military budgets worldwide rose by 3.7% in 2022, to $2.2 trillion, The Economist writes in its latest edition. In Europe, defense spending increased by 13%, faster than in any other region. Growth was strongest in countries nearest to Russia, with Finland’s military budget rising by 36%, Lithuania’s by 27%, Sweden’s by 12% and Poland’s by 11%.
In Germany, arms makers saw a 12% rise in orders in the first six months of 2023 and expect year-end spending to be up as much as 30%. For the first time in its membership in NATO, Berlin has committed to spending at least 2% of its annual national budget on defense.
Western countries are providing support to Ukraine in its efforts to push back against the Russian occupation. This assistance has put pressure on Moscow, making it allocate more resources towards defense. The invasion, which Russia expected to be a quick victory, has now extended well beyond a year and a half.
Putin’s posture against the stalled invasion, one that has cost both Russia and Ukraine tens of thousands of lives and hundreds of thousands of wounded, has been to pivot to attacks on civilians and disruptions of global economic and security strictures.
Russia scuttled a U.N.-brokered agreement to allow foreign-registered cargo ships to export Ukrainian and Russian grain to needy developing nations, raising the risk of famine and food shortages. Putin attempted but failed to buy favor with African nations that had so far remained neutral in U.N. votes to condemn Russia’s war on Ukraine.
He offered free grain to a handful of states at his Africa-Russia summit in St. Petersburg last month but is not known to have won over new allies. Since the grain deal expired, Putin has turned to bombing Ukraine’s grain storage facilities in Black Sea ports and along the Danube River on the border with Romania.
Russian missile strikes have also lately targeted Ukrainian civilian towns and cities far from the frontlines. Deadly attacks like the Aug. 19 bombardment of the historic city of Chernihiv that killed seven, including a 6-year-old girl, and wounded 144, have become so commonplace that they fail to stir outrage in a world inured to the injustice of a heavily armed power killing innocents.
Since the June 23 mutiny by Wagner mercenary founder Yevgeny Prigozhin, Putin has staged unconvincing gatherings and events aimed at showing he is in control of his disparate military forces. On Saturday, Putin visited his war-fighting generals in the border city of Rostov-on-Don, showcasing his Chief of the General Staff Valery Gerasimov. Rostov-on-Don, headquarters of the Russian military Southern Command, is the city from which Prigozhin launched his 500-mile drive toward Moscow on June 23 on a stated mission to oust Gerasimov and Russian Defense Minister Sergei Shoigu, the Kremlin’s top two defense officials whom Prigozhin has denounced as corrupt and incompetent.
While Russia’s invasion has failed to achieve its objectives in crushing Ukrainian sovereignty, Putin continues his stubborn insistence that the neighboring nation must submit to his claim that Ukraine is a vassal state of the old Russian Empire.
Western allies of Ukraine have so far held together in symbolic defense of the Russian aggression seen as a first offensive by Moscow to restore authority over the now-independent nations that were once constituent republics of the Soviet Union.
With both sides – Russia versus Ukraine and its committed Western allies – intent on pressing on with their respective wishes for empire-building and defense of independence, no swift end to the conflict is in sight.
The United States finally green-lighted delivery of F-16 fighter jets from Netherlands and Denmark to Ukraine this past week, endorsing the technology transfer as soon as Ukrainian pilots finish training on the US-made aircraft. The planes could be a game-changer but there is no word on when they might be ready for action.
Meanwhile, Putin has ratcheted up repression of dissent in his homeland and blamed critics for enemy attacks reaching deep into Russian territory. Russia is increasingly suffering spillover of the Ukraine war as far away from the war zone as central Moscow, the capital’s airport airspace and the city of Novgorod hundreds of miles from the front.
Perhaps as distraction, Putin’s compliant courts recently added 19 years to opposition leader Alexei Navalny’s sentence for allegedly inciting violence and extremism. The 47-year-old will likely remain in prison for as long as Putin is alive.
Another prominent dissident, Vladimir Kara-Murza, defiantly returned to Moscow shortly after the Ukraine invasion to denounce Putin’s disruption of the post-World War II order. He was immediately arrested and sentenced to 25 years in prison last month for defaming the Russian president and his devastating war on Ukraine.