Procurement: Russian Economic Strategy
http://www.strategypage.com/htmw/htproc/articles/2024102301547.aspx#gsc.tab=0
October 23, 2024:
Invading Ukraine in 2022 proved to be a disaster for the Russian economy. The expected quick win turned into a losing battle against determined Ukrainians armed with over $100 billion of weapons supplied by NATO nations, especially the United States, and at least equal amounts of economic aid. In addition to the unexpected resistance, the Russian economy was hit with substantial economic sanctions that reduced oil income and blocked Russia from receiving vital electronics and other items that could only be obtained from NATO countries.
At the same time Russia was trying to create a wartime economy that could support its efforts in Ukraine while also maintaining sufficient resources to keep more Russians from sliding into poverty. After two years of enormous personnel losses there were fewer men to recruit. A growing number of Russian men, and some soldiers and officers, were fleeing the country. This meant that Russian losses were not just the over half a million dead and disabled soldiers, but millions of men who left Russia.
The government soon outlawed this migration. This slowed migration down but did not stop it. The government realized that most Russians were willing to fight to defend Russia, but many refused to support a Russian invasion of a neighboring country.
The Russian economy also took heavy losses because of the sanctions. The combination of rising personnel losses to combat and migration plus economic sanctions on a war economy proved disastrous for Russia. During 2023 Russia revenues from sanctioned oil and natural gas declined by a quarter while the percentage of the government devoted to the war increased dramatically.
It was obvious that Russia was having severe financial problems when Russia started to make large withdrawals from the National Welfare Fund, or NWF, rather than increasing contributions to the fund. The NWF exists to keep the economy stable and able to pay for pensions and maintain infrastructure and investment in essential Russian industries. By 2024 the NWF was no longer able to meet all those obligations. Because millions of Russian civilians had fled the country there was a labor shortage. The fall in government tax collections and profits from government-owned petroleum operations ended many infrastructure projects and payments to social welfare programs. When the majority of Russians feel the shortages, the government has a major political problem. Russian civilian morale has been sinking since mid-2023. Popular support for the war is declining. The government tried to resist this by devoting eight percent of the budget to payments for disabled soldiers or the families of dead soldiers. The cash shortages meant these payments were a one-time event during 2023. It could not be repeated because the government was broke.
The war appears to be continuing into 2025 despite Russia’s shortage of cash and soldiers. Russia has hired thousands of North Korean soldiers as a stopgap, but this is a limited resource. North Korea is demanding help with its nuclear weapons and ballistic missile programs. This angers China, the last major ally Russia has. Not only is China reducing economic cooperation with Russia but is also raising the issue of extensive portions of Russia’s Far Eastern Pacific coastal provinces that are claimed by China. Over the last few centuries Russia did take many of these territories from China and now China sees an opportunity to get them back, or simply take them back. If this happens, Russia could lose up to twenty percent of its territory.
To keep the war going in Ukraine, Russia has sacrificed millions of personnel and the health and stability of its economy. To keep the war going, Russia may have to surrender its disputed territories in the Far East. All this has increased pressure on President Vladimir Putin. He has ruled or misruled Russia for 25 years and now faces internal opposition by his key allies. The major economic leaders of Russia, called oligarchs, see their business interests, employees and customers being hurt by Putin’s war. Will Putin risk civil unrest and economic collapse to keep the war going? These are questions that will have to be answered in 2025 when money, patience and military capabilities are all exhausted.
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