Russia’s war economy is not collapsing, but neither is it stable |
Russia’s wartime economy is getting weaker as the war in Ukraine approaches its fourth anniversary, according to a recent report by PeaceRep, a research group led by the University of Edinburgh. The report, Against the Clock? Why Russia’s War Economy is Running Out of Time, finds that Russia is being forced to spend aggressively on the war, while its earning abilities have dropped significantly.
The funding source used to finance much of this spending, Russia’s sovereign wealth fund, also looks to be dwindling. According to the report, around 76% of the fund’s US$148 billion (£110 billion) pre-war liquid reserves was spent within the first three years of the war.
In an article in May, I argued that Russian leader Vladimir Putin could afford a drawn-out war because he had spent more than 20 years preparing for it. Under Putin’s leadership Russia has consistently posted budget surpluses, amassed foreign currency reserves and reduced its reliance on western debt.
The question now is how far can that preparation carry the Russian economy? For the moment, it appears Russia can still sustain the war. But it can do so only by drawing heavily on earlier buffers, such as foreign reserves and the sovereign wealth fund, while diverting an ever-growing share of national resources towards the military.
The strain on Russia’s economy is being compounded by mounting external pressures. The EU, which is currently the largest buyer of Russian liquefied natural gas (LNG) and pipeline gas, announced in early December that it would........