Can Putin still afford the costs of war?  “No, but that won't stop him.”

Economic data related to Russia raises concerns in the West. Two years of sanctions and yet Moscow still finds the money to continue the invasion. How is this possible? Has it become resistant to sanctions and can it afford to wage war in Ukraine?

The irony here is that even if she could not afford it, it no longer mattered to Putin. He will continue the campaign even if he loses.

The rest of the article is below the video

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Facade? The data may be misleading

Russia's real GDP growth in 2023 was 3.6%. This is more than expected.

Analysts from Allianz Trade, a company that deals in the insurance of receivables and contracts, expect further growth in Russian GDP in 2024. They believe that the country's economy, burdened by the war in Ukraine and Western sanctions, will nevertheless grow by 2.5%.

In 2023 it was said The problem for Russia will be accelerating inflation. According to expectations, it may reach 25%.

While The Economist indicates that prices in February 2024 rose in Russia by 0.6%. From month to month compared to 1.1 percent growth at the end of 2023. on an annual basis, while inflation It will maintain the November level at 7.5%.

According to prof. Artur Nowak Farr of the School of Global Economics at the Warsaw School of Economics, However, all these data do not reflect the actual situation in Russia.

The need to increase taxes, put the economy on a war path, and keep economic results secret, especially information on the extraction and trade of hydrocarbons, is evidence that Russia cannot afford the costs of war, says Novak Farr.

The country operates at the limits of the production possibilities curve and the budget. Economic data can be misleading. The GDP increases according to the sectors that benefit from the war and covers the deterioration of other sectors of the economy. Private entrepreneurs and society lose out. And so is the issue of inflation. Prices are controlled to maintain the illusion that the country is functioning normally. This will erode over time and the facade will collapse, he explains.

Allianz Trade analysts assess the situation similarly They interpret the good GDP results as an effect of the transition to a war economy rather than a sign of the resilience of the Russian economy.

“The stronger-than-expected GDP growth reflects a shift of resources to the war industry (not just weapons) and construction, which masks the weak performance of most other sectors,” their analysis stated. As they assert, foreign investment has dried up because investors are avoiding Russia.

– Taking into account the standard of living and the possibility of normal development of the country, Russia is losing from this war – says the professor. Novak var.

Are sanctions still effective?

It is no secret that Russia's budget depends largely on trade in hydrocarbons, primarily oil and gas. That is why the West has imposed sanctions to limit revenues from oil and gas businesses. In addition to the blockade, it imposed price restrictions on trade in raw materials with third countries (the so-called price cup).

It also imposed sanctions on products and services that would technically support Russia or enable their use for military purposes.

However, disagreements remain about the effectiveness of sanctions. Skeptics point to the lack of measurable effects, while their supporters emphasize the progressive nature and destructive impact, highlighting individual problems that arise from time to time in various sectors.

It should be noted that the loss of the European market and Western sanctions have created a new cartel of buyers of raw materials from Russia. India and China have a strong negotiating argument when bargaining on price. This includes: Because of these factors, Russian oil is worth between $10 and $15. Lower compared to Brent crude. These are tangible things that reduce Russian revenues, says Philip Rudnick, an expert at the Center for Oriental Studies.

Putin hides data. “Russia is affected by this war”

Data indicate that Russia was able to redirect a large portion of the oil sold to China and India. It is similar to a gas. Russia is actively working to increase LNG sales in Asian countries. in In 2023, US$32.2 billion worth of fuel was sold, fully replacing lost revenues from exporting fuels and lubricants to the EU. E-gasoline notes.

Does this mean that despite the blows he has dealt to the Russian raw materials giants – Gazprom and Novatek – Putin is still making money from oil and gas?

Russia must sell its raw materials at a deep discount, because sanctions limit its development opportunities. Smuggling and evading sanctions are the trickBut this also means costs – explains the professor. Novak var.

He adds that Putin deliberately hides the data.

The necessity of increasing taxes, putting the economy on war paths, and keeping economic results secret, a Especially information related to the extraction and trade of hydrocarbons, is evidence that Russia is affected by this war – says in an interview with money.pl.

Precise strikes by the Ukrainians

Support with Western military equipment allows Ukraine to strike important targets in Russia itself. As we wrote in money.pl, A series of precision drone strikes on refineries and fuel depots It aims to cripple the ability to supply the army on the front, but it also harms fuel exports.

Power plants, ports such as those in Ust-Luga, and even aviation stations such as those in Taganrog, where maintenance is carried out, among other things, were within range of Ukrainian fire. A-50U early warning aircraft.

– These impacts mainly on the income of specific companies. If the damage is permanent, it could lead to fuel shortages or higher prices in the country. This is a potential source of social unrest. Hence, among other things, a decision to ban the export of gasoline. However, it is not true that attacks by Ukrainian drones or acts of sabotage had a significant impact on the flow of money from oil exports, as Philip Rudnik points out.

Besides, as Professor Novak Var mentions, Russia A huge country that can move part of its support base if necessary – as was the case during World War IIJ, when the factories were moved to the Urals.

“National Welfare Fund”. This is how Putin fills the gaps

According to experts, Putin uses economic “creative accounting”. However, even this involves the need to access additional funds from the rich wallets of corporations, oligarchs and entrepreneurs.

As Bloomberg reported, Russia is considering the possibility of significantly increasing taxes in order to raise up to 4 trillion rubles ($44 billion).. “Increasing taxes on the profits of companies and high-income individuals is being considered,” the agency stated.

– Putin mentioned the introduction of a progressive tax scale (for a long time there was a normal flat tax in Russia, now there are talks about new thresholds – editor’s note). This indicates that after that elections The financial burden will increase.

The “victim” may fall primarily on profitable companies – from the petrochemical, oil and fuel sectors – that still have access to hard foreign exchange. Since 2022, additional “special” taxes have been imposed several times on Gazprom and oil producers. I think this trend will be maintained, says OSW's Philip Rudnick.

An additional source of money with which the Kremlin fills the gaps is the so-called National Welfare Fund. But this money also disappears quickly.

According to information provided by Russia Ministry of Finance At the end of 2023 Of those who gathered before the invasion 9 trillion rubles (more than $10.16 billion) remaining 5 trillion rubles. During the two-year war with Ukraine, Russia spent 4 trillion rubles from the fund to rescue subsequent branches of the economy weakened as a result of sanctions.

Russia can't afford it? It doesn't matter anymore

According to prof. Novak Vara, all this proves that the outcome of this war is unfavorable for Russia, but Potnia cannot stop it.

Vladimir Putin has no other choice, because defeat would mean the end for him. The expert says that Russia will continue this campaign as long as it enjoys social protection and as long as the Russians themselves are willing to bear the high costs for it.

He stresses that this invasion will not be profitable for Moscow, especially if Ukraine is not occupied as a result. -This is a strategic goal. The idea is for Ukraine to pay for these efforts: with agricultural products, industrial production, and its own labor. It is a colonial plan – confirms the SGH expert.

Przemyslaw Ciesak, journalist at money.pl

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