Sanctions take a bite out of Russia's economy and its war effort
According to the Washington Post, the Russian economy is in considerably worse shape than has generally been reported. The Post points to figures released by Russia’s Finance Ministry showing that tax revenue from the non-oil and gas sector fell by 20 percent in October, compared to a year earlier. Gas production declined by the same percentage during the same period. In addition, retail sales fell by 10 percent year-on-year.
The Kremlin touts a lower-than-expected decline in GDP — only 3.5 percent this year according to IMF projections. However, as Russia’s former deputy energy minister says:
GDP stopped having any meaning because firstly we don’t know what the real ruble rate is, and secondly if you produce a tank and send it to the front where it is immediately blown up, then it is still considered as value added.
It’s clear, therefore, that the sanctions imposed by the U.S. and its allies are taking a severe toll on Russia’s economy.
However, a severe economic downturn isn’t going to cause Putin to change course in Ukraine. Coupled with the conscription of hundreds of thousands of Russian men (which causes additional economic problems), a severe downturn will produce growing discontent. Eventually, that discontent might cause Putin to pull back or face the real possibility of being ousted, but this scenario seems like a long way off.
For now, Putin shows no concern about the living standards of the Russian people. What he’s concerned about is producing arms and supplies for his military.
Here, too, the West’s sanctions are having their intended effect. Putin has acknowledged the problem:
We have to be faster in deciding questions connected to supplying the special military operation and countering restrictions on the economy which, without any exaggeration, are truly unprecedented.
The Post amplifies this point:
Putin’s creation of the coordination council, headed by Prime Minister Mikhail Mishustin, was a sign the Russian president is rattled by the increasing impact of sanctions, economists and analysts said. Putin “is concerned he needs to interfere to make sure supplies will be available,” said Sergei Guriev, provost at France’s Sciences Po. “He is concerned that sanctions have really hit the ability to produce goods.”. . .
Anecdotal evidence reported in the Russian press has pointed to enormous problems supplying Russia’s newly drafted conscripts with equipment. An in-depth October report in Russian daily Kommersant described huge shortages in ammunition and uniform supplies for conscripts, with manufacturers citing difficulties securing the necessary materials due to sanctions.
Sending large numbers of conscripts into battle without properly supplying them is a recipe for disaster, militarily and politically. But not sending them to Ukraine soon likely means more battlefield defeats.
Putin’s answer to this dilemma is an attempt at drastic economic mobilization. But so far, according to the Post, the results haven’t been promising.
And things are about to get worse for the Russian economy. The Post points out that an E.U. embargo on Russian oil sales comes into force on December 5. In addition, a price cap is expected to be imposed on sales of Russian oil outside the E.U. It’s estimated that these measures will cost the Russian budget at least $120 million in lost revenue per day.
Meanwhile, poorly supplied Russian forces will face a determined enemy on unfamiliar terrain during a brutal winter. It’s a bad time to be a Russian and a terrible time to be a Russian soldier.