The Business Press – June 30, 2023 at 11:40PM
Nearly 18 months into the Russian invasion of Ukraine, tension is rising as Putin struggles to finance his increasingly expensive war. Contrary to popular belief, Putin’s financial lifeline lies in the cannibalization of Russian economic productivity. As commodity prices drop and Western sanctions take their toll, Putin’s methods of funding the war are starting to backfire, causing a dearth of public support. In understanding how Putin’s invasion will ultimately end, we can draw parallels from history.
Contrary to prevailing narratives, energy prices, including oil and natural gas, as well as other commodities Russia produces, have become cheaper since the invasion. The effective G7 oil price cap and global economic factors have led to lower commodity prices, leaving Russia barely breaking even on oil sales. The world has largely replaced Russian supplies, rendering commodity exports a futile source of revenue for Russia.
It is often overlooked that Putin funds his invasion not solely through marginal commodity exports or sanctions evasion, but through the cannibalization of Russia’s productive economy. With state control over 70% of the economy, Putin can manipulate resources at will to generate funds. Levying draconian “windfall taxes” on various entities and individuals, as well as indiscriminately seizing money and property, Putin has abandoned responsible fiscal policies and is mortgaging Russia’s future.
Putin’s economic policies have caused unrest within Russia. Oligarchs such as Oleg Deripaska and labor strikes indicate that Putin’s shakedowns are hurting the Russian economy even worse than Western sanctions. Over 1,000 western companies leaving Russia has resulted in shortages of essential goods for Russian consumers. The plundering of the economy has revealed a lack of support for Putin domestically, as evidenced by the failed coup attempt and the subdued response from regional governors.
Drawing from history, we see that economic woes combined with military overreach have led to significant regime changes in Russia. Both major Russian revolutions of the past century were underpinned by economic struggles caused, in part, by wars. The escalating costs of the Cold War and low oil prices contributed to the collapse of the Soviet Union. Losing wars has historically gone hand-in-hand with economic decay and regime change in Russia.
The Russian economy, despite claims of resilience, is imploding under the weight of Putin’s costly invasion of Ukraine. By sustaining the invasion through shaking down his own people, Putin is growing more unloved and weakening his position. Economic decay has been a significant factor in bringing down tyrannical regimes throughout history, especially when combined with military overreach. As it becomes evident that Putin’s methods are backfiring, we witness the willing complacency of the Russian population with their autocratic leader, reminiscent of historical patterns.
The Business Press 