Economists in the West agree that the Russian economy is in a difficult position. However, they differ on whether the economic difficulties will force Putin to seek an end to the war as early as next year. One researcher suggests that Kremlin spending on the war will peak this year at $190 billion, or 10% of GDP. American economist Anders Aslund considers such a scenario likely. He posits that Kremlin expenditures on the war will reach their peak this year at $190 billion, or 10% of GDP.
After that, Russia will be forced to limit these expenditures, as it will no longer be able to reduce social spending further. Ukraine, Aslund writes in an article for Project Syndicate, spends approximately $100 billion on the war each year—half from its budget and half in the form of weapons provided by allies. “Ukraine can win the war if it has an additional $50 billion a year and the green light to bomb military targets inside Russia,” Aslund concludes.
Putin stands on the brink of economic catastrophe due to the impact of Western sanctions, population migration, and capital flight, agrees Jeffrey Sonnenfeld, a professor at Yale University. He suggests that the option for the Russian leader to avoid economic collapse is a change in international policy after the elections in the U.S. In contrast, Konstantin Sonin, a professor at the University of Chicago, does not foresee a catastrophe in the Russian economy that would halt Putin’s “criminal war” shortly, pointing out that such predictions “constantly underestimate how adaptable the Russian economy is.” Despite official Russian statistics reporting low inflation and economic growth, the problems of the Russian economy are becoming increasingly evident, observers agree.
“The situation for Russia is grim,” says Sonnenfeld. He particularly notes that more than 1,200 international companies have exited Russia, which is six times greater than the largest previous mass exit of companies in history, which occurred in South Africa in the 1980s. Sanctions have cut off access to technologies, which has notably forced “Rosneft,” by the company’s admission, to cease oil production in the Arctic, Sonnenfeld states during his remarks at the American think tank Atlantic Council.
The ruble has ceased trading on the exchange, and its exchange rate “has become a complete fiction,” the economist is convinced. Sonnenfeld acknowledges that the effectiveness of the sanctions could have been greater, but points to the price cap on oil as an example of a successful sanction policy. Russia is no longer profiting from oil, Sonnenfeld explains. Sanctions are working, Aslund insists, citing Russia’s inability to borrow abroad and the fact that a significant portion of Russian reserves that the Kremlin accumulated before the war have been frozen in the West. Under these conditions, along with a shrinking workforce due to migration and war, the Kremlin lacks mechanisms to combat inflation.
