HOW PUTIN’S WAR HAS RUINED RUSSIA

The burden of Putin’s war on Ukraine will be borne by average Russian citizens for decades, if not longer. The damage done to Russian society, the economy, its military, its political development, and its international reputation will far out live Putin.

The most obvious catastrophe that Putin has brought about by invading Ukraine is and will be economic. More than a thousand international companies have curtailed or shuttered their businesses in Russia. More will surely follow. Most Russians won’t feel much pain from the shutdown of Aston Martin or Burberry, but the unavailability of repair and replacement items from companies such as Apple, Bombardier, Boeing, Dupont, Ericsson, Intel, and Analog Devices will hit labor productivity, consumers, and eventually the supply and production chain of Russian industry. These exits will also leave hundreds of thousands more Russians unemployed. Longer term, with Putin and the Duma threatening to confiscate any remaining assets of companies that have quickly fled Russia, few foreign investors will return anytime soon.

The heavy sanctions regime imposed on Russia since February will not soon be lifted given the Russian military’s brutality. The effects of the sanctions on the broader Russian economy will end the project of Russian economic modernization that has proceeded in fits and starts over the last three decades. Foreign investment was low before, and it will only get lower. Europe will move off its dependence first on Russian oil (there are many alternative sources of oil, and it is a commodity that is easy to transport from elsewhere), and even its overwhelming dependence on Russian natural gas. It will, of course, take two or three years for liquefied-natural-gas terminals to be built in Germany in particular, but once those terminals are built, European customers will likely never need to buy natural gas from Russia again. Short term, the transition will hurt Europeans as gas prices continue to rise. But in the long term, it is the Russian economy, and Russians, who will suffer the most. The European market is gone not just for now, but forever, and with it much-needed revenue to the Russian budget.

Putin only allowed economic modernization up to a point and was slow to encourage diversification of the economy. While Russia sells military equipment and weaponry abroad, chemicals, coal, precious metals, and civilian nuclear power plants, revenue from these sectors almost certainly cannot ramp up fast enough to replace what has been and will be lost from oil and gas exports to Europe. Even if China increases its purchases of Russian oil and natural gas, it cannot replace the European market for Russia. And China will undoubtedly drive a hard bargain, using the enormous leverage it will have obtained over Russia in the absence of a European alternative market.

One of the major achievements of Russia’s post-Soviet economy had been its low debt-to-GDP ratio, accumulation of foreign reserves, robust national wealth fund to smooth over the inevitable booms and busts from the price volatility of its carbon-export revenues. Russia had also managed to maintain low inflation and unemployment rates. In three months, Putin has blown all of this up too.

The Russian economy is projected to shrink by 11.2 percent by the end of 2022 even if the war ends tomorrow. And it won’t. This will be due not only to the gradually increasing impact of Western sanctions, but also because of a brain drain from Russia, declining employment as foreign companies pack up and leave, the increasing cost of living, and a resulting decline in consumption. The removal of Russian banks from the SWIFT banking system will also make trade slower and more difficult. Supply shortages for computer chips will hamper Russian manufacturing processes, further exacerbating covid-related supply-chain issues. As a result, consumer prices are anticipated to rise as high as 22 percent in 2022.

At the end of January 2022, Russia had amassed $630 billion in foreign reserves, the fourth-largest in the world. But Russia has no access to about half of that sum now because the funds that are held in foreign banks are now under sanction.

This long (and yet still incomplete) list of damage to the Russian economy will continue to unravel all the health and demographic gains that Russia had made before the February invasion (gains made despite Putin’s leadership, not because of it). One estimate put the number of Russians who had fled the country in the first four weeks of the war at up to 200,000.

Cyberspace too has become far more restricted since the Russian attack. Russia’s 80 million Instagram users had to say goodbye to the platform in the first few weeks of the war. The Russian government’s ban on the platform followed blocked access to Facebook and Twitter because they refused to bend to the Kremlin’s demands that they stop attempting to censor official Russian state media.

Russia’s last source of independent information—the radio station Ekho Moskvy—was shut down at the start of the war, and the YouTube-based TV station Dozhd was blocked the same day. The lack of access to alternative sources of information to state-controlled media may well be helping to keep support for the war surprisingly high. One of the only polls taken on the “special military action” (it is illegal in Russia to call it a war), done by the respected Levada Center, pegged general support at roughly 81 percent of the population. Time will tell whether public support for the invasion remains high- especially as Russian soldiers come home disabled, dead, or not at all.

Life under sanctions and the pariah economy Putin has created may well push some segments of society to the point of taking to the streets in protest should the war go on much longer. Time is not on Putin’s side.

Finally, Putin’s war has ruined Russia’s reputation abroad. In the months preceding the war, as Russian forces amassed on Ukraine’s border, both he and his diplomats consistently maintained that Russia had no intention of invading, and then of course, without provocation, they did just that. They acted in bad faith in violating repeated ceasefires to allow Ukrainian civilians to evacuate cities such as as Mariupol before the Russian military turned them into rubble. The Russian military has violated the laws of war in clearly targeting civilians throughout Ukraine, and Russian soldiers and their commanders have used rape and torture against civilians in Bucha and elsewhere.

Putin’s strange speeches extolling his warped understanding of Russian-Ukrainian relations and his laughable characterization of Ukraine’s president Volodymir Zelensky (who is Jewish) and his elected government as “Nazis” has led foreign leaders to question his sanity.  Russia is now a pariah in the G-20 and was suspended from the UN Human Rights Council following evidence of war crimes in Ukraine in April 2022.

Three decades after the collapse of the Soviet empire, Russians are being dragged back in time to when Soviet citizens lived isolated from the rest of the world, in a bubble of failed ideology and misinformation. That system fell apart under just the kind of autarky and autocracy that Putin hopes to reimpose. Just as the Soviet system collapsed, Putin is also failing Russia, erasing the gains of the post communist period in a feckless attempt to rebuild a doomed empire.