Russia Can't Afford To Win Or Lose The Ukraine War

This has been combined with government-imposed controls that make it almost impossible for Russian exporters and the many foreign companies still operating in Russia to take money out of the country. Together, these policies have helped to avoid a total collapse of the ruble , by keeping the currency flowing inside Russia.

Russian firms have also learned to sidestep sanctions, with the oil cap being a prime example. In theory, no Russian oil should be traded with the West above the cap, which would have a massive impact on Russia's public finances.

In practice, it has been circumvented by a large “dark” fleet of uninsured vessels and the use of accounting loopholes . And while sanctioning countries are trying to tighten the rules , Russia's public coffers have actually been flooded with oil money .

Many countries have also made money playing the role of intermediaries. Turkey , China , Serbia , Bulgaria and India are among those which have reportedly circumvented sanctions and carried on selling goods to Russia.

Those products are understood to often include dual-use goods such as microchips or communication equipment that are subsequently used by the Russian military. And despite recent efforts , a full regime of extra-territorial trade sanctions – which ban any foreign company from trading with Russia – is still far away.

But perhaps the most worrying reason for the Russian economy's resilience is the war itself.

For a long time, the Russia's economy has not been diverse, relying heavily on the export of natural resources such as oil and gas. And a major reason for the Russian government's relatively high revenue today is precisely that the war has led to high energy prices .

Russia's public spending is at unprecedented levels and around 40% of the government budget is spent on the war. Total military spending is expected to reach more than 10% of GDP for the year 2023 (the UK figure is 2.3% ).

Military pay, ammunition, tanks, planes and compensation for dead and wounded soldiers all contribute to the GDP figures. Put simply, the war against Ukraine is now the main driver of Russia's economic growth .

And it is a war that Russia cannot afford to win. The cost of rebuilding and maintaining security in a conquered Ukraine would be too great and an isolated Russia could at best hope to become a junior partner entirely dependent on China.

In the context of collapsing infrastructure and growing social unrest inside Russia, the projected cost of rebuilding the occupied area is already massive.

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A protracted stalemate might be the only solution for Russia to avoid total economic collapse. Having transformed the little industry it had to focus on the war effort, and with a labor shortage problem worsened by hundreds of thousands of war casualties and a massive brain drain , the country would struggle to find a new direction.

Thirty-five years after the fall of the Berlin Wall, it has become clear that resource-rich Russia has become much poorer than its former Soviet neighbors such as Estonia, Latvia, Poland and Hungary, who pursued the route of European integration.

The Russian regime has no incentive to end the war and deal with that kind of economic reality. So it cannot afford to win the war, nor can it afford to lose it. Its economy is now entirely geared towards continuing a long and ever-deadlier conflict.

Renaud Foucart is Senior Lecturer in Economics, Lancaster University Management School, Lancaster University

This article is republished from The Conversation under a Creative Commons license. Read the original article .

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