Russia's war economy is unsustainable
Hello.
In this video I discuss the Russian war economy. It is a myth that Russia has endless resources and will inevitably win over Ukraine in a long war of attrition. In reality the Russian economy is struggling, and personally I think we will look back at the war some years from now and say that Russia's peak strength was in the spring of 2024. With rising inflation, a manpower deficit, and dwindling stockpiles of military equipment it will become gradually harder for Russia to sustain the war in 2025.
Watch the video here or read the transcript below.
Best,
Anders
Transcript:
Recently, Kyrylo Budanov, who is the head of the Ukrainian Defense Intelligence, said that Russia is aiming to win the war by 2025 or early 2026, because that's about as long as the Russian war machine will work before it starts running into some very serious bottlenecks. And according to Budanov, the Russian economy will start to suffer badly by next summer, approximately, and it will get harder and harder for Russia to mobilize enough soldiers for the war.
I've been contacted by many journalists who were surprised by these statements by Budanov, and to be honest, that was a bit surprising to me because I don't think he said anything that was extraordinary. But I think it was a good reminder that outside of the kind of circles where I come, many people still have the impression that Russia has endless resources for the war and that they will be able to continue this forever. So I thought it might be relevant to make a video discussing why that is not the case and how we are entering a phase by now where it will become increasingly difficult for Russia to keep the war economy running and to sustain the fighting. So let's talk about it.
The idea that Russia has endless resources and can continue the war forever is frustrating because it drives much of the logic behind the arguments that the West can't afford to keep supporting Ukraine. It also fuels that notion that Ukraine has to agree to a peace deal soon because there's no way that they can outlast Russia, but in reality that is not the case.
The war between Ukraine and Russia has turned into a war of attrition, which means that largely it has become a war of production because both sides are losing capabilities in the fighting and they are struggling to replace those losses with new equipment from the factories. And to sustain that effort, both Russia and Ukraine have transformed their economies into wartime economies where almost everything is directed toward the military and to supporting the military operations.
And almost by definition, a wartime economy is not sustainable. You really want to win this war, so you spend more money than you have on producing military equipment and then you hope that you will win the war before the economy breaks down. And the way that Russia is running its wartime economy is essentially by financing it through using the savings. Russia had very large savings before the war and that is the money that they are now putting into the production of military equipment. But as any economist will say, you can't run a sustainable national economy by just keep throwing enormous sums of money into society year after year and then assume that everything will be fine. If you do that, then eventually the economy will overheat and the inflation is going to increase.
And that's what we're seeing in the Russian economy right now. It is under tremendous pressure and the inflation is rising. And there are two main factors that are driving up the inflation in Russia. First, the government is pumping all this money into society by making these huge investments in the defense industry. So the inflation is going up because the government is making investments that essentially are financially irresponsible.
And then second, there is a labor shortage. So unemployment in Russia is very low and the Russian military is then, according to their own numbers, they're recruiting about 30,000 new soldiers every month. And these are Russian men that are taken from the labor force and are being sent to the front lines to attack Ukraine. And this is creating a labor shortage in the rest of the Russian society, including in the factories where they produce the equipment that the military uses for the military operations. And then on top of that, we can also add the Ukrainian airstrikes on Russian oil production facilities that I've talked about in a different video. So this is also contributing to the inflation in the Russian society because it is increasing the cost of fuel.
So to try to keep the inflation under control, the Russian central bank has increased the interest rates and they've done this twice over the last few months. So in July, the interest rate was increased from 16 to 18 percent and in September it has been increased again to 19 percent. And the purpose is to try to decrease or to reduce the economic activity in society by making it less attractive to make investments. But it's really quite a hopeless project when the government then keeps making these enormous investments in the defense industry at the same time.
So officially in Russia, the inflation is about seven to eight percent. But that figure covers that there are significant differences between different types of products. So for example, military equipment, it is purchased by the government and it is purchased in the defense industry and it is bought at fixed prices. So there is no increases there. Like a tank costs the same and it costs the same as it always has. But for consumer products like food and other household items, then there will be much bigger price increases. So all in all, that covers out to maybe seven to eight percent. But it's much more on those things that you actually buy in the households.
So far, many Russians actually don't feel the negative economic consequences as a result of the war. Because all that money that the government is pumping into the defense industry and into the war effort, it means that many Russians have experienced that the salary is increasing and that they're making more money than they did before. And this is especially true in the poorer region of Russia because there are more people there that have volunteered for military service. But what we've seen is then that the salaries for the soldiers and the bonuses for signing up have just skyrocketed over the last year. So they're much bigger today than they were a year ago, for example.
But the thing is that this is not a sustainable way to run an army in a long war of attrition because you can't just keep doubling or tripling the bonuses every few months because that is pushing the wages up not only for military service but across all of society, including the other sectors, where they also have to increase the salaries because they need to compete with the military over labor. So there are some things about the ways that Russia is recruiting for the army that are fueling the inflation and it could potentially cause it to spiral out of control. But it's also hard to see how they can stop or at least it could have very big consequences if they suddenly start recruiting soldiers in a different way that doesn't involve increasing the bonuses and the wages.
So for example, this could happen if Russia starts relying on involuntary mobilization as a tool to replace the losses. Then ordinary Russians will feel the consequences of the unhealthy economy on a much more direct and personal level because the prices will keep going up due to the inflation, but they will be forced into doing military service without getting the bonuses or the high salaries that can then compensate for the inflation.
So Russia is stuck in this situation where the wartime economy, in the beginning it's actually quite good for many people because they feel that their wages are going up and that all the investments that are being made, they have a positive effect on their lives. But then suddenly there is a tipping point where it doesn't work anymore because it's an unhealthy and it's an unsustainable way to run the economy of a country. And I think we're seeing the signs that Russia, the Russian economy is approaching this tipping point where the negative consequences of this policy of just throwing more money into the society are beginning to become visible.
Another point about the Russian economy is that the sanctions are actually having an effect. So there is a lot of talk in the West about how the sanctions, they don't work because the Russians are able to find workarounds. And that is true, but the thing is that they have to spend a lot of extra resources on those workarounds. So the sanctions are putting a strain on the Russian economy. So it's another factor that is contributing to making it hard for them to sustain a wartime economy.
The last thing I want to mention about why it is a sound assessment that the Russian wartime economy won't be able to meet the needs for the Russian army going forward is that their stockpiles of old Soviet equipment are gradually approaching the point of being empty. So when the Russian defense industry today sent equipment to Ukraine, then only a small part of that is brand new equipment. A very large portion of that is old Soviet equipment that they have just been having in various facilities stored away for decades. And then when they need a new tank or a BMP, then they go into those stockpiles and they take an old one and they make some modifications to it. They get it up and running again. And it works quite well in Ukraine, but the problem is that eventually you run out of old equipment from the stockpiles and then you don't have any more that you can refurbish and once that happens, then you have to produce only brand new equipment and that requires more resources.
So if we look at the Russian stockpiles, then for many types of equipment, we are facing a situation where over the coming year or so, Russia will begin to run out of key types of equipment. So that includes things like tanks or infantry fighting vehicles or towed artillery. If you're interested in the details about that, there are some very good videos about that on the Covert Cabal channel here on YouTube.
But that obviously does not mean that Russia will run out of tanks. Like they will still have those tanks that they produce that are brand new and it's also possible that they could find some other tanks from maybe Iran or North Korea that they can purchase. But it will mean that the availability of that equipment will be much lower because it's just harder to produce brand new equipment than it is to refurbish old stuff. So there are estimates that about 80% of the equipment that Russia uses in Ukraine today is old, old stuff that they have taken from the stockpiles. So 20% is brand new. Some of the resources that are currently going into refurbishing old equipment, they could be redirected to building more new stuff and this might increase the production of new equipment to say maybe 30 or 40% of what they have today. But that's still a significant reduction that will make it very difficult for them to sustain their military operations.
And all of that is something that we will start to really see materialized in 2025. So that's why I think that Budanov is right in his assessment that Russia will have to try to win the war in 2025 or in the beginning of 2026 at the latest. Because once we get beyond that point then the Russian wartime economy will no longer be able to sustain the war effort at the current level.
And that also means that ultimately it is a political choice in the West whether we want Ukraine to win the war or not. Because if we keep the level of support for Ukraine high then I don't see how Russia will be able to prevail. The Western economies are not running as a wartime economy. In fact the way we run our economy in the Western countries is absolutely sustainable. So we can keep this level of support for Ukraine indefinitely if we want to. But of course there is that variable of political will. The Western support will have to remain high because if it suddenly drops for one reason or another we might find ourselves in a situation where it's the Ukrainian wartime economy that then suddenly crashes first.
Okay, I will end it here. If you found the video helpful or informative then please give it a like. And also remember you can subscribe to the channel and click the bell icon then you get notifications when I upload new videos. And if you want to support the channel you can subscribe to my newsletter at www.logicofwar.com. Thank you very much for watching and I will see you again next time.