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Russian President Vladimir Putin’s main message to Ukraine’s western allies is that he has the advantage of time, suggesting that the only way to end the conflict is to meet his demands. The perceived strength of Russia’s economy, along with doubts in some circles about the effectiveness of western sanctions, plays a crucial role in this information battle.
However, the reality paints a different picture as the financial foundations of Russia’s war economy appear increasingly fragile. Key figures within the Russian elite, such as Sergei Chemezov of Rostec and Elvira Nabiullina of the central bank, have expressed concerns publicly. Despite outward signs of growth, low unemployment, and rising wages, the true test lies in how resources are being redirected towards the war effort.
Through methods such as borrowing, inflation, and expropriation, Russia aims to sustain its war economy. Putin’s belief that he can fund the war without causing financial instability or significant sacrifices is being challenged by the growing corporate debt and the state-controlled lending practices.
The Russian government’s efforts to maintain stable public finances and contain inflation are creating challenges for businesses operating under high borrowing costs. Putin’s reliance on a privatized credit scheme may lead to a credit crisis as loans turn sour, potentially jeopardizing the legitimacy of both banks and the government.
As Russia grapples with economic challenges, the west’s strategy of limiting Moscow’s access to reserves and imposing sanctions is increasing pressure on the Russian government. By intensifying sanctions and redirecting reserves to Ukraine, the west aims to constrain Russia’s ability to alleviate resource shortages domestically.
Ultimately, Putin’s precarious economic situation poses a threat to his grip on power, forcing him to make tough choices between his military campaign in Ukraine and his domestic authority. The key for Ukraine’s allies is to continue denying Putin access to external resources, compelling him to confront the consequences of his war economics.
martin.sandbu@ft.com