Is Russia Headed for Economic Ruin in 2025? The Fallout of Prolonged Warfare
everymansci.comEvery since Russia fully invaded Ukraine I've been following media stories reporting on the Russian economy by citing western economist's and think tank's analyses. For the last three years it's been dominated by increasingly dire predictions and a sense of "they can't keep this up much longer." And this would raise my hopes that Russia would either collapse or Putin would be forced to negotiate seriously to stop the bleeding. Yet Putin somehow continues to keep finding ways to forestall collapse.
As a non-expert, non-economist I'm now quite jaded when reading analyses like this and pretty heavily discount them. That's because I've had to conclude two things: First, the Russian economy is even more opaque to western analysts than the analysts already admit it is. And second, Putin's absolute dictatorial power and ability to have anyone who complains much thrown out a high window, provides myriad levers to continue kicking the can down the road. While I'm sure doing so will eventually result in serious costs and consequences, Putin only cares about getting control of most of Ukraine (either directly or by political proxy). He figures after that Russia can nurse its deep wounds and pay the piper slowly over a decade or more. He may be wrong, but I think that's his calculus.
I think the only pragmatic course is to discount these analyses and operate as though Putin can continue to survive economically as long as he needs to (and then hope we're wrong and pleasantly surprised).
True.
I authored this article october 2024 and updated it to 2025 recently.
The current Crude Price of only around 60$ adds to further pressure on the russian economy, but its resilience has been so far remarkeable in the sense, that there has been no significant sign of extreme pressure on the Ruble. The cannibalisation of the NWF continues and it will be available for another 2 years, the ballooning of forced private debt towards the military industrial sector gives a longterm headache to russias economy, but for the moment, even at 20% interest rate, seems to work. Russia has greatly increased its balance sheet and is thus leveraged and can continue its effort for some time.
The problem is the size of the current effort. Russia cannot sustain on a prolonged basis a annual deficit of 30-50 Billion$ without permanently degrading ts currency.
I think the economic game is decided long-term and i think that the costs are far greater than any possible profit for russia.
And as Russia will somewhen need to transition to peace again, the hidden mounted costs will pushback in an brutal manner.
It is somewhat discussed that right now the Russian economy cannot even simply stop to rely on its military industry - as the unemployment rates would skyrocket if production would be limited.
But of course, this deficit spending (into things that are literaly going UP IN SMOKE) cannot continue forever without more Debts or Devaluation.
Thanks for your thoughtful reply. I agree that things are certainly economically bad for average Russians citizens and will continue to get worse. But as long as it does so gradually, they'll remain cowed, grumble and go along. On the hopeful scenario, the danger point will come if Putin no longer has sufficient resources to keep co-opting those in positions of power and their number grows too quickly for Putin to keep killing the ones who become problems.
Underneath the yacht-hiding oligarchs there's a large strata of sub-yacht minigarchs and they aren't happy. Their ill-gotten gains elevate them far above the common Russian but they don't have an oligarch's wealth to soften the impact of embargos. They can't easily jet-set off to international playgrounds anymore and replacement parts for their BMW are starting to cost more than a Prada. Their wife is bitching about not feeling safe to visit their seaside condo in Crimea and even their mistress has moved to a timeshare model with multiple patrons.
If this malaise gets too deep for too long, disloyalty festers. Not disloyalty to the country but to the illicit system that's permitted limited latitude to pillage the economy at every level in exchange for perpetuating the system. If the lower rungs in the pyramid start working together in ever-larger ad hoc schemes to restore their take to what used to be, which is more than the system can now permit, the whole pyramid gets brittle. First, it just starts crumbling around the edges here and there but when wide shocks hit the system it starts triggering landslides caused by the illicit system fighting itself over the diminishing spoils trickling down. It's manageable but costly. A lot of people who weren't that high up start getting disappeared. Enough that everyone else notices. Too many to just chalk up to being too stupid, too greedy or too unlucky.
Once that reaches nearer the base of the pyramid, if multiple large shocks happen to hit at once, the disparate landslides could coalesce into an avalanche. The stagehands keeping the pretense going stop playing along and start mostly playing for themselves. Too many of them to keep the grocery shelves in Moscow stocked. It's worse in the provinces and once reliable regional governors aren't so reliable anymore. Stopping that requires tanks in regional capitals, more than one at a time. Pretty soon, the Kremlin starts running short of the most loyal internal security troops, the ones you can count on not only to open fire on civilians but shoot at local troops with guns. Eventually they have to start sending troops that aren't much more loyal than the locals they're putting down.
When the system starts swaying, Kremlin elite outside the inner circle get worried. When the instability continues to grow most get scared, but a few get opportunistic. And some of them start talking. Then the talk creeps into plotting. And this is how the end always comes. At first, slowly - and then all at once.
Obviously, we're nowhere close to any of that but Prigozhin's folly was a small preview of what's possible. So, I doubt it'll happen but I'm hopeful.
Your comment reminded me of Russian propagandists talking the possibility of a new civil war in the US.
>That's because I've had to conclude two things: First, the Russian economy is even more opaque to western analysts than the analysts already admit it is.
Or it's not all that opaque and you've been reading tons of propaganda disguised as economic analysis in order to manufacture support for the war in the West. "Just 50 billions more for Ukraine and it's going to win."
As the war in Ukraine drags on into its third year, Russia finds itself at a critical economic crossroads. The Kremlin’s war chest is rapidly depleting, and sanctions are tightening the noose around key revenue streams. With the National Wealth Fund almost exhausted and budget deficits ballooning, Russia’s ability to sustain the current pace of war spending into 2025 looks increasingly dubious. While state-controlled media touts the narrative of resilience, the numbers tell a far grimmer story.
Russian reserves are growing during the war time.
https://tradingeconomics.com/russia/foreign-exchange-reserve...
There’s something darkly funny about the US and Russia both facing economic obliteration in the same year caused by their own hubris.
Old men chasing status and power can’t help themselves as they run out of relevance runway, dragging the rest of us along for the unpleasant ride.
I like that term, 'relevance runway'.
It is a core component of my mental model. Everything has a time horizon: people, institutions, investments, etc. To understand influence potential/runway, time horizon * influence.
Both share the same core goal too: to drag their countries back to the mid 20th century. Putin wants the Soviet Union back, and Trump wants 50’s America back. China is immune to this because that time period was uniquely terrible for them.