Putin's Theory of Victory: The West Gives Up
As Zelensky heads to Washington, Putin has shifted his economy towards war
Ukrainian President Volodymyr Zelensky plans to meet with U.S. President Joe Biden and congressional leaders Tuesday as Western aid for Kyiv remains stalled. Congressional Republicans are blocking around $61 billion earmarked for Ukraine in a $105 billion foreign aid package, including aid for Israel. The White House has warned that previously approved aid will dry up by the end of the year. Punchbowl News reported on Dec. 11 that there remains "a better-than-even chance" that Congress will leave town for the holidays without approving the aid. In Europe, Hungarian Prime Minister Viktor Orban, Putin's closest ally in the EU, has said that he will veto some 50 billion Euros for Kyiv and halt the start of Ukraine's EU accession negotiations at the bloc's mid-December summit. According to the Kiel Institute for World Economics, the EU is Ukraine's largest financial contributor; the U.S. is its largest donor of military equipment.
Western aid to Ukraine has enabled it to survive. Without military aid, Ukraine would have been unable to withstand the Russian military onslaught. Now, Ukrainian soldiers report rationing artillery along the front. Economic aid is crucial, too: Ukraine spends all of its tax revenue on the army and defense, while Western aid largely covers items like state salaries, pensions, and social benefits. Kyiv expects U.S. and European aid to plug over half of its $43 billion budget deficit in 2024. (Tax revenues have plummeted because of the war.)
The U.S. aid package for Ukraine is less than one percent of the federal budget of around $6.2 trillion. Republicans have made passage of the aid package contingent on draconian changes to policies on the U.S.-Mexico border. The GOP strategy appears to follow the playbook from the debt ceiling, which was held hostage for months over unrelated policies before Republicans ultimately folded. This time, it is far from clear that they will fold because Donald Trump, who has frequently complimented Putin and was impeached in 2019 for holding up Ukraine aid, is waiting in the wings as the party's likely 2024 nominee.
Putin, meanwhile, has been gloating about his country's performance. On Dec. 8, he said the Russian war industry was "gaining momentum." He went on: "But they [Ukraine] are running out of weapons. They don't have their own foundations. When you don't have your own foundations, you don't have your own ideology, you don't have your own industry, you don't have your own money." He concluded, "Then you don't have a future. But we have a future." Russia may not be able to win on the battlefield, but it can win if the West gives up.
Russia has been gearing up to produce more weapons for a long war. Russia has oriented its $415 billion budget -- tiny compared with the U.S. -- towards war. For the first time in modern Russian history, defense spending will exceed social spending. Independent journalists Farida Rustamova and Maxim Tovkaylo have estimated that around 39 percent of all federal spending will go toward defense and law enforcement. Much of the war spending is in other categories, like social payments for wounded soldiers and construction work in occupied Ukraine.
While it is likely the case that much of this money is spent inefficiently and lost to corruption, the increase in production of military equipment is significant. According to the Russian business publication The Bell, in 2017, rates of daily car production were comparable to “other vehicles and equipment," which includes military vehicles and drones. After the war started, "other" has far outpaced car production. Official production categories like “electronics and optics” and “finished metal items,” which include weapons and ammunition, are rapidly rising, while production in the mostly civilian “glass and building materials” has yet to reach pre-February 2022 levels.
The wartime economic mobilization has made death profitable. The Warsaw-based Russian economist Vladislav Inozemtsev argued that death benefits for soldiers have turned casualties into a rational choice. He wrote in July: "If a man goes to war and dies at the age of 30 to 35 (i.e. at the most active age and best health status), his death will be more economically profitable than his further life." While Russia sustains heavy losses at the front, close to the rate at which it is generating new forces, those losses perversely have turned into economic benefits.
Wartime economics could eventually lead to high inflation and a drop in living standards; however, given the dire economic predictions at the beginning of the war, Russia has managed better than expected. Biden claimed in April 2022 that sanctions were "devastating the [Russian] economy and their ability to move forward." The war economy has mostly weathered them. Russia has been able to use so-called gray imports to bring in Western electronics and parts via countries like Armenia, Turkey, and Kazakhstan, albeit at a higher cost, with less reliability, and lower quality. (Some civilian goods like parts for Western-made airplanes have had real shortages: one Russian airline has grounded nearly 20 percent of its fleet.) Despite sanctions, according to analysts from re:Russia, Russia earned $590 billion in 2022 from exports, much of it from oil and gas, 80 percent of which was exported to China and India. Although in 2023, the analysts expect exports to decrease significantly to $460 billion, that's still above the 10-year average of $425 billion. In short, the war is more or less covered because of the worldwide increase in the price of oil and gas since the COVID-19 pandemic.
Sanctions have been a manageable consequence for Russia, while U.S. and European aid has kept Moscow from achieving its goal of fully conquering Ukraine. Russia's wartime budget shows that Putin has no interest in peace talks: even if Russia were to agree to a cease-fire, it could use all of the money earmarked for its defense budget to replenish its military supplies for a further advance. Massive war spending inevitably will lead to inflation, while ending the war spending would almost certainly cause a recession and widespread unemployment. Aid to Ukraine for rich economies like the United States and the European Union requires none of the economic or personal sacrifices that Putin has thrust on his people -- yet, not doing it would send a message to Putin that he could attack a NATO member, and that the West wouldn't do anything about it.
Public Sphere is 100% supported by readers like you. Each of these posts takes hours to research and write; if you find this post useful, consider paying for it. To receive new posts, consider becoming a free or paid subscriber.