One may easily come to a conclusion that might be difficult to accept for all those who are suffering today from Putin’s aggression in Ukraine, who are helping to resist it as a part of the Free World, or who — both in Russia and among the Russian diaspora — are hoping for a collapse of Putinism due to economic difficulties: it’s impossible to imagine a scenario in which the Russian economy falls into crisis of such a magnitude that it would force Vladimir Putin to change his policy.
The story of Putin’s Russia shows that war — the extreme embodiment of an emergency — is not an accidental episode in its history, but a natural result that it has arrived at. Throughout the years of his rule, the Kremlin leader sought to abolish any checks and balances on his own will — and it was the “special military operation” that fully realized these desires. War allows one to rule the country in an emergency regime for as long as one wants, and to determine and establish the boundaries of this emergency at one’s own discretion. The war is going on, but it has not been formally declared, and so the Kremlin may assume maximum powers while avoiding any responsibilities. The laws abolishing basic civil liberties can be passed in a few days; any assets can be redistributed and economic statistics classified according to Putin’s wishes without any constraint.
Of course, the war is not only the perfect manifestation of dictatorship, but also carries with it quite obvious risks. Most probably, the Kremlin was unaware about how long the planned short-term adventure could drag on and what price the country would have to pay for it. That is why neither the army nor the Russian economy were prepared for it. However, after the shock caused by the first wave of sanctions1, the Russian authorities managed to stabilize the macroeconomic situation, and the increase in military spending since mid-2022 has created growth opportunities in the economy which, combined with the energy of business that felt a sharp decrease in competition due to the departure of Western companies, launched a powerful upward trend by the end of that year. Later, in 2023- 2024, the war began to be perceived as some background process not only in the public consciousness, but also in business calculations. Military spending became a powerful lever for aggregate demand growth; the challenges of the first months of the war caused by sanctions ceased to be insurmountable; and the ways to bypass them turned out to be extremely diverse and reliable. During 2023, a set of mechanisms emerged that allowed the “war economy” to deliver impressive results, and in 2024 it showed itself even better. Such a reaction of the economy to the war does not seem to be abnormal: in warring countries — especially in those whose territory is almost untouched by the fight — militarization may not provoke serious problems for quite a long time. The conclusions that can be made from the assessment of the current state of the Russian economy come down to three main statements.
1 — The shock caused by the war appeared rather short because, on the one hand, a quick response by the Russian authorities to the wave of financial sanctions that created the foundations of a new design for the economic system, and, on the other hand, it took too long for the Western countries to prepare for the adoption of “oil” sanctions — they were approved only in June and came into force in December, giving the Russian authorities and businesses enough time for inventing mechanisms to counter them.
First, by the end of 2024, the Russian authorities had lost any fear of negative economic trends that could develop in connection with the war. In 2024, the government determined both the sources of economic growth and budget revenues, as well as possible options for saving resources that do not undermine either political or social stability. The budget for 2025 and for the next few years provides a clear signal that the Kremlin is ready for a prolonged confrontation with the West while maintaining the current level of military spending — and, most likely, is rationally assessing its capabilities. Even if the Russian authorities do not consider the current situation optimal, they have no doubts about their victory. This is precisely why they put forward such preconditions for the start of peace talks that are unacceptable for the Ukrainian side, why they deliver militaristic economic priorities for 2025-2027, and why a new increase in the number of servicemen in the Russian army was recently announced. Thus, Vladimir Putin demonstrates that from his point of view, military burden on the Russian economy looks moderate, and economic factors are not too significant for making political decisions. The economy allows the Kremlin to fight despite the fact that the Russian population becomes increasingly favorable to the option of brokering some peaceful solution to the “Ukrainian issue” in the foreseeable future.
Second, the scale and nature of the changes that have occurred in the Russian economy make one believe that the end of full-scale hostilities will not restore a pre-war “normality”. More than ten years ago, when Vladimir Putin finally abandoned attempts to integrate his country into the global “golden billion” and turned toward military resolutions of geopolitical problems, the Russian economy has changed radically. Today it looks fully accustomed to a high degree of autarky and to a break in ties with the most developed part of the global world; it is dependent on military spending, which has more than doubled as a share of GDP; almost all the most “globalized” representatives of the entrepreneurial class are effectively “put under house arrest” in Russia; property rights have largely been nullified and are determined exclusively by Putin’s decisions; the purchase and sale of human life for “disposal” has become a normal phenomenon that does not contradict the new public morality. Aspects of society’s life related to education and the formation of value systems have changed significantly. This suggests that even if the war stops, the new Russian militarism will not disappear — and moreover, it will likely even strengthen under the influence of propaganda triumphantly describing Russia’s “great military victory”. Some reduction in military spending after the end of hostilities, that might include a sharp decrease in death gratuities and injury compensations, could bring the overall military allocations down from 6.5 to 5-5.5 percent of GDP, but this will make the budget more robust and provide the Kremlin with additional opportunities. After some intermission, military spending may grow again — the economy looks ready to support the existing system and there is no reason to believe that Russia will collapse from its militarism. Without a regime change, Russia will not turn back into “a normal country.”
Thirdly, and this follows from what has been already stated, the world must be prepared if not for a new Cold War, then for a long confrontation with one of its largest economies, which has actually openly declared that it doesn’t want to respect the basic principles of international law and at the same time cannot be effectively stopped by military or economic measures. Russia today has a multi-year “safety margin” allowing its elites to pursue a policy of, if not permanent war, then at least aggravating militarization, threatening the world with military and hybrid conflicts. It’s hard to predict the trajectory of events for a longer period, since by that time the economic and technological situation in Russia and in the world could change radically (e.g., global consumption of oil and other commodities, on which Russia’s well-being depends, could fall sharply) — however, within the specified period, it is difficult to believe in a change in established trends. One of the reasons for this is the attitude of Russian citizens toward the current militarist policy which is determined not only — and perhaps not so much — by the success of Putin’s propaganda, but by financial considerations generated by the contrast clearly visible between the economic situation in 2010-2021 and during the time of the “special military operation”. Recent economic growth in Russia has replaced a period of extremely long stagnation with elements of crisis, during which real disposable incomes slowly declined. During this period, a significant part of society practically lost hope for an increase in its well-being, and the main hope was placed on maintaining of the notorious stability (according to the wish “it couldn’t get any worse”). The visible improvement in the economic situation felt by a large part of the population (without it getting worse for a significant number of Russian families) against the background of the aggravated “geopolitical tensions” looks like a miracle — and this means that in the near future, Russian society will not generate demands for change, and the authorities will be able to use the country’s vast human and natural resources at their own discretion.
