War in Ukraine: the reality that Vladimir Putin is trying to hide

War in Ukraine: the reality that Vladimir Putin is trying to hide
War in Ukraine: the reality that Vladimir Putin is trying to hide

Reading time: 7 minutes

On the Ukrainian front, the situation seems to be blocked again. After the failure of kyiv’s counter-offensive in the summer of 2023, then the stalemate and the new Russian offensive in the Kharkiv region (northeast of Ukraine), it seems that we are off to a new start. status quo. While Russia awaited the exhaustion of its adversary in men and equipment, the United States Congress voted to return military aid of 61 billion dollars on April 20. In addition, President Volodymyr Zelensky lowered the conscription age from 27 to 25 and the Ukrainian Parliament validated the fact that the army can use prisoners, under certain conditions.

At the same time, Russian President Vladimir Putin was reshuffling theestablishment politico-military. On May 12, Defense Minister Sergei Shoigu was replaced by Andrei Belousov and transferred to the post of Secretary of the Security Council. In a game of musical chairs, Nikolai Patrushev (former secretary of the Security Council of Russia) and Alexei Dioumin (new secretary of the State Council) become the president’s personal advisors. While, for the moment, Valeri Guerassimov remains the chief of staff of the Russian armed forces.

Although the defense budget continues to increase, everyone is waiting for a tax reform aimed at increasing Russian state revenues in order to finance the war effort. The message of the “reshuffle” is clear: to win in the long term, we must prepare Russia for the war economy. However, Vladimir Putin cannot win this war in Ukraine. He does not have the economic means.

The Russian economy has already paid a huge price for the war in Ukraine

The human cost first. Although estimates vary greatly, figures ranging between 300,000 and 450,000 Russian soldiers dead or wounded (including at least 50,000 soldiers killed and identified) since the start of the conflict are regularly put forward. Furthermore, according to the British Ministry of Defense, the number of losses would tend to increase. It is now estimated at 1,000 to 1,200 Russian soldiers dead or wounded per day, the highest average since the start of the war in February 2022, according to British intelligence.

As for Russia’s material losses, they are still difficult to assess. Also according to the British Ministry of Defense, in estimates made public on April 27, the Russian army lost at least 10,000 armored vehicles, including nearly 3,000 battle tanks (roughly fifteen times the entire French fleet!) , 109 planes, 136 helicopters, 346 drones, 23 warships of all classes and more than 1,500 artillery pieces of all types.

To deal with the situation, Russia has stepped up its initiatives. First, in order to circumvent Western sanctions, a real parallel economy was set up. Thus, the Sea of ​​Azov has become a hot spot for smuggling – primarily Russian oil and electronic components.

Then, since April, a purge began within the Ministry of Defense. The objective is to curb endemic corruption and prepare the country for a real war economy. From the beginning, we have been told that time works in favor of Vladimir Putin as it did in favor of Alexander I (emperor between 1801 and 1825) and Joseph Stalin. The problem is, that’s not true.

Russia’s economic problems are much worse than they seem

Compared to 2021, Russia will have tripled its military spending. The estimated budget for defense and security was 3.9% of gross domestic product (GDP) in 2023, compared to 2.7% in 2021, and around 6% in 2024, which would represent between 30 and 40% of state expenditure.

But this image of a Russia moving into a “war economy” obscures reality. Russia’s gross national product (GNP) roughly corresponds to the Belgian and Dutch GNP combined, for a population of almost 146 million people compared to 30 million for Belgium and the Netherlands combined. Russia is therefore a poor country, whose economy depends above all on the production and reserves of gas and oil. If the sanctions did not bring it to its knees, due in particular to the propensity of non-Western or even Western actors to circumvent them (Germany, Greece, etc.), they still had a significant impact on it.

First, there was the failed gamble of the Kremlin which did not think that European governments would have the “courage” to do without Russian gas. As a result, the price of gas fell significantly in 2023 compared to the increases in 2022 (40% of European gas came from Russia before the war, compared to 15% at the end of 2023). However, the price of a barrel of Ural crude remained at very high levels (it never fell below $55 per barrel). But the result is that Russia’s trade surplus would be 50 billion dollars in 2023, compared to 238 billion in 2022. Inflation has just passed 8% in May, the Central Bank’s key rate of Russia is at 16%, which naturally hurts private sector investment.

Isolated from the international financial system controlled by the West, Russia’s debt capacity is very limited or non-existent. Who will lend him? In conclusion, with high inflation, prohibitive interest rates, zero or almost zero debt capacity, Russia is reduced to bartering (arms for access to high military technology with Iran and the North Korea) and to draw on its sovereign fund, the Russian “nest egg” intended in theory for the retirements of an aging population.

However, at first glance, the fund would be generally stable, or even slightly increasing, and amounts to 141.5 billion dollars as of June 1. But this would be the product of accounting sleight of hand. According to the online media Business Insider, which cites the Bloomberg agency, 44% of the fund’s liquidity has disappeared. And it is cash that counts, not shares of Russian companies, the value of which is hard to estimate. At this rate, according to Bloomberg, Russia would have one or two years before finding itself (who knows?) in default of payments.

Russia draws on the sovereign wealth fund… and on Soviet weapons stocks

The Kremlin was so convinced of victory at the start of its “special military operation” that it committed its most modern equipment and its best troops. The goal was not only to decapitate the government of Volodymyr Zelensky and subdue Ukraine, then attack Moldova, Georgia and the Baltics, but also to demonstrate to the world that Russia was back among the greatest powers.

The consequences of this monumental error were enormous losses in modern equipment, from T-72B3M, T-80BVM and T-90 tanks, for example, to state-of-the-art armored vehicles. As a result, since 2022, the Russian Defense Ministry has reportedly mobilized 40% of Soviet tanks and armored personnel carriers, which were waiting at the main equipment base located in Buryatia (Russian Far East).

Furthermore, according to February 2024 estimates from the Royal United Services Institute (RUSI), a British think tank specializing in defense and security, around 80% of the monthly production of equipment (tanks, armored vehicles, etc.) would be in reality of vehicles dating from the Soviet era which would have been modernized and reactivated.

As for missiles, Russia remains dependent on Western electronic components, hence the increase in smuggling cases. And even the production of munitions suffers from deficiencies. Still according to RUSI, the Russian arms industry is struggling to meet specifications. In the meantime, the Ministry of Defense must once again draw on the stocks of the former USSR, estimated at three million shells. In summary, Soviet stocks are being exhausted faster than the industrial capacity to replace them with modern equipment. This is therefore an untenable situation in the long term.

What are the Kremlin’s options for breaking the deadlock?

How can we wage war against a country with a population and an army three times smaller, but which has enormous financial and military support (that of the United States and the European Union, among others), when we run a country on the (financial) ban of nations and suffering from industrial disinvestment, an obsolete production system, serious labor problems (a million Russians, most of the time young and well trained, have left the country in 2022 and 2023), a country whose economy depends almost exclusively on the price of hydrocarbons and which is reduced to calling on Iran and North Korea to meet part of its military needs? This is the situation that the Kremlin is absolutely trying to hide from us. Faced with this, President Vladimir Putin has several options.

First of all, there is Chinese financing. Beijing could finance part of the Russian military effort, invest in the Russian economy, buy company assets, or even establish itself in the energy sector. This seems unlikely. The Chinese are very afraid of American sanctions which could have a negative effect on their economy and their trade balance and thus slow down their rise in military power, an instrument of their ultimate strategic objective, the return to “pax sinica” in Asia. Peaceful.

Ensuite, the price of oil. All it would take is for the price of a barrel of crude to soar. Suddenly, Russian revenues would increase mathematically, replenishing the sovereign wealth fund and making it possible to modernize an obsolete production tool. However, given the number of disasters and wars in recent years, the markets tend to keep their cool… However, nothing is impossible: a war between Iran and Israel, a slowdown in Saudi production, a a major terrorist attack in a Western capital or even the assassination of a head of state would suit the Kremlin.

Then there is the option of the re-Sovietization of the country. With a production system that must be modernized, labor problems and no debt capacity, Vladimir Putin could be tempted to completely renationalize the Russian economy. Failing to regain the greatness of the Soviet Union, it could resurrect its moribund economic model.

Finally, interference in elections in the United States or European countries. This is the crux of hybrid warfare. We can speak of direct interference (2016 American presidential election, Brexit, etc.), indirect (migratory crises) or even more indirect (takeover of French-speaking African countries by mercenaries causing anarchy and therefore acceleration of the migration crisis). Anything that raises the extreme right in Europe, or even the extreme left, is Vladimir Putin’s business. With the dissolution of the National Assembly pronounced by Emmanuel Macron in France, we expect an unleashing of Russian trolls and their allies, Iranian, Azerbaijani and others, to influence the national election on June 30 and July 7.

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