Will Putin Allow Russia's Economy to Collapse Before Acknowledging Ukraine Defeat?

 

Putin's dogged pursuit of an unattainable victory over Ukraine is like a ship sailing full speed into an iceberg, heedless of the impending disaster. The reckoning for his leadership may be on the horizon, as his policies of aggression and economic mismanagement push Russia ever closer to a breaking point.

In the midst of Ukrainian forces achieving significant victories and causing turmoil within the Kremlin, Vladimir Putin has shifted his attention towards the economic challenges within his own country. The ongoing attrition of Russian soldiers and military equipment has prompted the Russian government to announce a substantial increase in the defense budget for the upcoming year, a move that triples the budget compared to 2021.

Yet, Putin faces a daunting task in securing the funds required for this ambitious military budget. Western sanctions have taken a toll on Russia's economy, leaving the Russian leader with limited options. To bridge this financial gap, the Russian government is considering a range of measures, some of which will directly impact the lives of ordinary Russian citizens and the operations of foreign companies still doing business in the country, despite the increasingly tense international situation.

One of these proposed measures involves a significant threefold increase in taxes on alcohol and tobacco products, which will likely lead to higher prices for these goods and affect consumers' budgets. Additionally, utility prices are expected to rise, further squeezing the finances of Russian households. Furthermore, approximately $7.9 billion in "social contributions," which were previously waived for many Russian companies starting in 2022, are now on the table for reinstatement, adding to the financial challenges faced by businesses.

Meanwhile, Western companies that have chosen to continue their operations in Russia find themselves in a precarious situation. They will be required to contribute approximately $1.22 billion in taxes from their Russian activities, although this figure is expected to decrease as these companies face growing pressure to exit the Russian market. For those that decide to remain, they will be asked to make a "voluntary donation" equivalent to 15 percent of the value of their business interests in the country, adding yet another financial burden.

As Putin grapples with the economic consequences of Western sanctions and the rising costs of the conflict in Ukraine, these measures aimed at generating funds for the defense budget are likely to have real-life repercussions, impacting the everyday lives of Russian citizens and the financial viability of foreign companies operating in the country.

From Roubles to Rubble

The current situation in Moscow is an unmistakable sign of severe financial stress, highlighting the desperation that has driven the Russian government to take extreme measures. Gathering accurate and verifiable data about the Russian economy has always been a formidable challenge, given the pervasive use of optimistic assertions and outright deception in official reports, which serve to inflate the numbers and create an illusion of stability. Undeniably, Vladimir Putin's regime is grappling with a shortage of funds, exacerbated by the unsustainable costs of his illegal war in Ukraine. While China, under the leadership of Xi Jinping, has extended a helping hand to Russia, providing essential support to keep its economy afloat, it is becoming increasingly evident that even a Moscow wholly reliant on Beijing's generosity cannot sustain this reliance indefinitely.

The formerly robust and seemingly unbreakable "friendship without limits" that characterized the relationship between Russia and China has encountered unprecedented challenges as a result of Vladimir Putin's ongoing military campaign in Ukraine. As this campaign encounters setbacks and difficulties, it places immense strain on the bilateral ties between the two nations. Furthermore, Putin's persistent insistence on securing additional financial resources to compensate for the mounting losses incurred during the Ukrainian conflict further exacerbates the tensions within the partnership.

These circumstances have given rise to a complex and multifaceted situation that is gradually eroding the once-solid foundation of Russo-Chinese cooperation. The narrowing range of options available to Putin in the face of international backlash and domestic discontent has compelled him to take increasingly desperate measures to maintain his grip on power and project strength on the global stage.

Putin's intensification of pressure on his own populace is indicative of the precarious position he finds himself in. As the military campaign in Ukraine stalls and international sanctions bite deeper, his leadership faces growing challenges from within Russia. This has led to a crackdown on dissent, curtailment of civil liberties, and a tightening grip on the media, all of which are aimed at quelling any opposition and maintaining a semblance of control. Not only that,  the strain in the Russia-China relationship is not limited to the geopolitical realm. Economic ties between the two nations, which were once flourishing, are now threatened as Russia's financial demands and its economic isolation create uncertainty for Chinese investments in the region. Beijing is left in a difficult position as it navigates its partnership with Moscow while attempting to safeguard its own economic interests and global reputation.

It is very obvious that the conflict in Ukraine has evolved significantly from its initial stages when tanks rolled south from Belarus and west from Rostock, marking what was anticipated to be a swift and effortless victory. Instead, it has devolved into a protracted war of attrition. With the approaching winter, Russian citizens find themselves hunkering down, while Ukraine escalates cross-border attacks on Russian military infrastructure and population centers, effectively bringing the war to Moscow's doorstep.

The domestic mood in Russia is unlikely to improve, especially in the face of a series of punitive tax increases aimed at funding a military that has consistently underperformed on the battlefield. Even if the Kremlin manages to augment its defense budget in the coming year, the state of the Russian defense industry is ill-prepared to rapidly increase production to the extent required for a Moscow-led counter-offensive. Many vital resources remain out of reach due to Moscow's international blacklisting.

Vladimir Putin's unwavering determination to pursue an unattainable victory at the cost of his nation's well-being has become alarmingly evident. The devastating toll of his decisions is no longer confined to the economic sphere, as it reverberates across multiple fronts. His aggressive military campaigns have severely weakened Russia's armed forces, drained precious resources, and incurred heavy casualties, undermining the very pillars of national security. Simultaneously, his reckless policies have plunged the Russian economy into a state of dire bankruptcy, leaving the population grappling with skyrocketing inflation, crumbling infrastructure, and dwindling prospects for a better future.

As the hardships imposed by Putin's choices continue to mount, the once-steadfast support from the Russian populace is beginning to erode. The people, who have endured years of economic hardship and the sacrifices of a protracted and futile war, can no longer ignore the stark contrast between the government's promises and the grim reality they face daily. It is only a matter of time before the collective frustration, dissatisfaction, and anger reach a tipping point, potentially leading to widespread unrest and calls for change. The reckoning for Putin's leadership may be on the horizon, as his policies of aggression and economic mismanagement push Russia ever closer to a breaking point.