Wars are good for no one. And for the Russian economy, the Ukraine invasion is turning out to be a death sentence.
How much do you think the war in Ukraine costing Russia per day?
According to the reports, Russia is spending a jaw-dropping $20 billion every day on the Ukraine war. To put it in context, this figure represents the national GDP of countries like Luxembourg, Slovenia and Oman.
Worse, the economic sanctions imposed by more than half of the world against Russia makes the matter more problematic. This multi-billion dollar figure only represents the military cost of the war. The domestic economy of the country and the global economy that was already wounded by the pandemic, are facing the most catastrophic consequences in decades.
An obvious question crosses the mind- how in the world is Putin paying such an overwhelming cost for the war? Was the Russian economy prepared for the event or was Putin secretly cooking the finances for Ukraine’s invasion for years?
Here are your answers:
How Is Putin Financing War In Ukraine?
The West Underestimated Russian Economy
Reports surrounding the Russian economy since decades, have been labeling it as a Retreating Economy. Rampant corruption in the country has been touted as the major reason for the same. The West has always believed that the technological innovation of the country is challenged by bureaucratic mismanagement, lack of talent and state-controlled corrupt enterprises.
To put the pre-war comparison in context, Russian GDP stood at $1.7 trillion while NATO’s GDP amounts to $18.3 trillion.
Breakdown of USSR has often been identified as the irreversible turning point of Russia’s economic prosperity. The country’s economy has grown by just 2% since 1991 while the average inflation has osccilated around 8%.
Much of Russia’s economic prosperity depends on the export of natural resources that are present in abundance.
This is the reason why analysts have often predicted that Putin administration might not be able to continue its aggresive foreign policies for very long. The reason being- the resource cruch.
West Missed Out On Something Significant — Putin’s Huge War Chest
The war in Ukraine has made one thing clear — West highly underestimated the financial status of Russia. Neither the aggresive foreign policies exhibit any sign of assuage, nor the war is unaffordable for the nation. In fact, Putin appears to be easily financing war in Ukraine.
The biggest reason why Russia is able to afford the multi-billion dollar war in Ukraine is the war chest prepared by Putin since years.
Keeping aside the straightforward tools of economic comparisons, the GDP of Russia in terms of Purchasing Power Parity amounts to $4.1 trillion. This is the second largest figure in Europe and globally, sixth.
Data shows that Russia might have started preparing for the war finances in 2014 after the consequences of Crimea annexation. This was the time when the country faced international sanctions, which can now rightly be called a trailer of 2022. In response, the Russian government generated budget surplus through discounted oil prices and reduced spending.
Putin administration was also quick to respond to sanctions with reformed export policies that led to massive boost in the wheat production of the country. The agricultural exports of Russia have now reached to an all time high of $30 billion per year. The country is reponsible for a whopping 40% of global wheat production.
In anticipation of more such sanctions from West, Putin was also swift in diverting majority of the trade dependency from West to China. The two nations are now the biggest trading partners
West really underestimated the Russian economy. It failed to assess that Moscow’s economy is quite different from that of other sanctioned nations like Iran. It is highly self-sufficient- whether in agricultural output, natural resources, IT sector or world-class aerospace industry.
Putin was well-prepared for financial sanctions
Putin has tasted sanctions in 2014 after Crimea annexation. And therefore, it was naive of West to think that the country would not be prepared for the same again if it wages a war against a soveriegn nation.
Take, for example, the Central Banks of Russia that hold record level of reserves. According to data, Russia currently is in possession of $640 billion of reserves that are equivalent to export revenue for 17 months for the nation.
You might be thinking that the since much of international trade has been banned for the country, it makes the multi-billion dollar figure waster. Not really. Russia was prepared for this too.
Out of the total foreign reserves of Russia, $300 billion is in the form of gold which is 22% of the total amount. Only 16% of this reserve in form of dollars. 32% is the form of Euro, 13% Yuan, 6.5% British Pound, and 10% in other global currencies.
This chart below shows the largest holders of Russian central bank foreign currency and gold reserves, by geographical distribution.
You will find more infographics at Statista
Apart from trade, these Reserves are also a way to support Russian oligarchs in case of international boycott. The Reserves in the form of oil and natural gases are also a source to stop the freefall of Ruble in the international market.
And let’s not forget, West has itself helped Putin in financing the war in Ukraine
It is no secret that European nations are highly dependent on Russia for multiple resources. Despite the glimpse of Putin’s sinister ambitions in 2014, the gas exports from Russia to European countries increased from 37% to 47% since 2014.
While this enough to tell how EU never cared about analysing the broader picture, it is not all.
Here is the biggest example of Europe’s ultimate failure against Russian ambitions- the war in Ukraine technically began on Feb 24, 2022. Surprisingly, West paid $500 million to Russia on the same day. The figure is daily average of the amount that EU, the US and the UK pay Russia for purchase of energy.
While the West might be acting as the Good Samaritan now,- the crusader against evil ambitions of Putin, but the truth is, they too have blood on their hands.
