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Japan Times
4 days ago
- Business
- Japan Times
Stagflation is hitting Russia's war economy
The Russian economy is not collapsing, but it is stagnant and suffering high inflation. And this economic decline could be a tipping point, because Russia may run out of liquid reserves, prompting the Kremlin to cut public expenditures. For months, Russia's official inflation rate has hovered around 10%. In June, the Central Bank of Russia boasted that the rate had fallen to 9.4%; but it then dampened the celebration by reporting that expectations for inflation one year from now are 13% (which may well be the actual inflation rate today). Yet, on July 25, the central bank dared to cut its very high interest rate, which has weakened growth and caused a severe credit crunch, from 20% to 18%. True, Russia's economy appeared surprisingly dynamic in 2023 and 2024 with the official growth rate reaching 4% each year. But this was largely because the Russian government revived dormant Soviet military enterprises beyond the Ural Mountains. Moreover, real growth figures may have been exaggerated because some inflation was hidden by state-owned enterprises selling their goods to the state at administered prices. In any case, official growth has fallen this year, probably to 1.4% in the first half of 2025. Since October 2024, the Kremlin itself has begun to report that Russia is experiencing stagflation — a message that was reinforced at the annual St. Petersburg International Economic Forum in June. Improvement is unlikely. The country's financial reserves are running out, energy revenues are declining and there are increasingly severe shortages of labor and imported technology. All are linked to the war and Western sanctions. Since 2022, Russia has had an annual budget deficit of about 2% of gross domestic product, implying that it needs $40 billion each year to close the gap. But owing to Western financial sanctions, Russia has had virtually no access to international financing since 2014. Not even China dares to finance the Russian state openly for fear of secondary sanctions. (Indeed, two small Chinese banks were just sanctioned by the European Union for such sins.) So, Russia must make do with the liquid financial resources held in its National Wealth Fund. Having fallen from $135 billion in January 2022 to $35 billion by May 2025, these are set to run out in the second half of this year. Traditionally, half of Russia's federal revenues have come from energy exports, which used to account for two-thirds of its total exports. But in the face of Western sanctions, Russian total exports have slumped, falling by 27% from $592 billion to $433 billion between 2022 and 2024. The federal budget for 2025 assumed an oil price of $70 per barrel, but oil is now hovering closer to the Western price cap of $60 per barrel, and the EU has just set a ceiling of $47.6 per barrel for the Russian oil that it still purchases. In addition, the West has sanctioned nearly 600 Russian 'shadow fleet' tankers, which will reduce Russian federal revenues by at least 1% of GDP. Against this backdrop, the Kremlin has announced that while it intends to spend 37% of its federal budget — $195 billion (7.2% of GDP) — on national defense and security this year, it must cut federal expenditures from 20% of GDP to about 17%. But since the government has already cut non-military expenditures to a minimum, it claims that it will reduce its military expenditures by some unspecified amount in 2026. Reducing military expenditures at the height of a war is rarely an auspicious signal. As the commentator Igor Sushko points out, 'The Confederacy did this in 1863-1865 (American Civil War), Germany in 1917-1918 (WWI), Japan in 1944-1945 (WWII),' and the outcome every time was 'total military defeat.' Of course, actual economic strength is not the issue. Ukraine spends about $100 billion per year on its defense, which amounts to 50% of its GDP; but no one bothers to question this because for Ukrainians, the war is existential. Ukraine would not survive if the war was lost. By contrast, Russia spends only 7% of its GDP on the war, but this is a war of Putin's choice. It is not existential for Russia, only for Putin. If he had a popular mandate, Russia could spend much more on the war. But he apparently does not think his popularity could withstand devoting much more of the budget to the effort. Meanwhile, it is increasingly clear that something else is rotten in Russia beside the economy. Russia has fallen to 154th place out of 180 countries on Transparency International's authoritative Corruption Perceptions Index, while Ukraine is in 105th place. Since the start of the war, a dozen or so senior Russian energy managers have fallen out of windows. And more recently, former Deputy Defense Minister Timur Ivanov was sentenced to no less than 13 years in prison for corruption; Transportation Minister Roman Starovoit allegedly committed suicide just hours after Putin fired him; and a gold-mining billionaire was arrested and his company was nationalized to help the treasury. These were high officials. Ivanov was a top protege to former Defense Minister Sergei Shoigu, and Starovoit was the right-hand man of Putin's close friend Arkady Rotenberg. Such developments are clear signs of Russia's economic instability. Compounding the financial pain is an extreme labor shortage, especially of qualified workers. Officially, unemployment stands at only 2%, but that is partly because many Russians have left. Since the start of the war, and especially after Putin attempted a minor mobilization in 2022, approximately 1 million people fled the country, including many young well-educated men. He has not dared to pursue another mobilization since. Now, labor scarcities are holding back production and driving up wages while Western export controls limit Russia's supply of high-tech goods (though Chinese supplies have mitigated the impact). Russia's economy is fast approaching a fiscal crunch that will encumber its war effort. Though that may not be enough to compel Putin to seek peace, it does suggest that the walls are closing in on him. Anders Aslund is the author of "Russia's Crony Capitalism: The Path from Market Economy to Kleptocracy" (Yale University Press, 2019). © Project Syndicate, 2025
Spectator
30-06-2025
- Business
- Spectator
Will Putin really reign in Russia's defence spending?
At the very time when those warmongering Nato nations are pledging to raise their defence spending substantially, that doveish peacenik Vladimir Putin is promising to reduce his. It's hard to know which of these two commitments is less plausible, but those anticipating the cranking down of the Russian war economy any time soon are going to have to wait rather longer. At the recent St Petersburg International Economic Forum (SPIEF), Putin said that: We are planning to reduce defence spending. For next year and the year after that and so on – for the next three years – we are planning to do so, although there is not yet a final agreement between the Ministry of Defence, the Ministry of Finance and the Ministry of Economic Development, but overall everyone is thinking in that direction. The real risk for Putin is of prolonged economic decline, recession and stagflation In part, this was a response to the decision at last week's Nato summit to commit alliance members to a planned 5 per cent spend on defence. Of course, this is only a target and – just as not all members hit the previous 2 per cent figure – most will only slowly, if ever, reach this level. Spain, for example, has incurred the wrath of Donald Trump by already opting out, with Prime Minister Pedro Sánchez saying that 2.1 per cent is 'sufficient and realistic'. Besides, Nato's new target is not really 5 per cent, but rather 3.5 per cent on core defence spending and 1.5 per cent on related line items. As this can include everything from Ukraine aid to fixing transport infrastructure (wouldn't it be wonderful if Britain's potholes could be filled in the name of defence as a result?), it is essentially meaningless. Nonetheless, some Russian propaganda has been juxtaposing the Nato decision with Putin's words to present him as the dove, especially to the Global South, which was something of a focus of the increasingly-marginal SPIEF. More important, though, have been the warning signs within the Russian economy. Although certainly no Communist, Putin has often held an almost Bolshevik line on the economy: that somehow market forces ought to be able to be made to bend to indomitable political will. This works no better in the mid 2020s than it did in the late 1910s. Even technocrats, generally excluded from Putin's innermost circle and expected to shut up and get on with keeping the engines of the ship of state turning, have begun breaking cover. Minister of Economic Development Maxim Reshetnikov warned that Russia was already 'on the verge' of economic recession, while Elvira Nabiullina, the highly capable governor of the Central Bank, made it clear that previous 4 per cent economic growth reflected not just defence spending but the take-up of idle industrial capacity and that it would not continue. Of late, Nabiullina has come under growing political attack from the hawks for her 'pessimism', but now hers is no longer an isolated voice of caution. Alexander Shokhin, chair of the Russian Union of Industrialists and Entrepreneurs, has frankly admitted that many companies are on the verge of default. Even the oligarch Arkady Rotenberg, one of Putin's closest childhood friends, has obliquely criticised the impact of the war and sanctions as businesses struggle with the high interest rates necessitated by the need to control inflation. Putin has tried to dispel this talk with his usual mix of confidence and implied threat: 'Some specialists and experts are pointing to the risks of stagnation or even a recession. This, of course, must not be allowed to happen under any circumstances.' Nonetheless, while it is questionable whether the defence budget is likely to be reduced at all while the war in Ukraine still wages – and even after, it will by necessity remain high as Russia rebuilds its ravaged armed forces – his words at SPIEF do suggest a belated awareness that there are serious economic risks and long-term consequences. These risks and consequences are not, though, enough in and of themselves to force Putin to end the war. When Russia is doing well in the war, the call from Kyiv and its Western supporters is for more sanctions to turn the tide; when it is doing badly, it is for more sanctions to finish the job. The truth of the matter is that while sanctions are working in imposing extra costs on the Russian war economy, neither they, nor the impact of the conflict, are going to 'crash' the system. The real risk for Putin is of prolonged economic decline, recession and stagflation. The challenge is that this will force Putin to make the hard guns versus butter decisions he has so far largely dodged. Of course, he will choose guns, and this runs the risk of deepening public and elite discontent. The economic technocrats, after all, are not the only ones who are sounding warnings – those in law enforcement are too. Interior Minister Kolokoltsev, a career police officer, is admitting that his force is now heavily understrength. Prosecutor General Krasnov, who made his reputation as a skilled investigator, is reporting that corruption cases have risen by 25 per cent since the same quarter last year. These are no dissidents, but insiders trying to warn the monarch of stresses on the system. Putin may at least be hearing them, but considering that he still seems committed to his war, can he offer more than empty promises in return?
Qatar Tribune
26-06-2025
- Politics
- Qatar Tribune
Russian advance in Sumy halted: Ukrainian commander
Kiev: Ukrainian forces have halted the Russian offensive in the Sumy border region in north-eastern Ukraine, Ukrainian Commander-in-Chief Oleksandr Syrskyi posted on Telegram on Thursday. 'The advance by Russian troops in the border area of the Sumy region has been halted and the battle contact line stabilized,' Syrskyi said. Ukrainian forces had recovered territory previously lost to the Russian forces, he added. Russian forces had made incursions into Sumy after recovering parts of the Kursk region in western Russian from the Ukrainians. The region is seen as the main line of advance in Russia's summer offensive, with large numbers of troops engaged. Russian President Vladimir Putin ordered the creation of a buffer zone within Ukraine and did not rule out seizing the regional capital of Sumy at the recent St Petersburg International Economic Forum. Russian forces are still some 20 kilometres from the city, where they have become bogged down, according to observers. Syrskyi posted that Ukrainian fortifications in the region were being extended. Coordination with the local authorities would also be improved, he said.
The Citizen
26-06-2025
- Politics
- The Citizen
Anton Kobyakov: The quiet power behind Putin's Russia
Kobyakov, Putin's trusted advisor, shapes Russia's future from behind the scenes with sharp intellect and calm conviction. Anton Kobyakov, Russian presidential adviser, executive secretary of the Organising Committee for Russia's SCO Presidency in 2014-2015 and Russia's BRICS Presidency in 2015-2016 at the briefing for organisational aspects of hosting the SCO and BRICSD summits on July 07, 2015 in Ufa, Russia. (Photo by Host Photo Agency/Ria Novosti via Getty Images) Anton Kobyakov – remember the name. He is a soft-spoken, erudite and affable Russian politician who serves as a special advisor to Russian President Vladimir Putin. He also serves on the highest echelons of Roscongress, a state-owned enterprise responsible for various strategic initiatives, including international events assembly and management, as well as stakeholder relations and networks development. The unassuming Kobyakov, pictured, holds a degree in biology and a PhD in economics. He is a graduate of the Presidential Russian Civil Service Academy and his official title is 'Professor', although he never takes umbrage with being referred to simply as 'Mr Kobyakov'. He has had an illustrious career as a civil servant. From 1992-2003, he served as deputy governor of Kemerovo region before pro – ceeding to hold various posts in the Presidential Office from 2005 to date. But it is as a political tactician that Kobyakov – born on 23 June, 1968 – is better-known across the Russian circles through the length and breadth of the largest country in the world. Russia's total area stands at 17 098 242km² and also has 11 different time zones. ALSO READ: Trump says will speak to Putin to end Ukraine 'bloodbath' The 57-year-old academic high achiever works in the Presidential Administration of the Russian Federation with a calm demeanour as a fountain of wisdom. His civil service rank is '1st class state advisor', loosely translated – an equivalence of the military rank of the army general or fleet admiral. Kobyakov's philosophy is interesting: 'Anything (in life) is either a poison or medicine, depending on the dose,' he told a packed press conference in St Petersburg, Russia's cultural mecca. At the recently completed St Petersburg International Economic Forum (SPIEF), Russia's flagship annual event, Kobyakov was tasked with single-handedly briefing up to 100 local and international journalists about the outcome of SPIEF 2025. The event was attended by 24 000 participants from 144 countries, Kobyakov announced. A total of 1 060 trade agreements were entered into over the five days, from 18-22 June. The agreements were worth 6.3 trillion rubles (about R1.4 trillion), said Kobyakov. 'We are seeing rapid fragmentation of the global economy,' he said. ALSO READ: Russia-Ukraine talks resume in Istanbul, but expectations remain low Kobyakov is a trusted ally of Putin, serving him as a special advisor since 2014. His reflections appear to represent Putin's and Putin's expressed views also appear to represent Kobyakov's. The two seem to be intricately intertwined, at least ideologically. As brothers-in-arms, they are no doubt joined at the hip. Reflecting on the current state of unpredictable geopolitics, Kobyakov said: 'We are witnessing tectonic shifts in the world. We see no international law.' Since the outbreak of the Ukraine war in 2022, the European Union, along with most of the West, imposed an unprecedented barrage of sanctions on Russia. Kobyakov said Ukraine was itself a victim of the West's imperial agenda. 'Kyiv is on a tight leash,' he said, before singling out Britain. ALSO READ: UK urges Putin to 'get serious about peace' 'The UK has gone too far in managing this conflict.' The focus of the US and EU pushing to boost their military budgets is another example of the West's disinterest in peaceful coexistence and desire for continuous conflict that can never defeat Russia anyway. 'Russia will never allow any outsider to set their dirty boots on Russian soil,' Kobyakov warned. Given that Putin is 72 and the trusted veteran foreign affairs minister, Sergey Lavrov 75, Kobyakov appears to represent a Russian future that is intrinsically in sync with the present. This is despite his penchant to perform his duties under the radar.
Yahoo
23-06-2025
- Politics
- Yahoo
Moscow to abolish teaching of Ukrainian language in occupied regions
The teaching of Ukrainian is to be abolished in the regions of the country occupied by Russian forces, the Moscow-based Kommersant daily reported on Monday. This is due to the "changing geopolitical situation in the world," the daily said, citing an Education Ministry draft curriculum. Among the reasons given by Russian President Vladimir Putin for launching the full-scale invasion of Ukraine more than three years ago, was the alleged suppression of the Russian language in Ukraine. He pledged that Russia would behave differently and would protect the use of Ukrainian. Until now, Ukrainian has been an obligatory subject in schools in those parts of the southern Kherson and Zaporizhzhya regions occupied by Russian forces. It has been an optional subject in the eastern regions of Donetsk and Luhansk, and in Crimea. The same goes for Bashkortostan in southern Russia. The new curriculum does not provide for the teaching of Ukrainian at all. Attempts by US President Donald Trump to launch talks to end the war have stalled, with Moscow rejecting a ceasefire along the current front line. At the recent St Petersburg International Economic Forum, Putin described Russians and Ukrainians as a single people, saying that Ukraine as a whole belonged to Russia.
