Russia Collapses

March 16, 2023

The clash between Russia and Ukraine is internecine: Ukraine is being reduced to rubble and is living on Western life support as it valiantly attempts to expel Russia’s marauders. Russia is falling apart economically. One-third of Russians live in dire poverty and Putin’s war, supposed to last mere days, drags on, slaughtering 200,000 or more mostly young conscripts used as cannon fodder by incompetent generals. Russia’s economy craters which is why, on March 14, Putin boasted publicly that its “economic sovereignty” was stronger than ever because Western sanctions had failed. He claimed unemployment was low and that Russia’s GDP will grow this year by 1.2 percent, more than some of his foes. But he lied. Russia will hit a wall and this is why the West must double down, economically as well as militarily, to more quickly stop Putin’s madness.

One-third of Russians live in abject poverty: No heat, sewage, water, or jobs, only military conscription and vodka. Scene: Kyzyl Eastern Russia. Photo: Radio Free Europe

Putin would have the world believe that his economy and its prospects have improved — an assertion as accurate as is his description of his genocidal war as merely a “special military operation”. Putin’s boasts are designed to dishearten the West and erode its resolve. He cannot admit that the newly imposed caps on oil prices are proving to be the “neutron bomb” of sanctions and are crippling revenues. He pretends the country prospers and his corrupt Russian financial institutions corroborate these falsehoods by spewing out unreliable data. Unfortunately, the International Monetary Fund and others recycle his numbers because Russia stopped providing key economic information since the war such as foreign trade figures, budget numbers, energy production figures, state-owned enterprise results, bank profits, migration numbers, or deposit and loan statistics.

Fortunately, some figures have been unearthed. What’s known is that $250 billion in capital has left, equivalent to 14 percent of its GDP. One expert guesstimates that Russia’s economy has shrunk from the size of Italy’s to Chile’s in the past year — you wouldn’t know this based on bogus figures fed to the media by Moscow. Economist Janis Kluge of the German Institute for International and Security Affairs (SWP) calculates that Western sanctions alone have also “basically shrunk Russia’s economy by 10 percent”, bigger than what happened in the 2009 financial crisis.

What is also known is that immediately after the invasion of Ukraine, an estimated 3.8 million Russians left, according to official figures published mid-year by Russia’s Federal Security Service (FSB). In early 2022, there were three waves of departures, including middle class families, political opponents, draft dodgers, millionaires, and IT or other skilled workers. The number who have remained in exile is unknown. But even if most of these came back, the country suffered another exodus in the fall of an estimated one million after Putin’s announced military conscription. That scale of both mass migrations has also blown a hole in its economy.

The known number of permanent departures since the invasion.

In his televised broadcast this week, Putin fibbed about the unemployment situation. Russian employment figures include 4.66 million “hidden unemployed” who have been laid off in manufacturing and retail, put on unpaid leave, or occasionally employed, according to independent global consulting firm in Serbia called FinExpertiza.

Russia hurtles toward a meltdown because of the price caps recently imposed by the G7 on its oil and diesel fuel exports. These replace energy sanctions at the war’s outset that were counter-productive because they caused oil prices to jump and delivered windfall profits to Russia in 2022. But from now on, price caps, coupled with Europe’s switch from Russian natural gas to other suppliers, spell disaster. In 2022, Russia’s military cost US$300 million a day and Moscow raked in US$800 million a day from energy exports. Since the caps began, revenues have fallen to US$200 million a day and head lower.

In January, the first full month of oil caps, Russia’s state revenues plunged 46.4 percent and its budget deficit soared to $24.6 billion, according to industry bible Oilprice.com. In February, Russia’s oil-export revenue fell to the lowest level in more than a year as buyers mostly complied with price caps and sanctions, according to the International Energy Agency (IEA), reported Bloomberg. “The flow of money into the country from international oil sales fell to $11.6 billion last month, down more than 40% from a year earlier, according to the IEA. ‘Although it has been relatively successful in sustaining volumes, Russia’s oil revenue has taken a hit,’ the IEA said.”

Worse, each shipment will cost Russia money. Its production cost is at least $45 a barrel and shipments to India or China, its biggest buyers now, cost up to $12 a barrel because it takes weeks to deliver oil by barge halfway around the world. Then there’s insurance expenses which soar. At $60 a barrel, Russia makes no profit and India, for one, is demanding volume discounts and often paying less than $60. Putin’s war has destroyed its energy trade: Europe has switched to natural gas from other nations permanently and there are no pipelines that cheaply can link its oilfields to its big customers in Asia. And there never will be.

Russia is an oil enterprise that’s going broke. In the short run, its economy will continue spiralling downward, triggered by budget shortfalls, devaluation, economic contraction, and more capital outflows. In the long run, Russia’s exports will diminish along with the rouble, causing imports to crater and bring its domestic manufacturing to a complete standstill. Already, companies representing 40 percent of its GDP have closed, its financial markets are in crisis, and Russia cannot attract foreign investment. This is not an economy that’s performing well. This is an economy that is sputtering and dying.

Bucha: Ruined and looted by impoverished Russian soldiers

“Russia is in a tailspin,” said Yale University Professor Jeffrey Sonnenfeld in a recent interview with Germany TV network Deutsche Welle. “False data is recycled. Every industrial sector is down, retail is down, and it’s losing $1/2  billion a day on energy exports. Rouble values are another fake number. It is not an exchange-traded currency and there isn’t even a black market for it. It has no value because nobody wants a Rouble.”

Russia melts down which is why it’s time to deploy economic weapons of mass destruction. The oil cap price should be lowered to $50. The hundreds of billions in Russian assets frozen in central banks must be immediately confiscated and earmarked to pay for Ukraine’s war effort and rebuild. Arguments by Russians and their lawyer-enablers that this constitutes theft and an abrogation of sovereign immunity and property rights should be dismissed out of hand. Russia has forfeited the right to any legal protection.

Russia must be defeated economically as well as on the battlefield. And the end is near, no matter what Putin says.