Russia Might Be Going Broke Over Ukraine War

When commentators talk about whether the Russians or the Ukrainians are winning the war between their two countries, much attention is paid to the Russians gaining territory, even though Russia was only able to gain about 0.7 percent of Ukraine's territory in the entire year of 2024, at an estimated cost of 420,000 Russian soldiers killed, wounded or captured. But less attention has been paid to the engines of war, the economy. At first, it seemed that economic sanctions placed on Russia by the United States, Europe and Japan were not having much impact on Russia's economy. In more recent times, however, Russia's economy does seem to be having difficulties.

Here is the Financial Times with an article on this topic.

Russia’s War Economy is a House of Cards

The reality is that the financial underpinnings of Russia’s war economy increasingly look like a house of cards — so much so that senior members of the governing elite are publicly expressing concern. They include Sergei Chemezov, chief executive of state defence giant Rostec, who warned that expensive credit was killing his weapons export business, and Elvira Nabiullina, head of the central bank.

Putin’s privatised credit scheme, meanwhile, is storing up a credit crisis as the loans go bad. The state may bail out the banks — if they don’t collapse first. Given Russians’ experience of suddenly worthless deposits, fears of a repeat could easily trigger self-fulfilling runs. That would destroy not just banks’ but the government’s legitimacy. Putin, in short, does not have time on his side. He sits on a ticking financial time bomb of his own making. The key for Ukraine’s friends is to deny him the one thing that would defuse it: greater access to external funds.

Some analysts say that Ukraine is suffering from a manpower shortage that is severe enough to cause a collapse in Ukraine, leading to a Russian victory. While this is possible, a higher probability might be assigned to a Russian economic collapse. Without an economy strong enough to produce the weapons the Russian military needs to sustain the fight, Russia's ambitions will never be realized.

Ukraine's economy is struggling under the weight of the war as well. However, many European nations are purchasing Ukrainian weapons and donating those weapons to Ukraine, essentially providing huge subsidies to Ukraine's burgeoning military-industrial complex. Ukraine was able to successfully target a Russian helicopter with a sea drone, the first time in military history this has happened. Ukraine has also been able to target Russian oil refineries hundreds of miles into Russia.

The debate within Europe and the US as to whether Ukraine should be allowed to use US or European weapons to hit targets in Russia might become less and less important as Ukraine's capability of hitting Russian targets with Ukrainian weapons increases.

We don't know if Europe's largest land war since 1945 will end this year, in 2025, or not. But if we keep an eye on the Russian economy, we will have a better sense of how the war is going than merely observing the front line.