| To get a sense of how Russia is coping with sanctions, look to the country’s borders. In the far east, more tankers than ever are docking at oil terminals as the crude Europe now boycotts is redirected to Asia. In the north, the harbour of Sabetta, on the sea of Kara, is busy preparing cargoes of liquefied natural gas to replace exports of the piped sort, which no longer go to the bloc. Kazakhstan, to the south, is sending hundreds of thousands of washing machines across the borders (up from zero in 2021). On the Western side Armenia is exporting 125,000% more phones to its neighbour than it did before the war.
Figuring out what goes on inside Russia’s borders is more difficult. These days the country releases fewer statistics on the state of its economy. A range of other indicators, from the financial accounts of banks to the precise allocation of the state’s budget, are classified. And Russia’s economy is at the centre of information wars, because the degree of its resilience to Western assaults and to the pressures of war could dictate how long it can keep boots on the ground.
To see through the cacophony of inflated claims, my colleague, Callum Williams, and I have prepared a detailed diagnosis of Russia’s economic health, from the factory to the frontline. Our findings suggest that Russia has successfully adapted its economy to sustain a war in three crucial ways.
First, as the frenzy at its borders suggest, Russia is managing to mitigate the economic warfare of its opponents. It has found new trade partners that buy oil and sell wares which Western firms no longer supply, keeping supermarket shelves stocked. Things are lean. Russian oil sells at a discount, imported goods are shoddy and medicines elusive. But money and milk are not about to run out.
Second, Russia is continuing to procure enough weapons and men to send to the front. The country has expended a vast amount of advanced missiles on Ukrainian targets; many of its better tanks are now carcasses on muddy roadsides. It will struggle to replace them, because the West is no longer providing many rare parts—from bearings to optical systems—needed to produce modern equipment. Meanwhile, Russia has to use ever-greater coercion to fill its ranks, and shortages of workers are common. But the country has huge stocks of Soviet era weapons it can upgrade. Simpler weapons, such as drones, can also cause damage. At the current pace, it is not about to run out of young people to draft.
Russia’s third economic surprise has been to maintain living standards. The state is lavishing big sums on civilian companies, through handouts and subsidised loans. It is also doling out cash to families, the poor and the elderly—constituencies Mr Putin cares about ahead of presidential elections next year. The result is that most people’s welfare has been eroded, but not erased. The value of people’s savings has fallen, but wages have held relatively steady. Real GDP dropped by only 2-3% last year, and many economists reckon it will grow a bit in 2023.
All this means Russia can endure a long war—but probably not make a big push to win it. The Kremlin can hardly gear up the war effort without undoing some of its successes, be it sending inflation to the sky, paralysing factories or losing some of its new friends. Perhaps this does not matter to Mr Putin since, short of losing Crimea, he can probably paint anything as a victory. Nonetheless, there are signs he is fretting. Spending on law enforcement is growing rapidly. To keep the war going, Russia is already being forced to use a growing share of its mighty arsenal on its own people.
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