La Russia è sulla strada lenta verso la bancarotta, ma quanto lentamente? – War on the Rocks

After reading this French intelligence officer’s article, the Russians’ path to state insolvency is still quite possibly long enough such that either the Ukrainians’ numerical disadvantage and/or Western military support falls below the minimum threshold for the Russians to be locked in place. In other words, it could take the Russians a few years before they’ll be financially incapable of prolonging the invasion and maintaining the already low standards which ordinary Russians expect from the state treasury for regular transfer payments/entitlements.

The concluding section provides possible answers to the headline in the style of tl;dr.

>*What could happen when Russia runs out of financial reserves? It’s an exercise in foresight, but several scenarios are conceivable. The first is the most unrealistic: For lack of funding, Russia stops its military spending, abandons its “special operation” in Ukraine, acknowledges its defeat, and goes back to “business as usual.” But there is a problem: It is true that the Russian state heavily financed the resurrection of the Soviet military-industrial complex, but who will finance the reversal, and how? The possibility of reversing the transformation of Russian industry, from the production of military equipment to the production of civilian goods, is highly questionable in the specific context of future financial difficulties. The Central Bank of Russia stated in April 2022 that Russia will have to face “*[*reverse industrialization*](https://www.bloomberg.com/news/articles/2022-04-22/russia-faces-reverse-industrialization-in-sanctions-squeeze)*” in the coming years. Russia financed the restarting of weapons factories, some of which had been mothballed for years. This had repercussions for the entire supply chain and subcontractors, but an abrupt halt to production for military purposes will not be without consequences for all sectors directly linked to the supply of weapons components — the military-industrial complex. Factories that used to produce tanks or missiles aren’t going to produce cars or washing machines overnight.*

>*Whatever the case, this scenario would make it possible to envisage a gradual lifting of sanctions, or even the release of aid from international institutions in the medium term, provided that Russia undertakes to finance the reconstruction of Ukraine. While this is the scenario that would probably best avoid economic collapse, it is also the one that presents the greatest political risks for Vladimir Putin. The probability of such a scenario occurring is therefore extremely low, as long as Putin holds the reins of power tightly.*

>*A second scenario could involve* [*massive Chinese intervention*](https://www.politico.eu/article/xi-jinping-vladimir-putin-ukraine-war-swiss-peace-summit/) *(financial loans, supply of equipment, munitions, troops, etc.) in exchange for even greater access to Russia’s natural resources, or even in exchange for territories such as Siberia. This hypothesis would enable Russia to continue its offensive and bolster its economy for years to come. The flaw in this scenario is that it would expose China to massive economic retaliation from the West. Apart from the fact that this would split the world into two major geopolitical blocs, as it did during the Cold War, China’s already shaky economy would have a hard time absorbing the shock, making this scenario highly unlikely* [*beyond current support*](https://thediplomat.com/2024/02/russia-ukraine-war-chinas-vanishing-neutrality/)*.*

>*The third scenario is the most likely: change nothing and try to adapt. Considering that the Russian economy is beginning to operate in a closed circuit, once its reserves have been exhausted, Russia could quickly decide to suspend certain social benefits and reduce salaries while continuing to raise taxes. In addition, it could seize all foreign assets still present in Russia (or even gradually sell the Russian Central Bank’s* [*gold reserves*](https://warontherocks.com/2022/03/the-unfreezable-asset-gold-sanctions-and-russia/) *on parallel markets). As this is unlikely to be enough in the long run, Russia will have no choice but to turn on the “money printing press,” accentuating the inflationary spiral and further depreciating the ruble. This maximalist strategy would most likely enable Russia to hold out for some years, but with the risk of a cataclysmic economic collapse in the end: This is pretty much the exact description of the Soviet Union’s* [*economic situation*](https://www.boeckler.de/pdf/v_2015_10_24_mazat.pdf) *between 1989 and 1991.*

I was really keen on reading this as it is so key but the figures quoted here are wrong :

‘ Russia has made no secret of the drastic increase in its defense and security budgets, with military spending in 2023 estimated at over 6 billion rubles or 3.9 percent of GDP, compared with 2.7 percent in 2021’.

A US dollar is worth approximately 92 rubles.
So according to the story, Russia is spending $70 million on the war with Ukraine.

The author probably means trillions but the repeated nature of the mistake hurts credibility. If you’re going to talk finance, check your numbers.

NB spending 4% of GDP on war is not that bad (US average military spending is 3%) of course this number jumps to 6% in 2024.