When Vladimir Putin ordered the Russian armed forces to invade Ukraine in February of 2022, the Russian authorities had assumed that it would be a quick and decisive war in which they would emerge victorious while annexing part of Ukraine into the bargain. The Russians had failed to anticipate the strong resistance put up by Ukraine and the determination to defend its sovereignty neither did they expect the level of support that Ukraine has been given by Western powers which has enabled them to defend themselves against Russia’s expansionist agenda.
Rather than being the sitting ducks that the Russians expected them to be and despite the heavy casualties that they had suffered, the Ukrainians in a surprise move took control of the Russian town of Sudza after advancing 35 kilometres through Russian defences and capturing 1,150 square kilometres of territory which included 82 settlements. Sudza is also located near a major Russian gas terminal which is used to supply gas to Europe thus fuelling the speculation that Ukraine was actually to cripple a major source of funding for the Russians.
Apart from the huge losses in lives and property, the war in Ukraine has dealt a significant blow to the Russian economy, causing widespread disruption and uncertainty. Since the invasion began in February 2022, Russia has faced a barrage of economic sanctions from the international community, targeting key sectors, oligarchs, and government officials. These sanctions have had far-reaching consequences, affecting everything from the stock market to consumer spending.
One of the most immediate effects of the war was the decline of the Russian stock market. The RTS Index, which tracks the performance of Russia’s largest companies, plummeted by up to 39% in the days following the invasion. This sharp decline wiped out billions of dollars in value, leaving investors reeling. The Russian rubble also suffered, falling to record lows against the US dollar and euro.
As the conflict dragged on, inflation began to rise, eroding consumer spending power. With prices increasing and uncertainty gripping the economy, Russians became more cautious, reducing their spending on non-essential goods. This decline in consumer spending has had a ripple effect throughout the economy, impacting businesses and industries that rely on domestic demand.
The war has also led to a brain drain, with hundreds of thousands of Russians fleeing the country. Many of these emigrants are young, educated, and skilled, leaving a significant gap in the workforce. This exodus of talent will have long-term consequences for Russia’s economy, as it loses the very people it needs to drive innovation and growth.
In addition to these challenges, Russia’s economy has also been hit by a decline in trade. Sanctions have restricted access to international markets, making it harder for Russian businesses to export goods. This has had a devastating impact on industries such as agriculture, which relies heavily on trade with Europe and other regions.
The energy sector, long a mainstay of the Russian economy, has also been affected. Sanctions have targeted Russia’s energy exports, making it harder for the country to sell its oil and gas to international buyers. This has led to a decline in revenue, which will have significant consequences for Russia’s budget and economy.
Furthermore, the war has resulted in a significant loss of human capital, the destruction of agricultural trading infrastructure, and a reduction in private consumption of more than a third relative to pre-war levels. The economic recession that Russia officially entered in November 2022, with a record deficit of 1.45 trillion rubbles by August, is a clear indication of the severity of the situation.
The impact of the war on various sectors of the Russian economy has been varied, with some collapsing by as much as 90%. The IT sector, for example, has been severely affected, with many international companies suspending operations in Russia. The energy sector, while still operational, faces significant challenges due to sanctions and declining demand.
In conclusion, the war in Ukraine has had a profound impact on the Russian economy, causing widespread disruption and uncertainty. The sanctions imposed by the international community have targeted key sectors, oligarchs, and government officials, leading to a decline in the stock market, inflation, reduced consumer spending, brain drain, decline in trade, and impact on various sectors. As the conflict continues, it is clear that the Russian economy will face significant challenges in the months and years ahead.
While the end of the war is not yet in sight, given the level of casualties and economic losses Russia has incurred since the beginning of the war, it’s time they took stock and asked themselves some hard questions regarding their war efforts. Even if they eventually achieve their goals which seems very unlikely given the level of support that Ukraine is enjoying from its Western allies, would it have been worth the huge loss of lives, property, and disruptions to their economy which may last for years to come?
These are the pertinent questions that the Russians need to answer because as it seems now, the war is being fueled more by fragile egos than the prospects of any real benefits to the Russian people.
Oshobi, a development economist, management consultant, and author writes from Lagos, Nigeria