The Russian economy, which Putin shifted onto ‘war rails,’ strengthened in 2023 and will continue to grow in 2024. However, the Kremlin will not be able to avoid a systemic collapse in the long term, writes BBC economics editor Faisal Islam.
“Russia has transformed its economy into a mobilised war economy. The Russian state is spending a record in the post-Soviet era. Military and security spending at up to 40% of the budget is back to late-Soviet era levels. Other areas of state support to the population have been squeezed to make up for funding the production of tanks, missile systems and those defences in occupied Ukraine,” the text reads.
The low effectiveness of oil sanctions is sustaining the Russian economy. Resource extraction remains at 9.5 million barrels daily, almost equal to the pre-war level. Additionally, Moscow has acquired a “shadow fleet” of hundreds of tankers, now transporting oil to India and China, effectively circumventing the sanctions again.
“Last week, its finance ministry reported that hydrocarbon taxes in January exceeded levels seen in January 2022, just before the invasion. The ongoing flow of foreign exchange into Russian oil, gas, and diamonds has also helped alleviate the stress on the value of the rouble. Western leaders are adamant that this cannot last, but recognise its impact,” Islam writes.
This year, oil and gas demand will peak, while Russia’s competitors will increase production, pushing it out of the market. The production of tanks and munitions is also an unproductive part of the Russian economy. In the long term, the Russian economy is only losing ground, although expecting its collapse by the end of the year is not advisable, concludes the journalist.
“Russia’s war economy can not sustain long-term, but has bought the country some extra time,” writes the BBC journalist.
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