Well, well, well. It’s been 3 years since Russia’s invasion of Ukraine and since then, Putin has enjoyed a hugely successful economy. GDP grew in both 2023 and 2024 due to the increased military spending and while inflation did grow, it was still a largely decent life for the average Russian who could still afford basic necessities. However, recently, it has taken a turn for the worse for Putin and Russia.
Inflation: up to 8.1% from 2.3% in 2023.
Interest rates: 20%, the highest since the start of the war.
GDP: down to 1.5% growth from 4% just two years ago.
What is going on?
The main reason behind this severe economic downturn is Ukraine’s hit back at the oil refineries concentrated in fields in the west of Russia. Ukraine struck 21 of Russia’s 38 oil refineries. Prior to these attacks, Russia enjoyed huge amounts of refined and unrefined oil available for export and domestic use. However, since these drone strikes, Russia has had to temporarily cancel exports of refined oil to its key customers, like China and Turkey, and has had to shift this oil to domestic use. Now, some regions like Crimea are seeing fuel shortages resulting in fuel caps and some fuel stations having to close down entirely!
This is a huge win for Ukraine which is now focusing on trying to make the war so costly for Putin domestically that he has to stop his attacks rather than continuing to throw bodies into the meat grinder (circa 500,000 Ukrainian casualties and 1.3 million Russian).
Russia’s economy is so dependent on oil and gas exports that Ukraine’s strategy to hit the only facilities that produce these means that Russia’s economy could soon be on its knees. It is likely we’ll see increased inflation, interest rates hiked and GDP lowered, and we could even see a recession if Putin doesn’t diversify the economy quickly enough or get the facilities back online ASAP.
Could this mean that we see an end to the war soon?
No, it is unlikely we’ll see an end simply because of Russia’s economy being brought to its knees. Putin has continually shown he is willing to fight until the end and send whoever he can to the frontlines, and I can foresee that if Zelenskyy is leading a march into Red Square, Putin will be there fighting to the last man. However, if domestic pressure mounts and becomes strong enough, Putin could at least tone down the war and perhaps consider a peace deal. Alas, all we can do is sit back and watch as the Russian economy collapses. Enjoy the show!