Vladimir Putin’s Russia cannot afford to lose its war with Ukraine because of the economic loss and political upheaval this would cause. Nor can it afford to win this war because repairing the damage and dealing with the aftermath would cripple its own economy. Putin still has some options, however nuclear weapons are not one of them.
Vladimir Putin decided on Russia’s invasion of Crimea in 2014 and associated military support for secessionist movements in Luhansk and Donetsk. In February 2022 he sought to invade and take control of Ukraine and end its independent statehood. His decisions were supported by an autocracy made up largely of old male ex-Soviet era KGB and other officials. Their psychology was shaped by the pride they had in the Soviet Union when it was great and the humiliation when it collapsed.
Long after Britain, German, France and Japan ceased to be imperialist, Russia’s leaders still seek imperial expansion, or at least the “recovery” of lands they consider belong to Russia. Such imperial ambition far exceeds Russia’s economic capabilities. Although Russia’s GDP per capita grew from 2000 to 2012, it peaked in 2013 at $16,000, and today Russia’s per capita GDP is $12,200, ranking it behind countries such as Hungary, Poland, Croatia, and Romania. Russia’s sovereign wealth fund has shrunk by $28B since the Ukraine invasion, leaving $147B.
International Monetary Fund figures on countries by GDP show that Russia is only the 11th biggest economy in the world, lagging behind Italy, Canada and South Korea, and not far ahead of Brazil and Australia. Its position as the second biggest oil producer explains its financial strength, and also its structural weaknesses as an economy that has failed to develop differentiated technology-based industries.
Russian macro-economic management has been prudent and adept. Putin always focused on paying off external debt, and on maintaining large financial reserves. Russia’s exports are dominated by oil, gas, metals and other commodities. A fiscal rule meant that oil revenues above a certain level are saved as reserves rather than spent, avoiding currency strengthening and creation of a “Dutch disease” that makes other more knowledge-intensive exports uncompetitive. This fiscal rule in early 2019 meant all oil revenues over $42 a barrel were allocated to reserves not spending.
Economic development requires the accumulation of productive knowledge and its use in more complex industries. Harvard Growth Lab’s Country Rankings assess the current state of a country’s productive knowledge, through the Economic Complexity Index (ECI). Countries improve their ECI by increasing the number and complexity of the products they successfully export.
In 2020 Russia ranked 51 in the world in economic complexity with Ukraine at 49. The top three countries were Japan, Switzerland and Germany.
Putin’s Russia claims an obligation to protect Russian language minorities in other ex-Soviet states. This has led to breakaway “republics” in Moldova (Transnistria), Georgia (Abkhazia and South Ossetia) and of course in Ukraine.
The Ukraine war invites questions about the psychology of autocrats and the events that have shaped them.
Vladimir Putin was born into a hard scrabble childhood in a Soviet Union left devastated by a Nazi invasion that cost the lives of about 20 million Soviet citizens. Both of Putin’s siblings died young and he was brought up poor in a communal apartment. He recounted a story that as a child he would chase rats with a stick. One day he cornered an especially large and redoubtable rat that suddenly turned on and attacked him. It taught him there is nothing more dangerous than a cornered enemy.
Putin learnt from childhood that if conflict is inevitable be sure to get the first blow in. His early mentors included a teacher who taught him self-belief, and his judo teacher who taught him self-defence. Putin’s career in the KGB taught him how to pretend he was someone else, how to dissemble and to manipulate others.
As a KGB officer in Dresden in 1989 as the Berlin Wall came down, Vladimir Putin saw the GDR authorities and the KGB itself powerless in the face of rampant public demonstrations. That is, he observed first-hand the Eastern Bloc’s humiliation. The lesson for Putin might well have been to never again surrender control.
Volodymyr Zelensky was born in the USSR, of Jewish ethnicity, with his first language Russian. His chosen career was as a comedian and actor. One of the roles he acted was as Ukraine’s President. He has “played” that role in real life after winning a landslide electoral victory in 2019. The orderly transition of power marks Ukraine as an authentic democracy with the rule of law.
When Germany was reunified in October 1990 Gorbachev understood that there would be no expansion of NATO into Eastern Europe. This understanding was shared by other Soviet and post-Soviet leaders including Yeltsin and Putin.
However, the Soviet Union broke up in December 1991, with the constituent republics becoming independent. In December 1991, 92% of Ukrainians voted to leave the Soviet Union, that is to be independent of Russia. After 1991 Eastern European countries feared Russian domination. They saw NATO as insurance against a future Russian threat. Conversely, Russia perceived NATO behaving unilaterally, for example in the former Yugoslavia.
Ukraine gave up its nuclear weapons in 1994 in return for “guarantees” of its territorial integrity from Russia, the US and UK, as stated in the Budapest Memorandum, December 1994. The Russian government violated the Budapest Memorandum from 2014 on while the US and UK did nothing to enforce it.
After meeting the influential Eastern European leaders Václav Havel and Lech Wałęsa in January 1994 President Clinton stated that “the question is no longer whether NATO will take on new members but when.” Within five years the Czech Republic, Hungary and Poland had joined NATO and total membership progressively reached 30 countries.
Putin was long suspicious of NATO in general and especially the US. At a February 2007 Munich Security Conference he criticised the US over issues such as deployment of missile defence systems, expansion of NATO, and the conflict in Iraq.
At a nuclear security summit in March 2014 Obama referred to Russia as a “regional power”. Former Secretary of State Zbigniew Brzezinski remarked that Russia needed to have Ukraine to even qualify as a regional power. Putin never forgot or forgave such remarks, and they helped shape his attitudes towards NATO and to the importance of Russia’s relationship with Ukraine.
Putin felt that the US had behaved dishonourably in promoting NATO’s eastward expansion, and that this posed a threat . Russia’s defence expenditure had bottomed out at 2.73% of GDP in 1998 and grew progressively to 4.08% in 2021.
NATO defence expenditure trends were hardly threatening to Russia in the years leading up to the 2022 invasion. In 2014, the year in which Crimea was annexed only the US, UK and Greece were exceeding the NATO target of 2% of a country’s GDP spent on defence. By 2021 Poland, Croatia, Lithuania, Latvia and Estonia had also met the 2% of GDP target, however Germany was spending only 1.49% of GDP. The US is forecast to spend 3.1% of its GDP on defence in 2023 – little of this is specifically related to Ukraine. Poland is now budgeting for 4% of GDP to be spent on defence in 2023.
The wild card is Russia’s nuclear capability. Russia’s formal nuclear doctrine limits nuclear weapons to self-defence, for example if there is an existential threat to Russia itself. However, many Russian politicians, media figures and social media commentators have advocated use of nuclear weapons either against Ukrainian forces or NATO countries. The Chechen leader Ramzan Kadyrov was an early advocate of using tactical nuclear weapons against Ukraine. Former Russian President Dmitry Medvedev, now deputy head of Russia’s Security Council has described nuclear weapons as “the backbone that holds the state together.” He has repeatedly advocated their use as a serious option. Vyacheslav Volodin, speaker of the State Duma has said that countries sending more powerful weapons to help Ukraine could lead to “global tragedy that would destroy their countries.”
Putin has alluded to nuclear weapons use on several occasions. Reflecting on the possibility of a nuclear war Putin once remarked: “Why do we need this world if there is no Russia?” Such a chilling comment does not mean that Putin is barking mad. He is still rational, however he is surrounded by sycophantic “advisers” and as a result can seem unhinged from reality.
Surprisingly, the Wagner Group’s Yevgeny Prigozhin is a moderating influence. Responding to advocates of nuclear retaliation for a drone attack on the Kremlin Prigozhin said: “…of course there should be no talk of using nuclear weapons in retaliation for a drone… making such disproportionate threats to the West made Russians “look like clowns.”
Despite the rhetoric the risk of nuclear warfare is low. There is no military logic in using tactical nuclear weapons against Ukraine when precision-guided conventional munitions can be more targeted and effective.
Use of even a low yield nuclear weapon against Ukraine would invite a devastating conventional military response from the US. This might target Russian forces in occupied Ukraine or its Black Sea fleet. A strong conventional response to a nuclear strike may persuade countries such as North Korea to abandon nuclear weapons because their use creates costs far higher than possible benefits. Conversely, a failure to respond to Russian nuclear weapon use would normalise it and encourage nuclear proliferation.
What is more likely than a Russian nuclear strike is engineering an “accident” at the Zaporizhzhia nuclear power plant. This could involve sabotaging the cooling system, leading to a Fukushima-like incident. Rafael Grossi, director general of the International Atomic Energy Agency has recently expressed extreme concern about the nuclear safety and security risks facing this plant.
Russia will be an overall loser both if it wins or loses on the battlefield. In both cases Russia’s army will have lost much of its equipment and troops, including from its elite airborne and special forces.
If Russia managed to defeat and conquer most or all of Ukraine it would be a Pyrrhic military “victory” and an economic disaster. The weakened Russian army could be drawn into a war against partisans that would drain its strength even further. A March 2023 World Bank Report estimated it would cost around $411B over ten years to repair war damage Russia has inflicted on Ukraine, with $5B alone to clear rubble from towns and cities.
Russia is not wealthy enough to bear the huge financial costs of rebuilding Ukraine’s economy, including massive infrastructure repair and restoration of public services. Its inability to deliver a Marshall Plan for Ukraine would lead to ongoing violence against Russian occupation forces that would dwarf what Russia endured in Afghanistan and in the Chechnya wars.
As at April 7, 2023, Russia had about $601B in foreign exchange reserves. This compares with $630.5B in January 2022, before the war began. Around $300B of these reserves are frozen, that is inaccessible to Russia in retaliation for its Ukrainian invasion.
Unlike Ukraine, Russia has no wealthy friends it can call on for help. China might be keen on debt-trapping its weakened neighbour as leverage to “negotiate border adjustments”.
Russia’s image and credibility have been damaged internationally and it is perceived as a weaker country than before the war. For example, the Collective Security Treaty Organization (CSTO) is an alliance consisting of six post-Soviet states: Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia, and Tajikistan. The central Asian states are increasingly distancing themselves from Russia and cultivating ties with China. In April 2023 Russia sought an explanation from Armenia on why it was undertaking exercises with NATO and not with the CSTO. Russia’s only reliable ally is Belarus whose President Lukashenko is in poor health, with his election in 2020 widely considered to be fraudulent.
Russia has two ways of ending the Ukrainian conflict while avoiding further military losses and economic ruination. Russia could sue for peace, probably involving restoration of Ukraine’s 2013 borders and some financial reparations paid to Ukraine. This would lead to removal of sanctions and enable Russia to recover rapidly economically. However, Putin would never support such an option because it would be personally humiliating.
A second option would be for Russia to declare a ceasefire, annex the territory it currently occupies and disengage from the fighting – effectively a fait accompli. Ukraine might continue offensive action, with Russia fighting only defensively. In such a case public support for western aid for Ukraine might well diminish. Putin may support this option. Sanctions would be ongoing, Russia would stagnate economically and be boxed in by unfriendly powers, but it would survive.
However, in attacking Ukraine Putin took a tiger by the tail. If he “lets it go” through declaring peace Ukraine might declare more war, to recover all its lands and perhaps bring down the Putin regime.
Putin is 70, has health problems and will soon leave the stage willingly or not. This may clear the way for peace and reparations negotiations and for the rise of democratic forces in Russia. The Putin regime is discredited, however it has some strong technocrats such as Reserve Bank governor Elvira Nabiullina and Prime Minister Mikhail Mishustin, an economist and tax expert. It has a core of capable people with clean hands who could form a basis for a government that the democratic countries could deal with. The end of Russian imperialism and the birth of authentic democracy might eventually see Russia following Ukraine in joining the EU and perhaps even a different type of NATO structure.
In thinking of what may be possible in future it is helpful to look back at Putin’s career. He was appointed director of the KGB’s successor organisation the FSB in June 1998. He took over from Yeltsin in 1999 and won the 2000 election fairly. He turned against oligarchs selectively, for example using trumped up charges of tax law breaches. An early casualty was Yukos oil company boss and prominent liberal Mikhail Khodorkovsky. Success in the Chechen war gave Putin an image as a strong leader, and economic buoyancy arising from high oil and gas prices helped him win a landslide election victory in 2004. This was followed by Putin’s United Russia party winning in the 2007 parliamentary elections.
Due to constitutional term limits Putin was not able to undertake a third consecutive term as President and so from 2008 -2012 he assumed the Prime Ministerial role while Dmitry Medvedev served as President. Putin won the 2012 Presidential election amidst widespread concern about voting system irregularities.
It was around this time that Putin began to change Russia’s narrative to reinforce his claims for new autocratic powers. He reinvented Victory Day on 9 May to promote the Red Army’s victory over Nazi Germany in WW2 as the most valuable heirloom Russia inherited from the Soviet Union. Victory Day is used to validate ruthless leadership, to fuel anxiety over Russia’s ongoing security, and to strengthen support for Russia’s leader in direct proportion to the perception of external threat. Within this there has been a significant rehabilitation of Joseph Stalin and this has included Putin’s use of Stalinistic language.
In 2013, the pro-Russian and corrupt Ukrainian President Viktor Yanukovych broke an election promise and refused to sign a free trade and political association agreement with the European Union. Instead, he vowed to join the Russian-led Eurasian Economic Union that consisted entirely of former Soviet “republics.”
Yanukovych was driven from office by the Maidan popular upheaval in 2014 and Petro Poroshenko became president. Putin’s response was to invade and annex Crimea, and to foment rebellion in the Donbas and Luhansk regions. Volodymyr Zelensky then won the presidency in 2019 in a landslide, winning 73% of the vote in a runoff against Poroshenko.
In July 2021 Putin published an essay “On the Historical Unity of Russians and Ukrainians,” which makes a convoluted argument that Ukraine never was or will be its own country. Historical narratives can become self-serving tales that put long-dead people into boxes which are then labelled ethnically, religiously or nationalistically. Descendants are then expected to show similar traits to their ancestors, to defend ancestral actions and burnish reputations even if this means rewriting history to bring it into line with how we would like it to be.
This led to Putin “forgetting” historical events such as the Holodomor that saw over three million Ukrainians dying as a result of a famine that Stalin deliberately engineered (Markevich, A. et al 2021). Putin also forgets the Nazi-Soviet pact. In fairness, Ukrainians forget about those of their ancestors who took Hitler’s side in the Great Patriotic War. Putin’s July 2021 essay sought to erase Ukraine’s unique story, language and culture.
Putin assumed he could take over Ukraine in about a fortnight, that resistance from Ukrainian “Nazis” and Azov battalion members would be minimal, and that if the drug-addled Ukrainian leaders escaped assassination they would flee the country with suitcases fill of cash.
Led by Zelensky the Ukrainians defended their country, its people, culture and language. The war is between Russian autocracy, imperialism and a closed society versus Ukrainian democracy, human rights, rule of law and an open society. If democratic Ukraine can win against a much more powerful autocratic Russia it gives hope to other democracies and open societies around the world.
The opening months of Russia’s invasion of Ukraine from early 2022 delivered a windfall gain for Russia through higher oil and gas prices. Gross domestic product fell 2.1%, according to official data, far less than some early forecasts of a 10% to 15% drop. However, in January and February 2023 oil and gas tax revenue, which accounts for nearly half of total budget revenue, fell by 46% year-over-year, while state spending jumped more than 50%. Russia is selling its oil at a discount on global prices.
The quality of information from Russia’s Federal State Statistics Service, or Rosstat has deteriorated since the war began. Official statistics suggest that Russia’s economy contracted by 2.2 percent during the first quarter of 2023. This is likely to be an understatement.
Gershkovich & Kantchev (2023) reported that Russia’s economy had “shifted to a low-growth trajectory, likely for the long term.” State revenue shortfalls were putting guns before butter. Furthermore “long-simmering fears in Moscow” that Russia will become “an economic colony” of China are starting to be realized as Western sanctions make Moscow more dependent on Beijing. In February 2023 the Chinese Ministry of Natural Resources published a new world map that used the Chinese names of cities and regions occupied by the Russian Empire in the late 19th and early 20th centuries. This map renames Vladivostok as “Haishenwai”.
The IMF states that “The loss in human capital, isolation from global financial markets, and impaired access to advanced technology will hamper the Russian economy.” The labour force has shrunk as young people have joined the army or fled the country to avoid conscription.
Russia is a technological leader only in new ways to kill people. It is dependent on depleting oil and gas resources. It has failed to develop a more diverse and knowledge-based economy. Russia has lost important international connections. It may lose a third of its industrial base by being completely cut out of global supply chains. Its entrepreneurial capability has been degraded. All of this can be blamed on Vladimir Putin, however the arrogance of some western leaders can also be faulted.
The deeper question for those of us who love Russian people and culture is this: How is it that a nation that has such natural resources and which has produced such great literature, music, philosophy and deep thought for centuries seems unable to produce the leaders, trustworthy institutions and wider polity that its long-suffering people deserve?
References and other reading
Applebaum, A. 2020: Twilight of Democracy: The Seductive Lure of Authoritarianism, Doubleday.
Applebaum, A. 2017: Red Famine: Stalin’s War on Ukraine, Penguin. Random house,
Applebaum, A. 1994: Between East and West: Across the Borderlands of Europe. Pantheon Books.
Gershkovich, E.’ Kantchev, G. ‘Russia’s Economy Is Starting To Come Undone’ Wall Street Journal, March 29, 2023.
Markevich, A. et al 2021. The Political-Economic Causes of the Soviet Great Famine, 1932-33. NBER Working Paper 29089.
Myers, S. L. 2015: The New Tsar. The rise and reign of Vladimir Putin. Simon & Schuster.
Sakwa, R. 2020 The Putin Paradox. I. B. Taurus.
Service, R. 2019: Kremlin Winter. Russia and the second coming of Vladimir Putin. Picador.