Some doomsayers have been knocking the sanctions against Russia since the beginning of the Russian invasion, saying they’ve had no practical effect.
That’s a narrow view. The Russian economy took a beating as a result of the sanctions, and only extraordinary measures stabilized the economy. It’s true the Ruble is trading as high or higher than at the start of the invasion, but tell me — how many people are actually trading in rubles right now? Russian foreign reserves have been sharply depleted as Russian companies for forced to trade their foreign currency for Rubles to prop up the Russian currency.
Meanwhile, foreign companies enacted an exodus, leaving holes in the Russian economy that are not being filled, or not being filled well. Yeah, there are still lots of companies doing business in or with Russia. That doesn’t mean that the exodus of foreign companies, and foreign employees, hasn’t caused a drain on the Russian economy. Yeah, some entrepreneurial Russians have tried to step up to fill these holes, but that sort of thing usually doesn’t happen overnight, and not always well.
And the sanctions have clearly hurt the Russian war effort. Russia has lost access to LOTS of tech as a result of the sanctions. Russia’s only major tank manufacturer and at least one missile manufacturer announced relatively early on that they were shutting down production entirely because computer chips and other high-tech components for things like optical equipment were no longer available.
So please don’t try to tell me that the sanctions aren’t having an effect.
But now Putin has announced a huge, and disruptive, partial mobilization. Officially, it’s for 300,000 men with prior military experience, but reports indicate that that real number may be much higher, and that some men being swept up in the draft have zero military experience.
Since the announcement, Russia’s mobilization has been chaotic. Now there are reports that, officially at least, some of the men swept up in the draft are being released because they didn’t meet the official criteria. There have been large protests (for Russia) against the draft, and since the conscription announcement at least a dozen conscription offices and induction centers have been attacked in various ways, from arson and vandalism on up to one young man shooting the commandant of the center to death.
And where are these men coming from? Sure, a lot are being swept up from more remote areas, but even so, what’s a small Russian business to do if a couple of their five employees are suddenly served their notice to report for duty? There’s a cost there, in finding new staff, training them, and loss of business during the interim.
And that’s ignoring the ones that have fled Russia or have otherwise now gone to ground to hide from the draft. Someone desperately dodging the draft by hiding in their sister’s basement isn’t going to show up at work.
So an already strained economy is now being served a hit courtesy of Putin’s conscription announcement and subsequent hot mess of the implementation. Even guys that ultimately get released from service will have missed work, even if that disruption of business and Russian daily life is temporary.
And then there’s the Russian economy’s lifeblood: fossil fuels. A big part of what propped up the Russian economy over the summer was high oil prices, because so many countries even opposed to Russia’s invasion and hitting Russia with heavy sanctions in other economic areas couldn’t wean themselves off Russian oil quickly.
But now oil prices have fallen and are trading at about 2/3 what it was the peak price per barrel in June. This, obviously, means that Russian oil profits have also taken a hit. There’s less oil money coming in to prop up the Russian economy even as these other disruptions with sanctions continue to have their effects, plus the new disruptions caused by mobilization.
Oh, did I mention this mobilization is likely to be a bit expensive? Russia is increasing the size of it’s existing active military in one fell swoop. Yeah, a lot of it involves sweeping stuff up out of mothballs from the Korean War era (or even WW2) and handing it out to 60 year old grandpas who served a couple years of service back in Afghanistan when they were 20. But you still have to transport these guys, feed them, and at least some of the gear has to come from somewhere other than some half-abandoned military warehouse. Oh, and they need paid. At least, sorta paid, even if it’s late and not as much as they’re promised.
And Russian households worried that a breadwinner might get drafted to an unknown fate in Ukraine are likely to tighten their belts and not be nearly as economically optimistic as they might have been a month ago. Who’s going to buy a house or luxury items when you don’t know if your husband is going to even be alive and whole in six months (or even next month)?
Russia’s year end budget surplus is now predicted to only be about ¼ of what it was predicted to be pre-invasion. That still sounds good, running a surplus. Sure. Except the Russian government has already committed to running at a deficit for next year. The budget surplus is going to run dry quickly, especially with even more sanctions coming thanks to Putin’s saber-rattley annexation speech (and illegal annexation of Ukrainian territory) and this chaotic conscription going on.
And estimates are that Russia’s oil exports will drop in 2023 to around half what they were in 2022 thanks to countries filling up their reserves and also finding alternative energy and oil sources.
Is it likely the Russian economy is going to just flat out collapse anytime soon? Well, maybe not. But Russia has pretty much run out of tricks to prop up it’s economy artificially and those measures can’t prop it up long-term. And with the brain and labor drain caused by the war as men are conscripted to the front or flee the country and the loss of consumer confidence, Russia’s already shaky economy is definitely not going to improve anytime soon. And each new sanction, each loss of a worker to fleeing or being shoved into uniform, is one more knock on that already weakened economy. So falling oil prices coupled with mobilization could be a one-two punch to Russia’s economy that finally pushes it past the ability of Russia’s artificial measures to continue to prop it up.
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