How The War In Ukraine Will Really End

15th October 2024 / Global

By Rob Woodward: We are told that the war in Ukraine will most likely stop through a number of scenarios; mutual exhaustion, a ceasefire, or a peace deal are the obvious ones. There are other theories. Whatever the reason given publicly, the actual basis is that it will stop because of money. As the saying goes – ‘it’s the economy, stupid’.

Most economic estimates agree that Russia is now spending something like $750 million a day on its war of aggression. The Russian central bank maintains a current interest rate of 19 per cent while claiming at the same time that annual inflation is only 9.1 per cent. It also says that the annual growth of the economy is 1 per cent, but this is nothing more than repackaging inflation as growth. In the meantime, Russia’s total foreign debt has fallen from $730 billion ten years ago to only $303 billion at the end of March 2024, and its public debt is only 14 per cent of GDP. Some like to espouse the idea that somehow this is a sign of a growing economy when actually it cannot borrow abroad because of the international sanctions regime. To help fund the gap, the Russian state has to service that debt as taxes generated from the wider economy are woefully insufficient to plug the gap. The consequence is that Russia’s sovereign wealth fund has collapsed by two-thirds. By the end of 2025, that fund, worth over $180 billion two years ago – will have been wiped out.

All of this means that Russia is not just running out of cash – its economic trajectory is that of crash and burn. The fact that it can’t borrow money internationally – that inflation is much higher than reported and that domestic productivity has cratered is a serious cocktail for economic disaster is one thing. It’s another entirely that Western technology sanctions are not just hurting now, but will do in the foreseeable future.

In an age of technological advances on the scale currently being witnessed, Russia will fall dramatically behind very quickly. Not only that, Russia has seen a million of its young, wealthy and, more importantly – best-educated emigrate to side-step the war. They will not return for fear of state reprisals.

And while all this continues, the Kremlin has managed to enhance the worst effects of this technical decline by purchasing sanctioned Western technology from the likes of China, Turkey, and Central Asian countries. The trouble is the West has now closed off the majority of these channels through secondary sanctions.

Russia is facing not just financial ruin – it is staring at state failure because of it.

The Atlantic Council describes Russia as – “its crumbling economy, the exploding number of deaths in a senseless imperial war, the collapse of any kind of ruling legitimacy in the imperial metropole, and long-buried frictions and frustrations are suddenly rippling across the country.”

And it predicts one possible outcome. “A nation supposedly united under the steady hand of Moscow suddenly splinters, suddenly shatters, shredded along ethnonationalist lines—torn, as with other empires before it, between the colonizer and the colonized. Chaos sprints across the nation, which collapses into a mixture of anarchy, territorial fragmentation, and violence that leaves no region, and no family, untouched.”

It gets worse. Fortune reports that almost half of global strategists think Russia will probably become a failed state within a few years. The Economist agrees and thinks Russia risks becoming ungovernable and will descend into chaos.

Vitaly Charushin worked at the National Democratic Institute in Moscow. Writing in Modern Diplomacy, Charushin is clear – Russia is already a failed state, and its descent is all but guaranteed.

None of this is fantastical thinking. Russia has faced multiple collapses of its regime. It did so in the 1910s/20s, and the Cold War saw it disintegrate in the 1980s/90s. The reality is that Putin and his cronies took a gamble and lost. They have built a Pandora’s box of risk with none of the upside. Russia has no state institutions to uphold civil society other than war and corruption, and it is, just as the late US Senator John McCain memorably called it – “a gas station masquerading as a country.”

It is as likely now that Russia, after unleashing a frenzy of bloodshed, will repeat its historical past and experience a slow economic and technological death spiral that will see it set back at least a generation, if not longer.