The economics of war: costs that Russia cannot hide

On the third anniversary of the aggressor’s insidious invasion of Ukraine, experts, analysts and the world media are reviewing the events, counting the victims and losses, trying to understand how long the “powder” will last in the imperial ambitions of the intervener.
“War is peace. Freedom is slavery. Ignorance is power” (George Orwell, “1984”)
Did this state expect that its “powder keg” would become a symbol of ruin, not strength? Did she foresee that the war would turn her into a global outcast, and not a “great empire”? Billions of resources in exchange for isolation, sanctions and countless human tragedies. How much longer will that power, which feeds not on victories, but on fear and chaos, last?
The President of Russia is in public demonstrates confidence, like “Big Brother” from Orwell’s legendary dystopia “1984“. His rhetoric is unchanged: it was he who saved the country from destruction and defended its statehood, although “statehood” means something completely different than usual. As in Zamyatin’s dystopia “Mi”, where society lives according to the strict rules of the “State Community”, the president claims that without his zeal, Russia would simply disappear from the world map.
The war is presented as a victorious campaign: according to Putin, the Russian army “liberated” almost two hundred settlements in Ukraine, and Western air defense systems could not withstand modern Russian missiles.
Official Russian statistics draws picture of economic growth: GDP grew by about 4%, wages are supposedly rising, and inflation is said to be imperceptible, although the official rate exceeds 9%. Behind the official optimism hides a gloomy reality, as in the worlds of Zamyatin’s “We” or Orwell’s “1984”. Applying forceful pressure, Putin is gradually losing the ability to influence with “soft” methods, and his imperial ambitions, instead of isolating the country from NATO, are creating a “Big Brother” effect – the West is getting closer, like a living warning on the threshold of Russian borders.
As in Zamyatin’s novel, where external brilliance masks internal degradation, the main growth of the Russian economy is exclusively due to military spending, which has doubled in the last three years of the war. The economy is turning into an arena of power struggles: official growth of 4% is achieved at the expense of rising military spending, and the central bank is forced to keep the base rate at 21% to contain inflation, which in reality is much higher than official figures.
High inflation and a record base rate are hampering business, and daily life is filled with anxiety due to the threat of attacks and inspections by security forces.
“Man ceased to be a slave because he ceased to be a man” (Yevgen Zamyatin, “We”)
The patriotism of ordinary Russians is reduced to material incentives for those who go to the front. Censorship destroyed independent media and flooded culture, science and education. The authorities faced a trap: the war could undermine the country’s resources, and stopping the conflict posed a threat to the regime itself.
As in Zamyatin’s totalitarian society, ordinary Russians live in constant fear, expecting unexpected forceful measures, and independent culture is immersed in all-encompassing censorship, again very similar to the horror of “1984”. Parallels with legendary dystopian plots can be continued. People who think differently are called “foreign agents”, and entire social groups face persecution. The Kremlin has managed to tighten its control over society, leaving only certain aspects of private life almost untouched – a classic element of dystopia when the state imposes its rules of round-the-clock surveillance.
The war, on which Putin has staked everything, is increasingly tiring Russians. Polls show that the majority of the population wants peace, but on the condition that Russia keeps the captured territories and Ukraine does not join NATO. If these conditions are met, many Russians will see the end of the war as a victory. According to Levada Center, 3 out of 4 Russian adults support military action, among which almost half express complete agreement with the state’s policy, and another third partially approve of it.
However, public opinion is becoming more volatile. The Kremlin understands that discontent can become a threat and is debating how to present peace as a victory and integrate war veterans into society. Among them are many people with trauma, post-traumatic stress disorder or a criminal past. The Kremlin plans to offer them leadership positions, although civilian officials are skeptical of such competition.
At the same time, part of the population believes that Trump’s return to power in the US, who promised a quick resolution of the conflict, could to improve situation for them.
This picture is reminiscent of a modern dystopia, where truth gives way to propaganda, and state control turns the country into a place where reality is ruled by fiction. As in the dystopias of Orwell and Zamyatin, the external rhetoric of power masks internal contradictions, forcing society to peacefully accept the imposed rules, despite the growing discrepancy between official statistics and the lives of ordinary citizens.
The main question is what’s next? The Kremlin was trapped in the war, which became the basis of its existence. Breaking out of this impasse seems as dangerous as continuing hostilities. To stop the war would be to risk undermining the entire system built on mobilizing society and the economy around war. Putin faces a dilemma: continuing the war is draining the country’s resources, but ending it could threaten the regime itself.
“He who controls the past controls the future. He who controls the present controls the past” (George Orwell, “1984”)
Before the beginning of the SVO, Putin and his entourage promoted the idea “Third Rome” – of Russia as the center of a powerful empire influencing world politics. But this vision began to crumble.
Previously, it was considered a proof of global Russian influence intervention to Syria However, the unexpected collapse of Bashar al-Assad’s regime showed failure of this position. Russian propaganda has lost one of its key arguments, although this has not yet affected Putin’s domestic rating.
Losses of influence are also noticeable in the Caucasus. Armenia, which was dependent on Moscow for a long time, after its defeat in the war with Azerbaijan, began to orient itself towards the West, seeking partnership with the USA and integration into the EU. Meanwhile, the Kremlin’s relations with Baku worsened after Russian air defenses shot down an Azerbaijani plane.
Russia’s relations with Turkey steel more difficult Although Turkey maintains economic ties with Russia, its stance on Crimea and its support for Syrian rebels show that Erdogan is more a deterrent to Russian ambitions than a supporter of them.
Also moves away Israel, which used to be an important partner of the Kremlin. The mass emigration of the Jewish intelligentsia from Russia and changes in public sentiment that support anti-Israeli forces in the Middle East are increasing tensions.
Even Russia’s smallest allies like Abkhazia create problems for the Kremlin. The November uprising in this separatist region of Georgia showed how limited Moscow’s ability to influence its “allies” has become.
International organizations that Russia helped create are losing their effectiveness. The same BRICS, an association of leading non-Western states, did not achieve real results. Putin’s declarations about an alternative world order remain only in words, since this is impossible without the West. BRICS members are increasingly establishing ties with China, Europe, or the United States, rather than with Moscow. No one, except Russia, shares the imperial vision of the “Third Rome”, even if this “Rome” has the latest weapons.
Putin, who has been in power for over a quarter of a century, is increasingly detached from reality. Insiders say he sees the country’s problems as an achievement. Due to the demographic decline, mass emigration of citizens abroad and mobilization, which exhausted the resource of the working population, Russia is facing with a lack of labor – almost 5 million people. The lack of reliable loss data only worsens the situation, which will affect the labor market and demographics for decades to come.
This is felt even in critical areas, first of all, education and medicine. Russian schools may lack up to half a million teachers, and the shortage of doctors makes it difficult for citizens to access quality services. The military and warfare became priorities, while other important industries declined.
Civil economy of Russia in crisis. The construction industry, once important, is now in serious decline due to higher prices of materials and lower demand. There are problems in other industries as well: transport suffers due to expensive gasoline and a shortage of drivers, mining and agriculture are also in decline.
At the same time, the Russian military economy is growing. Production for the defense industry receives the largest investment, and the government encourages youth to join the war effort. Recruiting costs the state tens of billions of dollars every year, and the salaries of the military are growing, because the popularity of this career is falling. The Kremlin is trying to fill gaps in personnel through the promotion of technical specialties in schools and universities, orienting education to the needs of the defense complex.
Such a bias towards war leaves civilian infrastructure in a state of disrepair. Failures of heating systems, railway accidents and man-made disasters have become commonplace. Last December, old oil tankers were caught in a storm in the Kerch Strait, causing an environmental disaster. Attacks by Ukrainian drones in the border regions increase the sense of danger among the population. All of this calls into question Russia’s ability to sustain a war economy in the long term, as society’s resources and patience have their limits.
In the near future, the Kremlin will seek to maintain stability in society, regardless of whether Putin continues the war or ventures into a peace agreement. Both options carry big risks. Even if the war becomes “cold”, Putin must avoid the hint of defeat. But an endless conflict can become a symbol of stagnation, and a militarized economy – burdensome for the country.
We want to believe that Russia is experiencing the last acts of its imperial decline. Once it conquered new territories, consolidating its own people. Now this history is repeating itself: the war is being fought both outside and inside the country. The old notions of imperial grandeur that Putin is trying to revive are coming at a cost to a new generation that sacrifices its life for the mythic idea.
Even if Putin agrees to peace, it will only be possible if he can imagine himself as the winner. He needs a picture of the restored Russian Empire, which the world recognizes as a superpower. But this empire will exist only in his mind. In reality, neither Europe nor other countries will accept such a scenario, and the final settlement of the conflict is still far away.
…Ukraine remains the key goal for Putin, but it is becoming more and more important divides her in her own imagination. He no longer perceives the western part of the country, with its European traditions and orientation, as “his”, limiting his ambitions to the territories he considers “historically Russian”. But even these plans meet stiff resistance from reality: demographic, economic and political factors are gradually eroding the resources and patience of the Russian population.
If the world will enter into a new cold war, it will turn out to be much more difficult than it was in the 20th century. Today’s global order is determined not by two, but by three unpredictable forces – Putin, Trump and Xi Jinping, each of whom acts in their own, often incomprehensible, interests, creating an arena for contradictions that amaze with their unpredictability.
Tetyana Viktorova