August 31, 2024: Russian leaders have claimed for the past two years that Russia can keep fighting indefinitely while NATO supporters of Ukraine will eventually tire of the cost of sustaining the Ukrainian military. That is unlikely to happen because the economies of the NATO nations account for about half the global GDP of $105 trillion. Before the Russian invasion, Russian GDP accounted for about two percent of the global GDP. Russian oil exports, their major source of foreign currency, are sanctioned. Russia now has to smuggle the oil out and sell it to buyers willing to risk getting sanctioned if caught. That means Russia has to sell its oil at a discount of ten percent or more in addition to problems with shipping the quantities of oil available. The net result is 20 to 30 percent less oil income.

After more than two years of war, Russia has found that establishing a wartime economy does result in more military supplies, or at least maintaining pre-war levels of weapons and munitions. This comes at the expense of the average Russian consumer. They now have less of everything. The government tried to avoid this with increased deficit spending. That is gradually eliminating the billions of dollars maintained in the emergency fund. This kind of fund is common in nations that can afford to maintain such a reserve. Russia has largely depleted its reserve fund to keep the war going while limiting hardship for the Russian population as well as the industrial base. This wasn’t enough because the war is in its third year and the economic demands are more than the Russian economy can sustain. Foreign economists estimate that supplies of Russian military equipment will be exhausted by late 2025. That’s because production has been declining because of the sanctions remaining while the intensity of the fighting has continued. Russian troops are finding that they are receiving less munitions and fewer replacement weapons. Getting Russian men to join the military is more difficult because of the heavy casualties. Russia responded with high cash bonuses for men who enlisted. That worked for a while until it became obvious that many of these soldiers were getting killed in Ukraine leaving wives and families without husbands and sons. The big bonuses did not compensate for such losses and recruiting continued to be difficult and expensive.

The wartime deficit spending caused inflation to rise towards ten percent. Unemployment is lower, at under two percent. There were a lot fewer military age men who are also prime working age men. Such a wartime economy is unique in Russian history because the Russians are trying to avoid what happened during World War II when, despite billions of current dollars in American economic and military aid, Russia still lost 18 percent of its population. Most of the personnel losses were military but a third were civilians who were killed in the fighting, starved to death or died from avoidable diseases before the war ended. In World War II Russia was being invaded by Nazi Germany while 80 years later it is Russia that is invading a neighboring country. This time there is no American aid for Russia and Russia has no allies, except North Korea and Iran, that can provide substantial aid.

Russia is on its own in Ukraine and losing the war it started.