How Hot is Ukraine Gonna Get?

[The_Capt]

Whelp, no surprises here:

https://www.ctvnews.ca/world/trump-insists-russia-s-war-should-end-but-he-won-t-say-if-he-wants-ukraine-to-win-1.7033342

 

[acrashb]

And on a positive note, Ukraine's intelligence agencies are getting good value.

"Russian School Kids Torch $15M Helicopter with Cigarettes"

"The teenage boys were reportedly promised 5 million rubles (about $55,000) by an unknown individual on the Telegram messaging app for carrying out the task."

https://www.newsweek.com/russian-teenagers-burn-mi-8-helicopter-1951989

[Battlefront.com]

6 hours ago, Vanir Ausf B said:

The latest update on the situation.

 

Yeah, saw that last night and my first thought was "OK, time to pack it in".  Although it took Russia longer to get to this point than any of us thought, it was inevitable.  Russia might not have been in a hurry to retake its territory, but nobody should have been under the impression that they would stop trying.

That being said, I really don't have a good sense of what's going on in Kursk in terms of each side's potential to decide the outcome short term.  For all I know this push by Russia is the only one they are capable of and that Ukraine is in no immediate risk of things going badly.  Or this is maybe this is the moment in the performance when the lights come on and "the show is over".

What I do know, for sure, is that Ukraine has shown no ability to stop the advance of Russian forces since the Avdiivka loss.  I also know that taking the Donbas is Russia's #1 stated goal, whereas retaking Kursk is apparently scribbled on a piece of paper somewhere on a cluttered desk in the Kremlin.  Which is to say that the value to Ukraine of holding the Donbas should be more important than holding Kursk.

We seem to be at one of those points where Ukraine now has to make a choice, whether it wants to or not.  Russia has the resources to conduct two major (relatively speaking) offensive actions while Ukraine is currently struggling to successfully defend against even one.

Steve

[ArmouredTopHat]

52 minutes ago, Battlefront.com said:

Yeah, saw that last night and my first thought was "OK, time to pack it in".  Although it took Russia longer to get to this point than any of us thought, it was inevitable.  Russia might not have been in a hurry to retake its territory, but nobody should have been under the impression that they would stop trying.

That being said, I really don't have a good sense of what's going on in Kursk in terms of each side's potential to decide the outcome short term.  For all I know this push by Russia is the only one they are capable of and that Ukraine is in no immediate risk of things going badly.  Or this is maybe this is the moment in the performance when the lights come on and "the show is over".

What I do know, for sure, is that Ukraine has shown no ability to stop the advance of Russian forces since the Avdiivka loss.  I also know that taking the Donbas is Russia's #1 stated goal, whereas retaking Kursk is apparently scribbled on a piece of paper somewhere on a cluttered desk in the Kremlin.  Which is to say that the value to Ukraine of holding the Donbas should be more important than holding Kursk.

We seem to be at one of those points where Ukraine now has to make a choice, whether it wants to or not.  Russia has the resources to conduct two major (relatively speaking) offensive actions while Ukraine is currently struggling to successfully defend against even one.

Steve

It seems the conditions in this area for attacks that worked so well for Ukraine also work well for Russia. Hearing that drone units were reached by a mechanised attack is not good news to say the least. 

[ArmouredTopHat]

In better news:
 

 

[ArmouredTopHat]

Plus an interesting anecdote in the Pokrovsk direction. 

[FancyCat]

Quote

"North Korea has continued to supply advanced short-range ballistic missiles to Russia in defiance of sanctions meant to prevent Pyongyang from developing such weapons and Moscow from importing them... In early January, the White House accused North Korea of providing ballistic missiles to Russia, but subsequent shipments had not been previously reported."

@johnismay

@conflictarm

https://www.nytimes.com/2024/09/11/us/russia-north-korea-missiles-ukraine.html

https://storymaps.arcgis.com/stories/15ae6ca767bc46a1b536ac7e2d962b66

 

 

[mediocreman]

15 hours ago, Battlefront.com said:

for

 

15 hours ago, Battlefront.com said:

Thanks for de-lurking and posting this!  I think it helps answer the questions about why there is Gripen components in this package and yet Ukraine doesn't have any Gripen.

It is interesting that Sweden is thinking ahead by producing spare parts for the older model.  Is this the first solid confirmation that Gripens are intended to go to Ukraine?  I mean, we have seen hints and rumors for quite some time, but i can't remember if the Swedish government has officially announced a plan for this.

Steve

This blog post from what I guess is Swedens most read mil-blog gives an insight which I at least think is plausible. I think google translate will make the page ok to read.  https://cornucopia.se/2024/05/uppdateras-storsta-svenska-stodpaketet-men-utan-gripen-toms-svenska-forrad-pa-allt-mycket-tunga-ryska-forluster/

Tldr: Sweden was/is prepared to send Gripen fighters but were held back by US in the last moment when about to officially announce it

Edited September 11 by mediocreman

[Holien]

https://www.timesofisrael.com/israeli-pleads-guilty-to-shipping-us-made-avionics-to-russia-violating-sanctions/

Trying to close down the holes in sanctions. Let's hope they can find and deal with the others bypassing sanctions for profit.

Quote

An Israeli national pleaded guilty Monday in a US court to charges that he illegally shipped American aircraft parts and avionics to Russia, in violation of export controls imposed following the Russian invasion of Ukraine in 2022.

Gal Haimovich, 49, admitted to deceiving American companies about the destination of goods, including some that had missile technology applications, which he supplied to intermediaries en route to Russian customers, the US Justice Department said in a statement Tuesday.

 

[LongLeftFlank]

Well on the plus side, I think this serious threat just imploded.

[ArmouredTopHat]

scratch another Su-30 from the looks of it 

[sburke]

13 minutes ago, LongLeftFlank said:

Well on the plus side, I think this serious threat just imploded.

This is America!  Don't count on it yet.

[billbindc]

1 hour ago, LongLeftFlank said:

Well on the plus side, I think this serious threat just imploded.

He certainly had a very bad night but don’t count your chickens yet.

 

[sburke]

25 minutes ago, billbindc said:

He certainly had a very bad night but don’t count your chickens yet.

 

or do count your chickens to make sure nobody else is eating them!  

[Fenris]

Latest read of Kursk from NoelReports

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The situation in the Kursk region now looks more or less like this. Russians made their way into Snagost', gained ground near Korenevo, and reportedly occupied Vishnevka, Apanasovka, Byakhove, Vnezapnoe, Viktorovka and Gordeevka. AFU launched attacks near the border.

 

[FancyCat]

Quote

"The White House is finalizing a plan to ease some restrictions on how Ukraine can use U.S.-donated weapons and better protect itself from Russian missiles, according to a Western official and two other people familiar with the discussions. The details of the plan are still coming together. But officials in Washington, London and Kyiv have in recent days discussed expanding the area inside Russia that Ukraine can hit with American and British-made weapons. They’ve also discussed how to prevent additional cross-border attacks by Russia, including the U.S. agreeing to allow Ukraine to use U.K. long-range missiles that contain American parts to strike inside Russia."

@ErinBanco @reporterjoe @paulmcleary

https://www.politico.com/news/2024/09/11/white-house-weapons-ukraine-00178673

 

[The_Capt]

1 hour ago, FancyCat said:

 

Well look at that. Deliberate and steady escalation. You know, like grown ups managing a really tricky war should do.

[Kraft]

A very lenghty and indeph war on the rocks article about russias economic timeline and prospects. Well worth the long read.

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Russia is faced with an insoluble equation: how to finance a war in the long term, for which expenditure is soaring while budget revenues are falling, against a backdrop of tightened sanctions. Between rising taxes, falling hydrocarbon revenues, inflation, and crises in employment and foreign investment, with a labor market short by 4.8 million workers (about 7 percent of the country’s labor force), and with the value of foreign assets in Russia dropping by almost 20 percent between December 2022 and March 2024, Russia has embarked on a risky gamble from which it will not emerge unscathed. Now spinning at breakneck speed on the momentum of its “war economy,” this Russian spinning top cannot slow down, or it will fall. But it may soon run out of momentum as well as finances. Russia’s economic future after 2024 rests essentially on the price of oil from the Urals and on the quantities exported, two subjects that are all the more uncertain for Russia in the near future. Russia may soon no longer be able to rely on its depleting financial reserves. With no possibility of borrowing on international financial markets, and constrained by a limited domestic financial market (in the context of China’s gradual disengagement), Russia risks nothing less than bankruptcy in the medium term.

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Interpreting the 2023 Budget

 

The year 2023 is a perfect illustration of how Russia was forced to dip into its savings to balance its budget, and was also the first year of Russia’s “war economy.” According to the Russian Ministry of Finance, in 2022, Russia spent around 31 billion rubles for 27 billion in revenues, resulting in a deficit of roughly 3 billion rubles. However, inflation was estimated at 13.8 percent for the year, with an unsurprisingly high GDP deflator of 15.8 percent. Faced with a large deficit and the prospect of a long war, Russia switched to a “war economy” at the end of 2022.

 

In 2023, Russia spent 32 billion current rubles (up 4 percent on 2022, which would explain part of Russia’s growth according to the research firm Astérès) for 29 billion in revenues (almost 5 percent up on the previous year), with a stable deficit of around 3 billion rubles. This apparently linear progression of the various indicators between 2022 and 2023 in fact conceals major disparities.

 

On the spending side, Russia has made no secret of the drastic increase in its defense and security budgets, with military spending in 2023 estimated at over 6 billion rubles or 3.9 percent of GDP, compared with 2.7 percent in 2021. Similarly, in a pre-election year, social spending has been maintained or even increased.

 

On the revenue side, things are more complex. Russian revenues are budgetarily divided between hydrocarbon revenues (oil and gas) and the remainder, so-called “non-hydrocarbon” revenues (value added tax, income tax, etc.). While oil and gas revenues have collapsed by 24 percent between 2022 and 2023, from 11.5 billion rubles to 8.8 billion, non-hydrocarbon revenues have risen from 16 billion rubles to 20 billion, an increase of 25 percent over one year.

 

Behind these other revenues are mainly value added tax receipts on domestic production and imports, which account for around 60 percent of this subtotal. These have risen by almost 22 percent year-on-year, a figure which should be seen in the context of Russian growth of 3.5 percent in 2023. The second revenue line, income tax revenues (around 10 percent of total revenues), rose by almost 15 percent, in line with rising wages and very low unemployment. The evolution of these two accounting lines is therefore consistent, at least in terms of trends, with what we know about Russia’s economic situation.

 

But there’s still around 30 percent of other revenues that aren’t detailed, but which nevertheless rose by 27 percent between 2022 and 2023 without any explanation of where these sums come from or what explains this substantial increase. If it’s not value added tax or income tax, what is it? According to the Regional Economic Service of the French Embassy in Russia, these unknown revenues actually cover several types of non-tax revenues received by the state: dividends from public companies returned to the budget, revenues linked to the management of the assets of the sovereign fund, fines, “ecological” tax on the import and production of automobiles, etc. But what remains unexplained is such an increase in the space of a year.

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2023 Trade Balance in Freefall

 

This increase in Russian revenues in 2023, which remains unclear for the most part, cannot be explained by Russia’s trade balance. In fact, according to the Russian Central Bank’s 2023 data, recently published online, Russia exported fewer goods and services in 2023 than in 2022: in value terms, exports of goods and services fell by 29 and 17 percent respectively between 2022 and 2023, but imports of goods and services rose by 10 and 5 percent respectively.

 

As a result, Russia’s trade surplus will barely exceed $50 billion in 2023, compared with $238 billion in 2022 and $122 billion in 2021, a drop of almost 80 percent year-on-year. Admittedly, 2022 was a record year for Russian exports, but that was before Western oil sanctions came into force.

 

While the price of a barrel of crude oil from the Urals only bottomed out significantly in 2020 (the first year of the COVID-19 pandemic), it hardly ever fell below $55 a barrel after that date. Gas prices, on the other hand, fell sharply in 2023 after peaking in 2022. The drop in export revenues in 2023 is therefore probably due to the fall in gas prices, combined with the loss of European customers: 40 percent of European gas came from Russia before 2022, compared with 15 percent at the end of 2023.

 

The Russian trade balance for 2023 simply confirms what the Ministry of Finance’s figures were already saying: the increase in Russian budget revenues is primarily due to higher taxation in Russia (excluding value added tax and income tax). As of September 2022, the Russian government has decided to tax oil and gas companies, with the avowed aim of recovering 628 billion rubles by 2023. Voted into law in August 2023, an additional 10 percent tax on profits was introduced for companies with sales in excess of $10 million in Russia, including foreign companies. Although this text initially spared companies in the oil and gas sector, a month later the government decided to increase taxes on this sector too. This time, it hopes to raise around $37 billion in taxes from 2023 to 2025. However, it is not clear that this tax target will be met, given, for example, that Gazprom’s revenue collapsed by 40 percent in 2023 compared to 2022, and by 42 percent compared to 2021, another record year before 2022. As a result, the company is paying significantly less tax than before: While it was the biggest contributor to the state budget in 2022, paying just over 5 billion rubles, it is expected to pay “only” 2.5 billion rubles in 2023, despite the increased tax burden.

 

The increase in Russian revenues in 2023 is therefore largely based on the increase in taxation and catch-ups compared to 2022. Is the effort reproducible on an identical scale in 2024? Nothing is less certain, which does not prevent the Russian government from already thinking about the next tax increase — and it could be a huge one.

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National Welfare Fund Cuts

 

Despite the generalization of tax increases, the Russian government has not managed to prevent the budget from being in deficit in 2023, as in 2022. How does it remedy this situation? In addition to the loans that Russia can still contract on its domestic market (around 2.5 billion rubles in 2023), the unknown share of Russian revenues is also likely to come from substantial withdrawals from Russia’s reserve fund, its major sovereign wealth fund, the National Welfare Fund — the Russian “wool bank” into which oil revenues are normally deposited to finance pensions and infrastructure.

 

Indeed, in January 2024, a cryptic statement from the Russian Ministry of Finance on the use of the National Welfare Fund read:

 

Part of the funds of the National Welfare Fund deposited in accounts with the Bank of Russia in the amount of 114,947 million Chinese yuan, 232,584 kg of gold in impersonal form and 573 million euros were sold for 2,900,000 million rubles. The proceeds were credited to a single account in the federal budget to finance its deficit.

 

Over the whole of 2023, Russia withdrew 2.9 billion rubles from its “savings account.”

 

This is all the more necessary as Russia no longer has access to international financial markets: Russia has been considered to be in default since 2022. Sanctioned by both the European Union and the United States, it cannot issue debt in dollars or euros. The principle isn’t necessarily embarrassing for Russia, since it has managed to run a budget surplus most of the time. But Russia is now “forbidden to overdraw” by Western countries (bearing in mind that even China is becoming increasingly reluctant to finance Russia): It doesn’t matter whether it has little or no debt, since it can no longer really go into debt as Western states can. The federal budget deficit must therefore be financed in other ways.

 

In any case, this use of the National Welfare Fund is not exceptional: This had already taken place in 2022, in the amount of 2.4 billion rubles, when the Russian Ministry of Finance sold off its reserves of Japanese yen, dollars, and pounds sterling, currencies deemed “toxic” by the Russian authorities. The 2023 drawdown was not unexpected either: The Russian Ministry of Finance announced it as early as August 2023. In the same press release, it also announced the amount planned for 2024: 1.3 billion rubles, half the size of the previous year’s drawdown. Is 2024 looking better for Russian finances? Nothing is less certain.

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Russia’s Economic Context

 

Russia’s GDP in 2024 is expected to grow at the same rate as in 2023, when it expanded by 3.6 percent, according to Russian Finance Minister Anton Siluanov. In any case, Russian growth is artificial, “bought on credit.” It’s a sort of Russian Keynesianism, aimed primarily at the military-industrial complex, as explained by Alexandra Prokopenko, a former Russian Central Bank official and now a contributor to the Carnegie Russia Eurasia Center. At the end of December 2023, the Russian Central Bank warned that the Russian economy was in danger of overheating.

 

This overheating can be seen first and foremost in the Russian unemployment rate, since below a certain threshold of frictional unemployment (job changes, professional transitions, training, etc.) an unemployment rate equivalent to that currently experienced in Russia reflects above all a labor shortage: At the end of 2023, the Russian media were reporting a labor shortage estimated at 4.8 million jobs. In August 2023, the Russian minister for digital development was already talking about a shortage of 500,000 to 700,000 information technology workers, in addition to 400,000 unfilled positions in the defense industry, whose products are currently in very high demand. According to Oleg Deripaska, a Russian oligarch in the metallurgy and mining sector, the fundamental problem is above all one of investment in production structures, with industries that are too poorly automated compared to their Western equivalents, and therefore still highly labor-intensive. Added to this internal Russian constraint is the fall in foreign investment in Russia, given the sale of assets by companies leaving Russia: $27 billion in foreign investment in 2021, compared with $40 billion in withdrawals in 2022 and $8 billion in 2023.

 

Inflation is Russian Central Bank’s number one concern for the coming years. In November 2023, when presenting its forecasts for 2024, the Russian Central Bank referred to a “risk scenario” in the following terms: If inflation gets “out of control,” the Russian Central Bank could be forced to raise its key rate to 16 or 17 percent in 2024. This was a month before the key rate was raised to 16 percent, with inflation over 2023 estimated at 7.5 percent, far from the 4 to 4.5 percent range the Russian Central Bank was aiming for. Still according to the bank, which chooses its words carefully, the persistence of high inflation is due to “domestic demand far exceeding the estimated growth in production capacity for goods and services.” However, given the labor shortage, the drop in certain investments ($315 billion in foreign direct investment “stocks” in September 2023 versus $442 billion in December 2022, for example) and the Kremlin’s ambitions to further increase military spending in 2024, it is highly unlikely that inflation will fall in 2024. In fact, in 2024, the Russian Central Bank reported inflation as high as ever in all its inflation reports over the year.

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Russia’s 2024 Budget

 

In November 2023, Russian journalist Boris Grozovski summed it up perfectly: “[President Vladimir] Putin is financing his war today with money planned for the future.” But the future may not be what Russia expects. The British Ministry of Defence was among the first to express skepticism about Russia’s budget targets for 2024, in a statement on Feb. 5, 2024 saying it considers the achievement of these targets “unlikely.” Indeed, while the Russian government is forecasting a 26 percent increase in spending in 2024, to 36.6 billion rubles, it is also forecasting revenues of 35 billion rubles, a 22 percent increase, with oil and gas revenues set to rise by 25 percent.

 

In terms of spending, the 2023 trend continues: Compared with the pre-invasion period in Ukraine, Russia will have tripled its military spending by 2024, with the defense budget now accounting for 40 percent of government expenditure, compared with 14 to 16 percent before 2022.

 

In terms of revenue, however, Russia’s horizon is far less clear. Russian banks could increase their holdings of state bonds and this would give the government trillions of rubles, which would be enough to fund several years of deficits. But considering the increase in the Russian Central Bank’s main key interest rate (18 percent at present), this would have a very significant cost for the Russian budget. And this would penalize Russian companies that rely largely on domestic banks for financing. So it’s no surprise that, as early as October 2023, Siluanov announced that borrowing on the domestic market would be significantly lower than planned. Moreover, Chinese banks, among the last foreign banks still present on Russian territory, are drastically limiting their exposure in Russia according to Russian media. As far back as January 2024, Bloomberg reported a decline in Chinese financial support for Russian entities following pressure from the U.S. State Department. In June 2024, secondary sanctions were decided on by United States, specifically levelled at Indian and Chinese banks that are believed to be helping Russia evade sanctions.

 

Despite the planned tax increases, it is not certain that tax revenues will increase in 2024 in the same proportions as in 2023, which is why the Russian government is pinning a large part of its hopes for completing its 2024 budget on increased oil revenues. But there are a number of conditions that must be met for this to happen, the first of which is a Brent crude oil price of around $85 a barrel in 2024 and a Ural crude oil price of at least $60 a barrel. This condition is currently met over the first five months of 2024.

 

This is the budgetary crest line the Russian government will have to walk in 2024: Russia needs a high Urals barrel (above the Western price cap) and a low ruble (to mechanically generate more rubles from the same amount paid), but not too low either, so as not to create imported inflation on top of the inflation already underway. As Ronald Smith, senior analyst for BCS World of Investments in Moscow, explains, the Russian budget is above all sensitive to the price per barrel, much more so than to production volumes, the latter having remained stable compared with 2021.

 

Except that revenues from Russian oil exports have not yet increased compared with 2023 (although the Russian budget forecasts a 25 percent increase in these revenues this year). Added to the vagaries of the market are uncertainties about the effects of Ukrainian strikes on Russian refineries: in the space of a few days, Ukrainian strikes have damaged three refineries representing 12 percent of Russian refining capacity. While the subject may initially have seemed more symbolic than anything else, Russian export figures for January 2024 show a drop in export volumes. For specific oil products such as gasoline and diesel, Russian exports fell by 37 percent and 23 percent respectively in January 2024. According to Gunvor Group CEO Torbjörn Törnqvist, Russian production was cut by 600,000 barrels a day following the strikes in mid-March 2024. All this is happening against a backdrop of a general decline in Russia’s oil revenues after the February-to-March 2022 peak. In July 2024, Russia’s State Duma passed its first amendments to the 2024 federal budget in order to legalize the drop in revenues, the rise in spending, and therefore the increase in the deficit forecast for 2024. More specifically, the document mentions a drop in oil and gas revenues.

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The National Welfare Fund’s Limited Reserves

 

In the absence of a sufficient increase in oil and tax revenues, Russia could very quickly be forced to dip back into the National Welfare Fund. It should be remembered that the National Welfare Fund is normally topped up by oil revenues. However, these have fallen by 24 percent in 2023. This has not prevented Siluanov from announcing new withdrawals, as he did in October 2023: He announced at the time that the National Welfare Fund would still have 6.7 billion rubles left at the end of 2024, compared with 1.37 billion in September 2023. Is Russia keeping reserves for the future? What the minister announced in October 2023 is therefore the total consumption, or very close to it, of Russia’s financial reserves at the end of 2024, against a backdrop of major uncertainties over tax and oil revenues this year.

 

To understand this, we need to look at the composition of the National Welfare Fund. It’s actually made up of a multitude of assets and securitized investments, investment accounts, and other bond investments. But 90 percent of its “face value” is actually based on two asset classes: shares in Russian companies and cash (gold and currency reserves). Of all the assets in the National Welfare Fund, only the cash can actually be used to bail out the state budget and finance the war. And this cash is evaporating.

 

On Jan. 1, 2022, the National Welfare Fund’s total assets stood at 13.5 billion rubles, then 10.4 billion on Jan. 1, 2023, and 11.9 billion on Jan. 1, 2024. Apparently the fund’s face value moves very little, and after a drop in 2022, it finally went up again in 2023. Except that the amount shown for these reserves is fudged, especially if we look at the amount of liquid assets: 8.4 billion rubles in 2022, 6.1 billion in 2023, and 5 billion in 2024. Russia has gone from $113 billion in reserves to $56 billion in two years (taking exchange rates into account). A year ago, the National Welfare Fund still held 10 billion euros, 310 billion yuan, and 554 metric tons of gold. By Jan. 1, 2024, there were no euros left (nor any hard currencies), 227 billion yuan, and 358 metric tons of gold.

 

By means of an accounting sleight of hand, Russia is disguising the fall in liquidity by adding shares in Russian companies in which the state has a stake. Between January 2022 and August 2023, the share of shares in Russian companies in the National Welfare Fund rose from 26 percent to 33 percent, while its face value remained more or less unchanged. By January 2024, this share had risen to 38 percent. Not only are these assets illiquid, but their real value is totally unverifiable and probably greatly overestimated: It’s hard to imagine, for example, that Aeroflot’s valuation hasn’t changed since 2021, which is what the National Welfare Fund accounts suggest.

 

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Center of Gravity

 

In terms of strategy, effective action depends on identifying the adversary’s center of gravity, i.e., the point in his system (material or immaterial) on which action will have maximum effect. In addition to underestimating Ukrainian resistance, Russia made the mistake of thinking that Europe’s dependence on Russian gas would be its center of gravity. In the summer of 2022, Russia took the gamble that action in this direction would dissuade Europe from intervening and supporting Ukraine. This was the whole point — and failure — of the Russian gas embargo. On the other hand, even if some have questioned the speed of the process, the West made no mistake in imposing economic and financial sanctions on Russia: Like the Soviet Union before it, Russia may not have the means to achieve its ambitions for long.

 

While Russia was planning in 2023 to reduce its military spending from 2025 onwards, everything now seems to indicate that it will at least be maintained and probably even increased. After having deprived itself of its main customers and outlets in Europe, Russia is now forced to burn through its financial reserves to continue its war in Ukraine. These reserves are running out. By the end of 2024, if we are to believe the statements of the Russian finance minister and the accounting details of his ministry’s press releases, Russia will have exhausted the National Welfare Fund’s liquidity reserves. In a deteriorating economic context (inflation), with no possibility of raising debt on the financial markets, with less support from the Chinese banks still present in Russia, and with no prospect of sufficient oil and gas revenues, Russia could find itself in a “suspension of payments” in the near future.

 

“What can affect the future course of the Russian economy? Clearly, the military and economic decisions of the Russian government play a central role. Oil prices are another key factor. Finally, we have the pressure of the global community on Russia 23 to stop its aggression. While the first two forces are beyond the direct control of the Western democracies, the third is certainty within their power,” sum up Yuriy Gorodnichenko, Iikka Korhonen, and Elina Ribakova in their report “Russian economy on war footing: A new reality financed by commodity exports.” While Russia still has the financial capacity to fund all federal budget items by 2024 — including the invasion of Ukraine — thanks to its financial reserves, the situation could change as early as 2025. With federal government revenues (from exports and taxes) insufficient to cover expenditure (and the difference no longer able to be covered by drawing on reserves), Russia could soon be forced to make drastic budgetary choices.

 

What could happen when Russia runs out of financial reserves? It’s an exercise in foresight, but several scenarios are conceivable. The first is the most unrealistic: For lack of funding, Russia stops its military spending, abandons its “special operation” in Ukraine, acknowledges its defeat, and goes back to “business as usual.” But there is a problem: It is true that the Russian state heavily financed the resurrection of the Soviet military-industrial complex, but who will finance the reversal, and how? The possibility of reversing the transformation of Russian industry, from the production of military equipment to the production of civilian goods, is highly questionable in the specific context of future financial difficulties. The Central Bank of Russia stated in April 2022 that Russia will have to face “reverse industrialization” in the coming years. Russia financed the restarting of weapons factories, some of which had been mothballed for years. This had repercussions for the entire supply chain and subcontractors, but an abrupt halt to production for military purposes will not be without consequences for all sectors directly linked to the supply of weapons components — the military-industrial complex. Factories that used to produce tanks or missiles aren’t going to produce cars or washing machines overnight.

 

Whatever the case, this scenario would make it possible to envisage a gradual lifting of sanctions, or even the release of aid from international institutions in the medium term, provided that Russia undertakes to finance the reconstruction of Ukraine. While this is the scenario that would probably best avoid economic collapse, it is also the one that presents the greatest political risks for Vladimir Putin. The probability of such a scenario occurring is therefore extremely low, as long as Putin holds the reins of power tightly.

 

A second scenario could involve massive Chinese intervention (financial loans, supply of equipment, munitions, troops, etc.) in exchange for even greater access to Russia’s natural resources, or even in exchange for territories such as Siberia. This hypothesis would enable Russia to continue its offensive and bolster its economy for years to come. The flaw in this scenario is that it would expose China to massive economic retaliation from the West. Apart from the fact that this would split the world into two major geopolitical blocs, as it did during the Cold War, China’s already shaky economy would have a hard time absorbing the shock, making this scenario highly unlikely beyond current support.

 

The third scenario is the most likely: change nothing and try to adapt. Considering that the Russian economy is beginning to operate in a closed circuit, once its reserves have been exhausted, Russia could quickly decide to suspend certain social benefits and reduce salaries while continuing to raise taxes. In addition, it could seize all foreign assets still present in Russia (or even gradually sell the Russian Central Bank’s gold reserves on parallel markets). As this is unlikely to be enough in the long run, Russia will have no choice but to turn on the “money printing press,” accentuating the inflationary spiral and further depreciating the ruble. This maximalist strategy would most likely enable Russia to hold out for some years, but with the risk of a cataclysmic economic collapse in the end: This is pretty much the exact description of the Soviet Union’s economic situation between 1989 and 1991.

 

In a country where more than half the population lives directly off state subsidies, where the poverty rate will exceed 13 percent in 2021 (even though poverty criteria are much lower than in the West), and where 62 percent of Russians have neither savings nor enough to buy more than clothes and food, the long-term risk for Russia is to find itself in an economic situation identical to that which preceded the fall of the Soviet Union.

 

Edited September 12 by Kraft

[sburke]

58 minutes ago, Kraft said:

A very lenghty and indeph war on the rocks article about russias economic timeline and prospects. Well worth the long read.

 

thanks!  Yes a very good read.

[Offshoot]

A little more on the expanded use of Storm Shadow missiles inside Russia - Blinken hints US will lift restrictions on Ukraine using long-range arms in Russia

Quote

British government sources indicated that a decision had already been made to allow Ukraine to use Storm Shadow cruise missiles on targets inside Russia, although it is not expected to be publicly announced on Friday when Starmer meets Biden in Washington DC.

 

Edited September 12 by Offshoot

[chrisl]

On 9/7/2024 at 5:06 AM, LongLeftFlank said:

Somewhat OT (or is it?), but for a few months now Powerpoint (yes, the PMC C-suite's favoured mode of communication) has been cheerily offering to caption my imagery for me: e.g. 'image of a city'. MS doesn't even bother to hide that they're spying on you anymore.... and you're paying for the priv.

So how long now before the MS AI becomes smart enough to figure out I'm looking at a very specific piece of land for a very specific purpose, connect that with my LI profile, and offer up that compet. intel to whomever's willing to pay for it?

....Oh wait, that's already been true for a decade, at least for 'persons of interest' to the Man (fortunately I have measured out my life with coffee spoons, so have never rated that level of interest AFAIK, although I don't fly through China/HK now, just in case).

Software as a Spyware.

Type with care out there, grogs. Anonymity ain't what it used ta be.

MS?  They'll never be able to do it.  They can't even show me the right emails in a search, and have a habit of trying to push obsolete documents into meeting invites as if they're current attachments.  MS is stunningly bad at picking relevant things, terrible at search and indexing, and will cause no end of complex system failures at other companies.  Anybody counting on MS for targeting intel should expect something even worse than when Milo Minderbinder contracted to have the US squadron on Pianosa bomb Pianosa because it's more economical that way.  And when the syndicate profits, everybody benefits.  Because everybody has a share.

Amazon will be the ones to do it.  They look at my browsing and purchasing patterns and dispatch a truck with things I might want in the direction of my house as soon as I pull up the amazon page and before I even type the search term.  When I press "purchase" they just pull the correct item out of their overbroad predicted list, slap a label on it, and drop it on my porch.

[sburke]

18 hours ago, chrisl said:

They look at my browsing and purchasing patterns and dispatch a truck with things I might want in the direction of my house as soon as I pull up the amazon page and before I even type the search term.  When I press "purchase" they just pull the correct item out of their overbroad predicted list, slap a label on it, and drop it on my porch.

So that is why that truck is circling my house riding low on its frame.  I keep looking at stuff only a professional woodshop would have that weighs 6 tons that I'll never buy but drool over.  

Edited September 12 by sburke

[Carolus]

4 hours ago, The_Capt said:

Well look at that. Deliberate and steady escalation. You know, like grown ups managing a really tricky war should do.

Sorry, but the grown-ups call this post-hoc ergo propter hoc.

You would have likely commented the same if this had happened three months prior or if it had happened six months later. 

We can pin this on the Iranian ballistic missiles transfer, or on the Ukrainian argumentation during a meeting, but there were similar "triggers" for such a step (external weapon transfers or Russian warcrimes or Ukrainian requests).

What make this happen now? Was it even a trigger event? Was it political pressure from the electorate? A combination of factors?

Maybe the pro-Ukrainian political pressure played a role that you have stated several times will actually reduce the help for Ukraine (and on what basis?)?

Did the pressure from the electorate cause the administration to choose a specific trigger event now after ignoring other trigger events in the past that would have been just as much justification for this step of escalation?

I don't know.

But to conclude that this follows some specific escalation plan is not determinable by anyone without very specific insider knowledge.

Only historians will be able to make this call in a few decades. Let's keep the quality of this thread, as you have asked for yourself recently, and not use fallacies to take cheap shots in favour of pre-formed personal positions, but rather stay neutral in our assessments.

Edited September 12 by Carolus

[Battlefront.com]

4 hours ago, Kraft said:

A very lenghty and indeph war on the rocks article about russias economic timeline and prospects. Well worth the long read.

 

An excellent read.  This puts into detail the sorts of discussions we've had here since February 2022.  As expected, a combination of clever management and accounting tricks has kept the Russian economy going for as long as it has.  Also as expected, none of this is "for free" and without risk.  Because if they were easy and risk free, they would have been doing them before 2022!  I especially loved the way they've been propping up the sovereign wealth fund with unverifiable pieces of paper from Russian companies.

It's also very clear that the average Russia is paying a lot more in taxes than they used to.  Which is always something that people will grumble about, but even more so when they are required to pay more a the same time everything costs more.  "Double whammy" as we Yanks like to say.

The presentation makes clear that the entire economy is geared towards keeping the war going.  In fact, it states that if the war were to end tomorrow the economic situation would become vastly worse (at least temporarily) because the only sector of the economy that has seen real growth is on the military side.  Withdrawing financial expenditures into the defense sector helps with the budget if the non-military industries pick up the slack.  That's as unlikely as Ukraine occupying Moscow.

I think the presentation can be summarized as "Russia dug itself into a deep hole without taking a ladder or a rope with it, and nobody seems interested in helping provide one".

Steve

[Battlefront.com]

52 minutes ago, Carolus said:

Sorry, but the grown-ups call this post-hoc ergo propter hoc.

You would have likely commented the same if this had happened three months prior or if it had happened six months later. 

We can pin this on the Iranian ballistic missiles transfer, or on the Ukrainian argumentation during a meeting, but there were similar "triggers" for such a step (external weapon transfers or Russian warcrimes or Ukrainian requests).

What make this happen now? Was it even a trigger event? Was it political pressure from the electorate? A combination of factors?

Maybe the pro-Ukrainian political pressure played a role that you have stated several times will actually reduce the help for Ukraine (and on what basis?)?

Did the pressure from the electorate cause the administration to choose a specific trigger event now after ignoring other trigger events in the past that would have been just as much justification for this step of escalation?

I don't know.

But to conclude that this follows some specific escalation plan is not determinable by anyone without very specific insider knowledge.

Only historians will be able to make this call in a few decades. Let's keep the quality of this thread, as you have asked for yourself recently, and not use fallacies to take cheap shots in favour of pre-formed personal positions, but rather stay neutral in our assessments.

I think you're taking what The_Capt said too literally.  I doubt he was saying there is some master list of how to escalate and why.  That would not only be hard to conceive of doing ahead of time, but it would also be foolish because it presupposes knowledge nobody has.  i.e. a crystal ball.

Instead what he's saying (and he can correct me if I'm wrong) is that the West knows it has only so many things to hold back from Ukraine.  If it gives Ukraine everything all at once, then there's nothing left for the West to negotiate with Russia about.  And it is very safe to assume there are negotiations going on behind closed doors on a consistent basis.

Think about it this way.  Russia does something the US told it not to do or Ukraine is in a tight spot.  The West goes to its drawer full of withheld stuff, looks for something that is appropriately sized for the situation and puts it into play. 

Some of them, no doubt, have been explicitly withheld with Russia being warned that withholding it further is dependent upon doing or not doing something general or specific.  These somethings are likely the big ones like F-16s, long range ATACMS, new precision stuff that's not in the fight yet, etc.  That way the West can go to Russia and day "if you do this or don't do that, guess what?  Ukraine will be flying F-16s.  Do you really want that to happen?"

This is the correct way to deal with Russia if one doesn't want to run the risk of trampling over a red line or two.  My criticism is that some of these with holdings should have been put into play earlier.  Like authorization to use Western weapons to hit back on military assets attacking from Russian soil.  I don't think it should have been approved in February 2022, but I think it should have by February 2023.  The fact that it happened in 2024 is where I think the escalation strategy is flawed.  Concept is sound, execution is not always what it should be.

Despite all of this, we should remember that Russia explicitly warned the West about giving Ukraine Javelins and that happened before the invasion even happened.  Russia has also warned the West about not giving Ukraine any number of things which the West in fact provide to Ukraine.  Some of which were also provided very early.  HIMARS were in play summer of 2022 for example.  That was a HUGE deal at the time and it seems forgotten now.

Steve