The Economic Impact of the War on Russia

The Ongoing Economic Impact of the War in Ukraine on Russia

The conflict in Ukraine has been ongoing for over two years now, leading to significant economic repercussions for Russia.
Analysts are questioning the financial toll Moscow has faced since the beginning of the invasion in the neighboring country dating back to February 2022.

Quantifying the exact losses is a challenging task.
However, the long duration of this conflict has brought about substantial changes in the commercial and financial relationships between Russia and the Western world.
These have reshaped the financial inflows and outflows of the Russian state budget.

The invasion’s consequences have had a multifaceted impact on Russia.
Devastating wounds include catastrophic casualty rates, increased economic isolation from the West, and mass emigration of skilled workers.
A significant share of the natural gas market and revenues in Europe has been lost.
Despite various ways to circumvent energy sanctions, Gazprom, the state energy giant, reported a net loss of 629 billion rubles (6.9 billion dollars) in 2023.

The Russian government has tapped into nearly half of the available reserves from the national fund to shield the economy, leaving it susceptible to future shocks.
Frozen reserves, a weakened ruble, high inflation, private capital outflow, and an increased deficit due to higher military spending are all factors challenging the national economy.
When combined, these elements result in a heavy cost for Putin’s coffers.

Finding a precise figure to quantify Russia’s financial losses due to the war is a complex endeavor.
However, some estimations shed light on the expenses Moscow has incurred to finance the conflict.
According to a Pentagon study in February 2024, military operations in Ukraine have cost Russia up to 211 billion dollars, with an additional 10 billion dollars lost from canceled or suspended arms sales.

Moreover, the full-scale invasion of Ukraine has led Russia to lose a significant share of the natural gas market and revenues in Europe.
The projected loss for Moscow in this sector in 2024 ranges between 27 and 34 billion dollars.
This impact extends to Russia’s planned expenditures for education and healthcare in 2024, which have diminished as funds were redirected to the massive military campaign.

In the energy sector, Gazprom’s financial accounts have plunged into a net loss of 629 billion rubles (6.9 billion dollars) in 2023, its first annual loss in over 20 years.
Sales incurred a loss of 364 billion rubles in 2023, compared to a profit of 1.9 trillion rubles in 2022.
Total revenue dropped to 8.5 trillion rubles from 11.7 trillion in 2022.

Additionally, the National Wellbeing Fund’s cash and easily liquidable investments plummeted to 5 trillion rubles (56.5 billion dollars) by the end of 2023 from 8.9 trillion rubles before the war.
The Ministry of Finance withdrew around 3 trillion rubles from the fund to cover the budget deficit last year, increasing spending on the military and economic stabilization measures.

Anton Siluanov, the Finance Minister, had mentioned that if the energy price situation worsens, they would tap into the National Wellbeing Fund.
Measures could involve partial privatization of state-owned companies or increased local lending.

Russian economist Alex Isakov warned that if oil prices disregard the supply disruption risks due to conflicts, the remaining liquid assets of the NWF will continue to decrease, rendering Russia more vulnerable to shocks.
There might be room for further revenue losses in Russia’s coffers if oil export prices drop below 50 dollars.

To conclude, the economic repercussions of the war in Ukraine on Russia are extensive and continue to evolve, impacting various sectors and financial reserves.