Russia’s war with Ukraine is already costing the Russian economy


MOSCOW — President Vladimir V. Putin has ushered in a crisis for his country — in its economy and its identity.

The Kremlin hides the reality of the country’s attack on Ukraine from its own people, even cracking down on the media who call it a “war”.

But the economic carnage and societal upheaval wrought by Mr. Putin’s invasion is becoming increasingly difficult to hide.

Airlines have canceled once-ubiquitous flights to Europe. The Central Bank rushed to deliver ruble notes as demand for cash soared 58 times. Economists warned of higher inflation, greater capital flight and slower growth; and rating agency S&P downgraded Russia to junk status.

The emphasis on concealing the true scale of the war was a sign that the Kremlin feared the Russians would frown on a large-scale, violent invasion of Ukraine, a country where many millions of Russians have relatives and friends. .

Even so, more state-connected public figures have spoken out against the war, including a Russian parliament lawmaker. Business owners tried to assess the consequences of an economic crisis that seemed to be already starting, even before the sanctions were fully in place.

Facing the greatest test yet of its reality-distorting prowess, the Kremlin’s propaganda machine seemed for the moment to contain widespread opposition to the war. There was no indication that the war could undermine Mr Putin’s grip on power and, if won quickly, analysts noted, could end up strengthening it.

But the enormous risks of war, along with the economic strain the country is suddenly under, have created a new and more treacherous reality for the Kremlin and Russia’s 145 million people.

The Russians were amazed at how quickly the economic impact of the war was felt. The ruble hit an all-time low against the dollar, which traded at around 84 rubles on Saturday from 74 a few weeks ago. This has pushed up import prices, while sanctions on Russia’s biggest banks have wreaked havoc on financial markets and new export restrictions promised to scramble supply chains.

“Those who shout that Putin is awesome and well done don’t shout so loud anymore,” said Lalya Sadykova, owner of a chain of beauty salons in St. Petersburg. “They are in shock at what is happening, how quickly prices are changing and how suppliers are stopping deliveries.”

The chief executive of one of Russia’s biggest electronics retailers, DNS, said on Thursday that a supply shortage had forced his chain to raise prices by around 30%. A few days earlier, the director general, Dmitry Alekseyev, had posted on Facebook: “For my life, I don’t understand why Russia needs a war.”

“I understand that prices in stores cause frustration,” Mr. Alekseyev wrote. “But that’s the reality.”

S7, Russia’s second largest airline, has suspended all flights to Europe due to the closure of airspace to Russian companies, an early sign that the cheap and easy trips to the West that Russians in the middle class had become accustomed could become a thing of the past. Photos of retailers changing or removing their price tags have gone viral on social media.

“We are all waiting for the sequel,” Anastasia Baranova said, describing a flurry of cancellations Friday at the hotel she runs in St. Petersburg. “It’s like the whole country is on hiatus.”

The Kremlin has been quick to stick with its narrative, signaling the start of a new, more brutal phase in its longstanding crackdown on dissent. The government’s communications regulator has slowed access to Facebook and warned 10 Russian media that their websites could be blocked. The offense declared by the media was to publish articles “in which the current operation is characterized as an attack, an invasion or a declaration of war”.

Even as a fierce battle for Kiev unfolded on Saturday morning, a Russian Defense Ministry statement on the situation in Ukraine made no mention of the Ukrainian capital or Russian casualties. The ministry, which typically releases sleek and copious footage of the Russian military in action daily, has not released any video of its combat operations in Ukraine.

And Russia’s public news channel aired footage of a peaceful day in Kiev on Saturday in an attempt to counter videos of violence being broadcast on the Telegram social network.

“As you can see, the situation in the cities is calm,” the presenter said. “No explosions, no bombings, contrary to what some Telegram channels write.”

A hint of potential opposition emerged on Saturday when Mikhail Matveyev, a communist lawmaker who had voted in favor of Mr Putin’s recognition of Russian-backed separatist territories, wrote on Twitter that he had been cheated.

“I was voting for peace, not for war,” he wrote, “and not for Kyiv to be bombed.”

It was a rare crack in the firmament of parliament, where dissent over Mr Putin’s major foreign policy decisions has been virtually non-existent in recent years. Tatyana Yumasheva, the daughter of former President Boris N. Yeltsin who helped bring Mr Putin to power, posted an anti-war message on Facebook.

Moscow’s Garage Museum of Contemporary Art, a stylish showcase of a western-looking Russia founded by Kremlin-friendly oligarch Roman Abramovich, said it would stop working on new exhibits until the “human and political tragedy” ceases in Ukraine.

“We cannot maintain the illusion of normalcy,” the museum said. “We see ourselves as part of a larger world that is not broken by war.”

Still, it emerged on Saturday that the Kremlin’s forced blinders were doing their job, as were the obvious dangers of voicing dissent. The spontaneous anti-war rallies that took several thousand people to the streets of cities across the country on Thursday, with more than 1,500 arrests, were not repeated on this scale on Friday.

While many members of Russia’s intellectual elite expressed their horror and the fence in front of the Ukrainian Embassy in Moscow was filled with flowers, there was little evidence of an outpouring of opposition. wider.

“The propaganda works very well,” said Anastasia Nikolskaya, a sociologist from Moscow. “Not that anyone welcomes war, but it is seen as a measure of last resort that is necessary.”

The main determining factor for what happens next, of course, will be what happens on the battlefield in Ukraine – the longer the war lasts and the greater the loss of life and destruction, the more difficult it will be for the Kremlin to start the war. as a limited operation not directed against the Ukrainian people.

Andrei Kortunov, director general of the Russian Council for International Affairs, a research organization close to the Russian government, said he believed the Kremlin expected the fighting to last no more than two weeks.

If Russia has forced a surrender of the Ukrainian military within that timeframe, with limited destruction and limited Russian and civilian casualties, Mr. Kortunov said, Mr. Putin should be able to count on continued national support.

But if the war does not go as planned, Mr Kortunov warned, the country could see “serious political consequences and consequences for the popularity of the leadership”.

“Victory will undo a lot – not everything, but a lot,” Mr Kortunov said. “If there is no victory, there may be complications because, of course, many doubt that there are no other political alternatives.”

There were indications that the past few days were just the start of a new chapter in Mr Putin’s clash with the West and his crackdown on freedoms at home. Dmitry A. Medvedev, the deputy chairman of Mr. Putin’s security council, speculated in a social media post on Saturday that Russia could reintroduce the death penalty or seize the assets of foreigners in Russia by response to Western sanctions.

“The interesting part has only just begun…”, he wrote.

Despite the economic difficulties, the sanctions are unlikely to change the course of Russia in the short term, analysts say. Russia has the reserves to support the ruble and the Kremlin has struggled to insulate the economy from external shocks since being hit with sanctions following the annexation of Crimea in 2014.

The real cost of sanctions will be Russia’s long-term development, said Yevgeny Nadorshin, chief economist at Moscow-based consultancy PF Capital. Incomes will continue to stagnate and the country’s middle class will continue to shrink. Many of the country’s manufacturers who have launched production of modern trains, cars and other products over the past decade will face serious problems if the West bans technology exports to Russia, he said. he declares.

The country will be stable, Nadorshin said. However, he added, this stability “will be like a swamp where nothing happens and changes even if the forests burn around it”.

“Some reeds will bloom in this swamp, but there will only be scorched land around it,” Mr Nadorshin said. “You can enter this swamp, but you will get stuck there and you could possibly drown.”

And beyond the economic impact of the war, many Russians could not yet imagine accepting living in a country that had launched an unprovoked assault on its neighbor. On Friday, a steady stream of people came to the Ukrainian Embassy in Moscow, bringing flowers. A police officer stopped a woman from also leaving a small sign saying, “Yes to peace”.

“I’m afraid to meet Ukrainians and look them in the eye,” said cartoonist Aleksei, 28, refusing to give his last name for fear of repercussions from the security services. “It’s the scariest thing of all.”

Alina Lobzina and Oleg Matsnev contributed reporting from Moscow.


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