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FOCUS: Russia-Ukraine War

The Militarization Of Russia's Economy, And The Demise Of The Oligarchs

By putting the economy on a war footing, Putin risks returning Russia to the days of Stalinist totalitarianism, where there will be no oligarchs or businesses left, only loyal administrators.

The Militarization Of Russia's Economy, And The Demise Of The Oligarchs

Russian President Vladimir Putin visiting the Instrument Design Bureau in Tula

Boris Grozovsky


MOSCOW — The war with Ukraine has not gone according to Vladimir Putin's plan. Eleven months have passed, but less than 17% of Ukrainian territory, including Crimea , is under Russian control.

Moreover, the war has been much longer and more expensive than Putin expected: Russia is under international sanctions, oil prices are frozen and oligarchs are trying to withdraw whatever shreds of their money they can from the country.

Under these conditions, the Russian president has been forced to roll back social support and squeeze everything out of the economy for the war budget. Russian economic observer Boris Grozovsky tells Vazhnyye Istorii what Putin's policies will mean for Russia.

Putin has enough money for the long war , but it's becoming harder and harder to get. Sanctions against Russian exports are beginning to have an effect, and oil and gas revenues have fallen. The federal budget will receive less money, and the economy will shrink: the government predicts a 0.8% drop in GDP this year, but experts predict a threefold decline.

​Austerity mode

Accounting for inflation, oil and gas exports will likely be 20-34% less than they were in the second half of the 2010s, predicts CMACP, a think tank connected to the Russian government. With this decline in revenue, the budget and the entire economy will have to adjust to a much poorer and simpler life.

Military expenditures are untouchable, and growing.

It is impossible to calculate the exact cost of the war: the statistics are now classified, and some military expenditures are disguised as civilians — described as pensions, industry, etc. — and the share of classified budget expenditures has grown from 16% in 2021 to 22.4% in 2023.

But from what is disclosed, it is clear that spending on military and security increased from 24% to 32% of the budget, an unprecedented amount.

This soaring spending means cuts to civilian expenditures, and squeezing more money out of the economy. For example, increases in social spending will barely cover inflation, even though a third of the population depends on government aid.

Russian President Vladimir Putin visiting the Instrument Design Bureau in Tula

Russian Presidential Press Office / Planet Pix / ZUMA

​Attacking regime

But cutting spending alone won't be enough. Russian oligarchs worry that the logic of war will lead the government to nationalize or transfer businesses from less loyal owners to more loyal ones, as happened with Yandex and Tinkoff. Some big companies are reported to have commissioned studies by historians on how the Nazi and fascist Italian regimes dealt with large private property.

The most radical, like Duma Speaker Vyacheslav Volodin, have already proposed confiscating the property of Russians who moved abroad and "publicly slung mud at Russia."

Russian officials are bound to come to the same conclusion that the government should take control of businesses whose owners don't vigorously support the war.

Revenue mobilization has already begun. Last year, the government added Gazprom's profits to the budget , and in December, it looked at increasing dividend payments to state companies and making a one-time payment to the budget for coal and fertilizer producers.

Members of the Russian elite know that this will end badly. The war has already cut off Russian business from world markets, and the billionaires from their foreign wealth and property. The next step is the regulation of profits.

Stalinist economy

A wartime economy is characterized by central planning and mobilization — otherwise, it is impossible to make businesses and people work for the war. During World War II, Britain and the United States had to switch to centralized planning and distribution of goods needed for the front and investments. Russia's mobilization approach is even more peculiar.

In the late 1920s, Stalin accelerated mobilization planning, making it the center of preparations for a future war, believing that the entirety of the country's human and material resources were needed to ensure military success. Stalinist militarism required a forced transformation of economic and social structures toward militarization — similar to what Russia is experiencing now.

The Soviet Union was preparing to fight the whole world.

Since Stalin, wars have become much more technologically advanced. The Americans did not need to mobilize for the war in Iraq. Putin thought the war in Ukraine would be similar and did not plan to radically change the socioeconomic system. But now, that is becoming a necessity, as long as the Russian government cannot admit defeat by withdrawing from Ukrainian territory.

Despite the clearly failed preparations for February 2022, all that Russia needs is a redoubled effort to finally "press the enemy" — this is more or less how Russian military commentators reason.

In the mid-1930s, the Soviet army was considered the strongest in the world. Then, it suffered humiliating defeats, losses in the millions, and, finally, victory — but at the cost of unimaginable casualties and with the help of allies. Putin, who likes to compare himself to Peter the Great, does not mind repeating Stalin's successes on occasion.

Both Russian military leaders and business people remember this history. So they are soberly aware that a continuing war, which will require a significant increase in arms production, would not leave their business empires untouched.

Direct nationalization won't be necessary — price regulation, scheduled deliveries of goods needed for the army, as well as high taxes or profit-taking, which have already begun, will suffice. Businesses will collapse or move to the hands of managers loyal to the state as a result.

The economy will not come to this immediately. So far, the state buys products from businesses at market prices — but the logic of wartime and government action will almost inevitably lead to an economy geared toward war. First, the limitation of profits (it is unpatriotic to make much money from military orders), then of prices (everything for the front, everything for victory). Welcome to the mobilization economy.

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FOCUS: Russia-Ukraine War

How Pro-Ukrainian Hackers Have Undermined Russia's War Every Step Of The Way

Authorities in Moscow continue to struggle to stem the tide of data breaches from hackers inside and outside Ukraine, who have been one of the unsung heroes in the resistance to the Russian invasion.

Digital assets continue to be a point of vulnerability for Moscow

Andre M. Chang/ ZUMA
Lizaveta Tsybulina

It was a concerted effort that began with Russia's Feb. 24, 2022 full-scale invasion, and has not relented since: pro-Ukrainian hackers have been targeting Russian government agencies and businesses, gathering secret information and passing it on to the Ukrainian security and intelligence forces .

Discrepancies exist in total reported breakthroughs and leaks obtained over the past 20 months. This year so far, Roskomnadzor, Russia’s digital watchdog, identified 150 major leaks, while Kaspersky Lab, a Russian cybersecurity firm, reported 168 leaks, totaling about 2 billion lines of data, including 48 million with top secret passwords.

Stay up-to-date with the latest on the Russia-Ukraine war , with our exclusive international coverage.

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Following the Russian invasion, a substantial number of hackers worldwide expressed solidarity with Ukraine, and took action. "My colleagues and I operate under the principle that 'if it can be hacked, then it needs to be hacked,'” said a representative of the Cyber.Anarchy.Squad group. “We believe in targeting anything accessible, especially if it's significant to defeating the enemy."

“BlackBird,” one of the founders of the DC8044 community, explained that the primary objective of hacking Russian entities is to acquire data useful to Ukrainian security forces .

"The personal data obtained by our groups is typically shared with security forces,” he said. “They aggregate and analyze this information to support their operations effectively.”

Hackers closely cooperate with Ukrainian intelligence services as well: they are engaged in reconnaissance, sabotage and information operations . Andrey Baranovich, co-founder of the Ukrainian CyberAlliance group said that “If we spend 24 hours hacking something, our victims should spend at least a week recovering, and in the optimal case, the victim should not recover at all.”

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