Russia's war economy is unsustainable

Summary

Kyrylo Budanov, head of Ukrainian Defense Intelligence, suggests Russia aims to end the war by 2025-2026 due to economic and military constraints. He highlights Russia's unsustainable wartime economy, fueled by savings and facing inflation and labor shortages. The Russian economy is strained by sanctions and depleting Soviet-era equipment stockpiles. The West's political will to support Ukraine is crucial, as Western economies can sustainably support Ukraine indefinitely, contrasting with Russia's waning capabilities.

Takeaways

• 📅 Russia aims to win the war by 2025 or early 2026 due to anticipated economic and military limitations.
• 💔 The Russian economy is expected to suffer significantly by next summer, affecting its ability to mobilize soldiers.
• 🔄 The war has turned into a war of attrition, with both sides struggling to replace losses with new equipment.
• 🏭 Both Russia and Ukraine have transformed their economies into wartime economies, which are inherently unsustainable.
• 💸 Russia is financing its wartime economy by using its savings, which is not a sustainable strategy.
• 📈 Inflation in Russia is rising due to government investments in the defense industry and labor shortages.
• 🚫 Sanctions are having an effect on Russia's economy, requiring extra resources to find workarounds.
• 📉 Russia's stockpiles of old Soviet equipment are gradually being depleted, increasing the need for new production.
• 🌐 The West's political will and support for Ukraine are crucial in determining the outcome of the war.
• 💼 Western economies are not running as wartime economies and can sustainably support Ukraine indefinitely.

Q & A

What is the timeframe Russia is aiming to win the war according to Kyrylo Budanov?

Budanov suggests Russia is aiming to win the war by 2025 or early 2026.

Why does Budanov believe Russia's war machine will face serious bottlenecks after the mentioned timeframe?

Budanov implies that after 2025 or early 2026, the Russian war machine will start running into serious bottlenecks due to economic strains and difficulties in mobilizing soldiers.

How does the speaker in the transcript view the surprise expressed by journalists about Budanov's statements?

The speaker finds the surprise expressed by journalists surprising themselves, as they do not believe Budanov said anything extraordinary.

What is the misconception about Russia's resources for war that the speaker wants to address?

The speaker wants to address the misconception that Russia has endless resources for the war and can continue it indefinitely.

Why has the war between Ukraine and Russia turned into a war of attrition?

It has become a war of attrition because both sides are losing capabilities and struggling to replace those losses with new equipment from the factories.

How are both Russia and Ukraine sustaining their war efforts?

Both have transformed their economies into wartime economies, directing almost everything toward the military and supporting military operations.

What is the unsustainable aspect of a wartime economy according to the transcript?

A wartime economy is unsustainable because it involves spending more money than available on producing military equipment with the hope of winning the war before the economy breaks down.

How is Russia financing its wartime economy?

Russia is financing its wartime economy by using its large pre-war savings, which are now being put into the production of military equipment.

What are the two main factors driving up inflation in Russia as mentioned in the transcript?

The two main factors driving up inflation in Russia are the government's huge investments in the defense industry and a labor shortage due to recruitment into the military.

What measures has the Russian Central Bank taken to control inflation?

The Russian Central Bank has increased interest rates, from 16% to 18% in July, and then to 19% in September, to reduce economic activity and control inflation.

How does the speaker describe the current economic situation in Russia?

The speaker describes the current economic situation in Russia as approaching a tipping point where the negative consequences of the policy of throwing more money into society are becoming visible.

What is the effect of Western sanctions on the Russian economy as per the transcript?

Sanctions are having an effect on the Russian economy by putting a strain on it and forcing Russia to spend extra resources on workarounds.

Why will Russia's stockpiles of old Soviet equipment become a limiting factor in the future?

Russia's stockpiles of old Soviet equipment are gradually being depleted, and once they are empty, Russia will have to produce only brand new equipment, which requires more resources.

What does the speaker believe will be the impact of the Russian wartime economy on their ability to sustain military operations in 2025?

The speaker believes that by 2025, the Russian wartime economy will no longer be able to sustain the war effort at the current level, making it difficult for them to prevail.

What is the political choice the speaker mentions for the West regarding the war?

The political choice is whether the West wants Ukraine to win the war or not, as maintaining high support levels for Ukraine could prevent Russia from prevailing.

Outlines

00:00

📉 Wartime Economy and Its Unsustainability

The paragraph discusses the limitations of Russia's war capabilities and the unsustainable nature of its wartime economy. Kyrylo Budanov, head of Ukrainian Defense Intelligence, predicts that Russia aims to conclude the war by 2025 or early 2026 due to potential bottlenecks in their war machine. The Russian economy is expected to suffer significantly by next summer, hindering their ability to mobilize soldiers. The speaker clarifies misconceptions about Russia's endless war resources and explains that the war has become one of attrition, focusing on production capabilities. Both Russia and Ukraine have transitioned to wartime economies, which are inherently unsustainable as they are driven by excessive military spending. Russia is financing its war efforts by using its savings, leading to economic pressures and rising inflation. The inflation is driven by the government's irresponsible investments in the defense industry and a labor shortage due to recruitment of soldiers, impacting the production capabilities for military operations.

05:01

💵 Economic Impact on Russian Society and Military

This paragraph delves into the economic consequences of the war on Russian society and the military. Despite the government's substantial investments in the defense industry, many Russians have not yet felt the negative economic repercussions. Salaries have increased, especially in poorer regions where military service is more popular. However, this increase in military bonuses and wages is unsustainable, as it cannot continue indefinitely without causing economic instability. The speaker warns that if Russia shifts to involuntary mobilization, the general population will directly experience the negative economic impacts, such as inflation without the compensatory bonuses or high salaries. The paragraph highlights the Russian economy's approaching tipping point, where the positive feelings of wage increases will turn into the realization of an unsustainable economic model.

10:05

🔄 Sanctions and Depletion of Soviet-era Equipment

The final paragraph addresses the effectiveness of Western sanctions on Russia and the depletion of Soviet-era equipment. Contrary to some beliefs, sanctions are indeed affecting the Russian economy, despite their efforts to find workarounds. The sanctions add strain and require additional resources. The paragraph also discusses the dwindling stockpiles of old Soviet equipment that Russia has been refurbishing and using in Ukraine. As these stockpiles deplete, Russia will need to produce new equipment, which is more resource-intensive. The speaker estimates that around 80% of the equipment used by Russia in Ukraine is old, with only 20% being new. The potential redirection of resources from refurbishing to new production might increase new equipment production but not sufficiently to sustain current military operations. This economic and material strain supports Budanov's assessment that Russia will need to win the war by 2025 or early 2026, as the wartime economy will no longer be able to support the war effort at the current level beyond that timeframe.

Keywords

💡War of Attrition

A war of attrition is a conflict where the primary objective is to exhaust the enemy's resources and will to fight, rather than achieving a decisive victory in a single battle. In the context of the video, it refers to the ongoing conflict between Russia and Ukraine, where both sides are losing capabilities and struggling to replace them, which is indicative of a protracted struggle that wears down both parties.

💡Wartime Economy

A wartime economy is an economic system that has been adapted to support a nation at war. It typically involves the redirection of most of the nation's resources and industrial capacity towards the production of military equipment and supplies. The video discusses how both Russia and Ukraine have transformed their economies in this way, with a focus on military production at the expense of other sectors.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, the purchasing power of currency is falling. In the video, it is mentioned as one of the negative consequences of Russia's wartime economy, where the government's large investments in the defense industry are driving up inflation.

💡Labor Shortage

A labor shortage occurs when there are not enough workers available to fill the jobs in an economy. The script describes how Russia's recruitment of soldiers for the war effort is contributing to a labor shortage, as able-bodied individuals are being removed from the workforce to serve in the military, which in turn affects production capabilities.

💡Interest Rates

Interest rates are the cost of borrowing money and the return on saving money. In the video, it is mentioned that the Russian Central Bank has increased interest rates in an attempt to control inflation by making it less attractive to make investments. This is a monetary policy tool used to manage the economy.

💡Sanctions

Sanctions are measures imposed on individuals, entities, or countries to achieve certain objectives, often as a response to undesirable actions. The video discusses how Western sanctions are affecting the Russian economy by making it more difficult and costly for Russia to sustain its wartime economy.

💡Stockpiles

Stockpiles refer to a large supply of something stored away for use in the future. In the context of the video, it discusses how Russia is using its stockpiles of old Soviet-era equipment in the war, and how these stockpiles are gradually being depleted, which will eventually force Russia to rely more on the production of new equipment.

💡Refurbish

To refurbish means to renovate or make something look like new again. The video explains how Russia has been refurbishing old equipment from its stockpiles to use in the war, which is a more cost-effective method than producing entirely new equipment.

💡Economic Sustainability

Economic sustainability refers to the ability of an economy to remain viable and support its population over the long term without depleting resources or causing environmental damage. The video contrasts the unsustainable nature of Russia's wartime economy with the sustainable economies of Western countries, which can continue to support Ukraine.

💡Mobilization

Mobilization in a military context refers to the process of assembling and preparing military forces for war. The video suggests that if Russia shifts to involuntary mobilization, it could lead to a more direct and personal impact on ordinary Russians, as they would be conscripted without the bonuses and high salaries that currently offset inflation.

💡Political Will

Political will refers to the determination and commitment of political actors to achieve certain goals or policies. The video concludes by emphasizing that continued Western support for Ukraine is contingent on political will, as it is a choice that can influence the outcome of the war.

Highlights

Kyrylo Budanov predicts Russia aims to win the war by 2025 or early 2026 due to war machine limitations.

Russian economy expected to suffer by next summer, affecting its ability to mobilize soldiers.

Common misconception that Russia has endless resources for war is debunked.

War between Ukraine and Russia has become a war of attrition, focusing on production capabilities.

Both countries have transformed their economies into wartime economies, which are unsustainable.

Russia is financing its wartime economy by using its savings.

Economists warn that unsustainable national economies can lead to overheating and inflation.

Russian inflation is driven by government investments in the defense industry and labor shortage.

Russian Central Bank increases interest rates to control inflation.

Official Russian inflation is about seven to eight percent, but varies significantly by product type.

Many Russians have not yet felt the negative economic consequences of the war.

Salaries and bonuses for soldiers have increased significantly, but this is unsustainable.

Inflation could spiral out of control if Russia changes its recruitment methods.

Russia's wartime economy was initially beneficial, but is approaching a tipping point.

Sanctions are having an effect on the Russian economy, despite workarounds.

Russia's stockpiles of old Soviet equipment are gradually being depleted.

Estimates suggest about 80% of the equipment Russia uses in Ukraine is old, with only 20% being new.

The Russian wartime economy may struggle to sustain military operations beyond 2025.

Western support for Ukraine is crucial and can be sustained indefinitely if political will remains high.

Transcripts

Recently, Kyrylo Budanov, who is the head of the Ukrainian Defense Intelligence, said that

Russia is aiming to win the war by 2025 or early

2026, because that's about as long as the Russian

war machine will work before it starts running

into some very serious bottlenecks. And according

to Budanov, the Russian economy will start to suffer badly by next summer approximately,

and it will get harder and harder for Russia to mobilize enough soldiers for the war.

I've been contacted by many journalists who were surprised by these statements by Budanov,

and to be honest, that was a bit surprising to me because I don't think he said anything that

was extraordinary. But I think it was a good reminder that outside of the kind of circles

where I come, many people still have the

impression that Russia has endless resources for the war

and that they will be able to continue this forever. So I thought it might be relevant to

make a video discussing why that is not the case and how we are entering a phase by now

where it will become increasingly difficult for Russia to keep the war economy running

and to sustain the fighting. So let's talk about it.

The idea that Russia has endless resources and

can continue the war forever is frustrating because

it drives much of the logic behind the arguments that the West can't afford to keep supporting

Ukraine. It also fuels that notion that Ukraine

has to agree to a peace deal soon because there's

no way that they can outlast Russia. But in reality, that is not the case. The war between

Ukraine and Russia has turned into a war of attrition, which means that largely it has

become a war of production because both sides are

losing capabilities in the fighting and they are

struggling to replace those losses with new equipment from the factories. And to sustain

that effort, both Russia and Ukraine have transformed their economies into wartime economies

where almost everything is directed toward the military and to supporting the military

operations. And almost by definition, a wartime economy is not sustainable. You really want to

win this war, so you spend more money than you have on producing military equipment. And then

you hope that you will win the war before the economy breaks down. And the way that Russia

is running its wartime economy is essentially by financing it through using the savings.

Russia had very large savings before the war, and that is the money that they are now putting

into the production of military equipment. But as any economist will say, you can't run a

sustainable national economy by just keep

throwing enormous sums of money into society year after

year and then assume that everything will be

fine. If you do that, then eventually the economy will

overheat and the inflation is going to increase. And that's what we are seeing in the Russian

economy right now. It is under tremendous pressure and the inflation is rising. And there

are two main factors that are driving up the inflation in Russia. First, the government is

pumping all this money into society by making these huge investments in the defense industry.

So the inflation is going up because the government is making investments that essentially are

financially irresponsible. And then second, there

is a labor shortage. So unemployment in Russia is

very low and the Russian military is then, according to their own numbers, they are

recruiting about 30,000 new soldiers every month.

And these are Russian men that are taken from the

labor force and are being sent to the front

lines to attack Ukraine. And this is creating a labor

shortage in the rest of the Russian society, including in the factories where they produce

the equipment that the military uses for the military operations. And then on top of that,

we can also add the Ukrainian airstrikes on Russian oil production facilities that I've

talked about in a different video. So this is also contributing to the inflation in the Russian

society because it is increasing the cost of

fuel. So to try to keep the inflation under control,

the Russian Central Bank has increased the interest rates. And they've done this twice

over the last few months. So in July, the

interest rate was increased from 16 to 18 percent. And in

September, it has been increased again to 19 percent. And the purpose is to try to decrease

or to reduce the economic activity in society by making it less attractive to make investments.

But it's really quite a hopeless project when the government then keeps making these enormous

investments in the defense industry at the same time. So officially in Russia, the inflation is

about seven to eight percent. But that figure covers that there are significant differences

between different types of products. So for example, military equipment, it is purchased

by the government and it is purchased in the defense industry and it is bought at fixed prices.

So there is no increases there. Like a tank costs

the same and it costs the same as it always has.

But for consumer products like food and other household items, then there will be much bigger

price increases. So all in all, that covers out

to maybe seven to eight percent. But it's much more

on those things that you actually buy in the households. So far, many Russians actually don't

feel the negative economic consequences as a result of the war. Because all that money that

the government is pumping into the defense industry and into the war effort, it means that

many Russians have experienced that the salary is

increasing and that they're making more money than

they did before. And this is especially true in the poorer region of Russia because there are

more people there that have volunteered for military service. But what we've seen is then

that the salaries for the soldiers and the bonuses

for signing up have just skyrocketed over the last

year. So they're much bigger today than they were

a year ago, for example. But the thing is that this

is not a sustainable way to run an army in a long war of attrition because you can't just keep

doubling or tripling the bonuses every few months

because that is pushing the wages up, not only for

military service, but across all of society, including the other sectors, where they also

have to increase the salaries because they need

to compete with the military over labor. So there

are some things about the ways that Russia is recruiting for the army that are fueling the

inflation and it could potentially cause it to spiral out of control. But it's also hard to see

how they can stop or at least it could have very

big consequences if they suddenly start recruiting

soldiers in a different way that doesn't involve increasing the bonuses and the wages. So, for

example, this could happen if Russia starts relying on involuntary mobilization as a tool

to replace the losses. Then ordinary Russians will feel the consequences of the unhealthy

economy on a much more direct and personal level

because the prices will keep going up due to the

inflation, but they will be forced into doing military services without getting the bonuses

or the high salaries that can then compensate for the inflation. So Russia is stuck in this

situation where the wartime economy, in the beginning, it's actually quite good for many

people because they feel that their wages are going up and that all the investments that are

being made, they have a positive effect on their

lives. But then suddenly there is a tipping point

where it doesn't work anymore because it's an unhealthy and it's an unsustainable way to run

the economy of a country. And I think we're seeing the signs that the Russian economy is

approaching this tipping point where the negative consequences of this policy of just

throwing more money into the society are beginning

to become visible. Another point about the Russian

economy is that the sanctions are actually having

an effect. So there is a lot of talk in the West

about how the sanctions, they don't work because the Russians are able to find workarounds. And

that is true, but the thing is that they have to

spend a lot of extra resources on those workarounds.

So the sanctions are putting a strain on the Russian economy. So it's another factor that is

contributing to making it hard for them to sustain

a wartime economy. The last thing I want to mention

about why it is a sound assessment that the Russian wartime economy won't be able to meet

the needs for the Russian army going forward is that their stockpiles of old Soviet equipment

are gradually approaching the point of being

empty. So when the Russian defense industry today sent

equipment to Ukraine, then only a small part of

that is brand new equipment. A very large portion

of that is old Soviet equipment that they have just been having in various facilities stored

away for decades. And then when they need a new

tank or a BNP, then they go into those stockpiles

and they take an old one and they make some modifications to it. They get it up and running

and it works quite well in Ukraine. But the problem is that eventually you run out of old

equipment from the stockpiles and then you don't have any more that you can refurbish. And once

that happens, then you have to produce only

brand new equipment and that requires more resources.

So if we look at the Russian stockpiles, then for

many types of equipment, we are facing a situation

where over the coming year or so, Russia will begin to run out of key types of equipment. So

that includes things like tanks or infantry fighting vehicles or towed artillery. If you're

interested in the details about that, there are some very good videos about that on the Covert

Cabal channel here on YouTube. But that obviously

does not mean that Russia will run out of tanks.

Like they will still have those tanks that they

produce that are brand new and it's also possible

that they could find some other tanks from maybe

Iran or North Korea that they can purchase. But

it will mean that the availability of that equipment will be much lower because it's just

harder to produce brand new equipment than it is to refurbish old stuff. So there are estimates

that about 80% of the equipment that Russia uses

in Ukraine today is old stuff that they have taken

from the stockpiles. So 20% is brand new. And some of the resources that are currently going

into refurbishing old equipment, they could be redirected to building more new stuff. And this

might increase the production of new equipment to say maybe 30% or 40% of what they have today.

But that's still a significant reduction that will make it very difficult for them to sustain

their military operations. And all of that is something that we will start to really

see materialized in 2025. So that's why I think that Budanov is right in his assessment that

Russia will have to try to win the war in 2025

or in the beginning of 2026 at the latest. Because

once we get beyond that point, then the Russian wartime economy will no longer be able to

sustain the war effort at the current level. And

that also means that ultimately it is a political

choice in the West, whether we want Ukraine to

win the war or not, because if we keep the level of

support for Ukraine high, then I don't see how Russia will be able to prevail. The Western

economies are not running as a wartime economy.

In fact, the way we run our economy in the Western

countries is absolutely sustainable. So we can

keep this level of support for Ukraine indefinitely

if we want to. But of course, there is that variable of political will. The Western support

will have to remain high because if it suddenly drops for one reason or another, we might find

ourselves in a situation where it's the Ukrainian

wartime economy that then suddenly crashes first.

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