“Putin doesn’t have time, it’s an illusion.” Russia’s military economy has turned into a house of cards — FT

The Financial Times writes about this, analyzing the situation with the financial basis of the military economy of the Russian Federation.

The publication points out that even high-ranking Russian officials publicly express concern about the real state of affairs. Many people in the West have believed the numbers that claim steady growth, low unemployment and rising wages, however, the author of the publication notes, any economy based on total mobilization can produce such results.

The real test is how already used resources are reallocated from former uses and directed to the needs of war, the article points out. The state has three ways – borrowing, inflation and expropriation, and it must choose the most effective and painless combination.

Putin’s self-confidence is that he can finance this war without financial instability or significant material sacrifice, but that is an illusion that is already beginning to fade, the article points out.

The FT also reminds us of a new report by the Russia analyst and former banker Craig Kennedy, in which there is a huge increase in Russian corporate debt — it has grown by 71% since 2022.

As the publication notes, Putin took control of the country’s banking system, forcing banks to lend to companies chosen by the government on preferential terms. As a result, “a flow of loans at rates lower than market rates for selected subjects of the economy.”

In fact, Russia is engaged in mass printing of money, which is carried out on the terms of outsourcing, so that it does not affect the state balance sheet, writes the FT.

According to Craig Kennedy, the total is about 20% of Russia’s national output in 2023, which is comparable to the combined budget allocations for a full-scale war against Ukraine.

As the author of the publication notes, the actions of the Kremlin show that it considers weak state finances and uncontrolled inflation unacceptable. The government avoids a significant budget deficit despite rising war spending. The central bank is free to raise the interest rate, which is already 21% – not enough to beat inflation, but enough to keep prices from rising.

Meanwhile, as loans become “bad ones”, a credit crisis is forming.

“In short, Putin has no time. He is sitting on a financial ticking time bomb of his own making,” concludes the FT.

According to the author of the publication, Ukraine’s allies should deprive him of the only tool that could help him — access to foreign assets. The West should strengthen sanctions and transfer Russian assets to Ukraine as an advance on reparations.

On January 10, the United States introduced sanctions against the largest Russian oil companies. In particular, more than 30 Russian oil service companies, as well as 184 tankers of the shadow fleet, logistics facilities and companies of third countries were included in the sanctions list.

Russia is expected to lose billions of dollars a month due to new sanctions against Russian oil companies.

On the same day, the government of Great Britain, following the USA, announced the introduction of sanctions against the Russian companies Gazprom Neft and PJSC Surgutneftegaz.