- WIADOMOŚCI
Russia is feeling the cost of running a war economy
The Russian economy has been operating under war economy conditions for years. Naturally, this is felt throughout the state and its institutions. A European intelligence report claims that Russian bank balance sheets are being artificially inflated, and the sector itself is on the brink of a crisis.
The report suggests that a potential „economic shock, such as an ambitious sanctions package against banks or a sustained drop in oil prices”, would significantly worsen Moscow’s situation. The main problem for the economy is said to be the mass issuance of state-subsidised mortgages. This has led to an increase in real estate prices. The report, cited by the German daily „Frankfurter Allgemeine Zeitung”, states that the formation of a bubble and widespread insolvency are possible. The situation is exacerbated by „hidden debts” caused by banks granting preferential loans to defence industry enterprises with „colossal financial needs”.
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Parallel to the intelligence report, a study by the Kiel Institute for the World Economy (IfW) was published on June 11. In it, economists highlight Russia’s declining revenues from fuel exports, dwindling non-military investments, and severely depleted financial reserves. It was assessed that the Russian economy is in its “final stage” and faces the threat of collapse. According to the IfW publication, with the exception of military priority areas, investments in Russia have effectively slowed down, and the civilian sector is in a state of stagnation. Foreign trade volume has reached an alarming level, falling to its lowest in 15 years.
With the, hopefully more stable, ceasefire in the Middle East and the reopening of the Strait of Hormuz, further drops in oil prices are expected. Furthermore, talks about the 21st sanctions package are underway within the European Union. If sanctions are designed and implemented correctly and the conflict between the US and Iran does not re-ignite, the Russian economy may be in even more of a crisis. The question is: where (or rather when) is the breaking point that does not allow the state to continue its war efforts?
