94Ha Viewpoint
Although the official exchange rate of the ruble against the dollar has fallen by a large margin, the price on the black market has reached 150 to 1, which is closer to the scene of the ruble collapse when the Soviet Union collapsed in the 1990s. The double blow of high interest rates and plummeting exchange rates has brought the Russian economy to the brink of danger.
The Russian-Ukrainian war has lasted for more than 1,000 days. Russia has paid a huge price and has only occupied nearly 18% of Ukraine’s territory (including Crimea), while Ukraine still controls 23 regional capitals and cities with special status. At the same time, Ukraine invaded Kursk, the heartland of Russia, and occupied it for nearly four months, which brought shame to Russia in the international community. This war, which was originally designed by Putin as a blitzkrieg, has gone out of control. With the increasing confrontation between Western society and Russia and the extreme sanctions imposed by the West, Russia is losing its future in today’s globalization.
First, the risk of Russia’s economic collapse is increasing. Since the outbreak of the Russian-Ukrainian war, Russia has been experiencing high inflation and rising prices. The recent benchmark interest rate has soared to 21%, and the loan interest rate has exceeded 28%. Such a high interest rate level has kept the cost of loans high, seriously inhibiting the survival of enterprises.
Recently, the Russian ruble has also seen panic selling, with the exchange rate against the US dollar falling by more than 8.5% at one point, and falling below 110 to 1 in the international market, meaning that 1 ruble is worth less than 1 cent. In the past week, the ruble has fallen by more than 12% against the US dollar and more than 13% against the euro, both reaching their lowest levels since the three-year Russian-Ukrainian war. Although the official exchange rate of the ruble against the US dollar is generally controllable, the price of 150 to 1 has appeared in the black market, which is closer to the scene of the ruble collapse when the Soviet Union collapsed in the 1990s. The double blow of high interest rates and plummeting exchange rates has brought the Russian economy to the brink of danger.
Second, the intensification of international sanctions and the energy export crisis. After the outbreak of the Russian-Ukrainian war, the West quickly froze about US$300 billion (about S$403.2 billion) of Russia’s overseas assets. Since 2014, the total scale of Western sanctions against Russia has been close to 20,000, of which the new sanctions imposed from 2022 to 2024 account for 86% of the number of sanctions in the past 10 years, ranging from finance, trade to individuals, covering a wide range. Recently, the U.S. Treasury Department’s Office of Foreign Assets Control announced that it would impose sanctions on Gazprombank, more than 50 small and medium-sized Russian banks, more than 40 Russian securities institutions and 15 Russian financial officials. Russia’s international living space will continue to be squeezed in the future.
What is not optimistic is that as of September 2024, the share of oil and gas revenues, the main economic lifeline of Russia, in fiscal budget revenue has dropped to 32%, and is expected to drop to 27% next year. With the severe shrinkage of energy exports to the West, Russia’s economic lifeline is also facing a systemic crisis.
Third, unsustainable military spending and battlefield casualties. Russia’s military spending this year is expected to increase by 29%, accounting for 7.1% of gross domestic product (GDP), and almost 35% of fiscal spending. The gap between huge war spending and tight fiscal revenue has further exacerbated the economic crisis.
At the same time, battlefield casualties are becoming unbearable. Russia has experienced negative population growth since 2018. The Russian-Ukrainian war has further exacerbated population loss, and the large number of casualties and immigration waves have made the labor supply extremely tight. In the past year, the number of Russian troops on the Ukrainian front has increased from 360,000 to 470,000. Official information shows that as of now, the number of Russian troops killed has reached 66,500. If mercenaries and prisoners are also counted, the actual number of casualties may exceed 110,000. The casualty ratio in war is usually 3 to 1, that is, for every 1 person killed, there are 3 injured. According to this ratio, the total number of casualties of the Russian army may have approached 440,000, accounting for 57% of the participants. More than 95% of the Russian army’s casualties were under the age of 50, and the majority were male soldiers aged 20 to 29. Russia has lost the younger generation, and the demographic disadvantage may induce a serious social structural crisis in the next at least 20 years.
The stagnation of technological capabilities has a profound impact on the future
Fourth, the stagnation of technological capabilities will have a profound impact on Russia’s future. In the wave of the digital age, modern warfare runs through the new technological forces such as big data, algorithms and computing power behind artificial intelligence (AI). Behind the Russian-Ukrainian war is a technological contest between Russia and Western technology giants and the military-industrial complex. In the past three years of confrontation, Google, Microsoft, Facebook, and Starlink have been called the “Four Great Kings” against Russia. For example, Facebook has accurately located the positions of some senior Russian generals through the platform’s facial recognition technology; Starlink has ensured the operation of Ukraine’s communications and military command networks, and can even tamper with the technical parameters and flight trajectories of Russian missiles. In a sense, it was the technology giants on Wall Street that thwarted Russia’s blitzkrieg.
Since the 21st century, Russia’s performance in the fourth industrial wave of globalization has long lagged behind. Since the disintegration of the Soviet Union, Russia has not produced a world-class technology giant, and has been described as a “technological island” of nuclear powers. After the collapse of the Soviet Union, Russian technocrats chose the wrong technology tree, choosing electron tubes instead of transistors (the early prototype of chips) in electronic component technology, so that the level of technology has remained in the era of electron tubes, deviating from the correct track of the human industry 4.0 era.
In the future, with the extreme sanctions imposed by Western society on Russian technology, Russia’s technological capabilities will further stagnate and be squeezed out of the next wave of technology. With the Western supply cuts to various industrial software and industrial parts to Russia, Russia’s technological status has become even worse. In large technological fields, technologies such as large aircraft, shield machines, atomic clocks, vector engines, and terminal lithography machines are inevitably lagging behind. In small areas of livelihood technology, such as mobile phones, computers, televisions, cars, and power supply, Russia’s technological development will also stagnate due to supply chain disruptions.
Putin hopes that Trump will ease the Russia-Ukraine war after he takes office in 2025, but looking back at the past, it was Trump who lifted Obama’s arms embargo on Ukraine in 2017 and sent the first batch of weapons, including the Javelin, to Ukraine, which enabled Ukraine to block Russia’s steel torrent and win the battle to defend Kiev at the beginning of the Russia-Ukraine war. The Russia-Ukraine war has lasted for more than 1,000 days, and Russia has been trapped both internally and externally, and its economic structure has undergone a complete change. It has not only lost the initiative in the war, but also its future.
