Russia 2024 - Expectations
A Fragile Economy, Growing Russian Public War Fatigue, and Losses on the Battlefield
Dear BWR Subscribers,
Welcome to 2024, and a Merry Orthodox Christmas!!
In the spirit of delivering more premium quality and valuable insight about Russia from the field, I will launch a twice-a-month Independent Contributors column called “MT799 Authenticated” on Wednesday (17 January). “MT799 Authenticated" independent contributors are experts in their respective fields, ranging from Russian economics and business to geopolitics and war. I chose the MT799 name because it is an authenticated SWIFT message between banks confirming cash or securities on deposit, the precursor to closing a transaction. This parallels the bona fide credentials of the independent contributors contributing to BWR's MT799 Authenticated” - the real deal.
In last week’s BWR, I summarized the key Russian events that took place during 2023, leading with Prigozhin’s March for Justice on the Kremlin, and I referred back to a select number of BWR publications during the year. In summary, 2023 was not a good year for Putin.
In this week’s issue, I will discuss 2024’s outlook for the Russian economy, domestic politics, and Putin’s war on Ukraine.
Takeaways:
FRAGILE ECONOMY: New Western sanctions and sanctions enforcement will be the determining variables for the Russian economy in 2024. If the West does strengthen sanctions enforcement and compliance, as being messaged by the US, this will have a negative impact on the economy in 2024. It will deprive the Russian government of the funding it needs to support the war. Inflation will continue to grow, the Rouble will weaken beyond the psychological threshold of 100R/1 USD, and the Russian standard of living will continue to deteriorate.
DOMESTIC POLITICS: Putin will, of course, win. The presidential election will be about voter turnout and vote percentage for legitimacy. Given that more than 50% of Russians would like to see the war come to an end, the war is a topic the Kremlin is struggling to manage with the public between now and the March presidential election.
BATTLEFIELD FAILURE: Putin confidently expected to subjugate Ukraine in the first weeks of the invasion, and we are now coming into the second year of the war. An estimated 315,000 Russian troops have been killed or wounded to date, and Russia is reliant on Iran and North Korea for matériel. Russia has also lost control of the Black Sea, allowing Ukraine to ship grains and stabilize its economy. While this is not good for Putin, the West seems to be experiencing war fatigue, as evidenced by US and EU funding delays to Ukraine.
The Economy:
The Russian economy did surprisingly well in 2023 in the face of Western sanctions, continuing brain drain of highly skilled labor and draft-age men, and continuing isolation from the mainstream global economy. However, the war economy is at risk of overheating and will face more challenges in 2024 as the EU adds more sanctions and the West begins to enforce sanctions compliance. The latter will be subject to Western resolve and political will, so effectiveness remains to be seen.
The 12th package of EU sanctions will go into force this month. Included are precious metals, such as diamonds. Alrosa, Russia’s biggest diamond producer, and Pavel Alekseevich Marinychev, Alrosa’s CEO, have now been added to the EU sanctions list.
Also, as mentioned in the BWR Quick Bites 24 December 2023 issue, Biden signed a new executive order that allows the US Treasury to target banks in countries like China, Turkey, the United Arab Emirates, and other countries that may be willingly or unwittingly helping Russia evade sanctions.
There is now a growing Western initiative to confiscate the Central Bank of Russia’s (CBR) foreign reserves, estimated to be approximately $300B, for the reconstruction of Ukraine and ongoing funding needs during the war. (This topic will be addressed in BWR’s “MT799 Authenticated” column this month.). While this does not immediately impact the Russian economy, it will have a domestic and international psychological impact.
More than 40% of the Russian budget is allocated towards the war – soldiers, matériel, internal security, etc.; this is one of several factors fueling inflation and further weakening the Rouble. The economy continues to be funded through oil revenues and sanctions-exempt export revenue-generating sectors such as fertilizers and grains. If the Western sanctions are enforced, this will put more pressure on the economy in 2024.
Domestic Politics:
Even authoritarian regimes need election legitimacy, even if it is fraudulent.
Putin’s New Year’s address to the nation, a tradition that goes back to General Secretary Leonid Ilyich Brezhnev, was telling compared to last year.
In contrast to last year’s address, which was broadcast from Rostov with a military background, this year it was broadcast from the Kremlin, and there was little mention of the war. Putin declared 2024 as the year of the family.
Nevertheless, the war shadowed his address. For example, Putin spoke about the historical transition Russia is going through and thanked the soldiers for their fight for truth and justice.
Between now and the March 2024 presidential election, the message will be that there is no alternative to Putin – turbo-patriot Igor Girkin and journalist Yekaterina Duntsova have been declared ineligible. All other credible potential candidates have either been jailed (Navalny “lost” recently in the prison system for six weeks), exiled, or killed. Putin presents the current economic hardships inflicted on Russia by the West as temporary and that Russia is loved and respected by the majority of the World.
Once Putin is “re-elected” in March, there will likely be changes in the government – from the Prime Minister to the Central Bank.
The presidential election will be about voter turnout and the percentage approval.
Battlefield:
Putin lost the war in the first two weeks of the invasion. A war in which Putin confidently expected to subjugate Ukraine and replace the government is now coming into its second year this coming February.
Putin is far from winning the war and is under pressure to deliver victory. While Putin got some relief over the summer with the stalled Ukrainian counteroffensive – largely thanks to Western foot-dragging in not providing the proper matériel to Ukraine - he has lost control of the Black Sea.
Ukraine is now shipping grain and receiving foreign ships through the Black Sea, and the Ukrainian armed forces have destroyed warships in Crimea, which was supposed to be a safe port for the Black Sea Fleet. The vulnerability of Crimea has forced the Russian Navy to move its main fleet to Novorossiysk.
Ukraine is increasing its attacks on Russia proper, bringing the war to the Russian living room. Ukraine will increase these attacks in 2024.
However, Putin does have some good news by way of growing war fatigue demonstrated by the US and EU and evidenced by delays in much-needed war funding to Ukraine. In addition, the upcoming divisive US elections and the Gaza war are benefiting Putin by distracting the West from the war in Ukraine. If Trump is successful in his pursuit of the presidency, appeasement will be the Trump policy towards Russia, and US funding for Ukraine will likely dry up.
Putin is in a race against time on several fronts.
Follow-ups & Quick Bites:
Follow-ups:
Nothing to report this week.
Quick Bites
Putin Offering Citizenship to Foreigners Who Fight in Ukraine
Putin has signed a decree simplifying the process of obtaining Russian citizenship for foreigners who join the Russian army.
Foreigners who signed a one-year contract with the Russian Armed Forces are eligible for the simplified citizenship procedure, Putin’s decree states.
Vol 2, No 01 - BWR 07.01.2024
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