When discussing Russia and the potential conditions for making peace with it, it is worth understanding its actual situation. The economy, demographics, and the production capacity of the arms industry will increasingly drive the Kremlin’s decisions, writes Tomasz Sakiewicz in the latest issue of Gazeta Polska.
Russia was able to start the war because, for more than twenty years of Putin’s bloody rule, the West, especially Europe, provided Moscow with enormous amounts of foreign currency, on the order of hundreds of billions of dollars annually, while making their own economies dependent on Russian hydrocarbons. During this time, Putin used Western money to strengthen his domestic position, modernize parts of the economy, and, as he believed, rebuild the army.
At the same time, he began to accumulate financial reserves, which today amount to $680 billion. These reserves were still growing just a few months ago. It might therefore seem that Russia can wage war for many years, since it has the funds.
The reality, however, is somewhat different. Almost half of Russia’s reserves are assets frozen in the West, which most likely will not be returned. The other half is literally a mountain of gold. As much as 65% of the reserves Russia actually controls are held in this precious metal. This is the true source of the recent “miracle” of growing Russian reserves. The value of gold has risen by about 20% in recent months. In real terms, the Russians are most likely already drawing down their reserves, but this is obscured by the rising value of gold. If they begin selling it on a large scale, they could destabilize its price on global markets, which would accelerate the depletion of their reserves. And they are now approaching the moment of that decision.
Russia’s demographic situation is becoming equally troubling. Over the last five years, the country has shrunk by three million people. While this has not deprived it of “cannon fodder,” it is increasingly hampering industrial production. Russia must import cheap labour from Asian countries, with all the dangerous consequences that entails. The most striking losses are seen among young men of conscription age, many of whom are simply fleeing the country.
The defense industry, despite its “growth” that astonished the world, also faces serious problems. Russian tanks are a good example. Over three years, Russia’s factories have delivered about two thousand tanks to the front. That is indeed a lot compared to NATO’s production capacity, even several times more. The problem is that fewer than 200 of those were actually newly manufactured, only a few dozen per year. Russia cannot produce more. The miracle of mass production relies primarily on refurbishing and modernizing old equipment, some dating back 60 years. This makes it easier to destroy and increases the Russian soldiers’ mortality. Tanks are just one example. Russia uses much other equipment imported from China, North Korea, and Iran. But this comes at a cost. And the price of sustaining the war will rise ever more quickly.
We must keep this in mind, because it is the West that now holds advantages it can use to tighten the screws on Putin, despite Ukraine’s tragic situation, which, unfortunately, in every respect is even more bled dry.