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Putin Can’t Afford to Lose in Ukraine—but He Can’t Afford to Win, Either

Russia’s economy is much worse than it admits, and victory will only impoverish it further.

Artur Widak/Getty Images

Among the enduring mysteries of Vladimir Putin’s decision to invade Ukraine is why he wanted to. The financial burdens of empire were the principal reason for the Soviet Union’s dissolution back in December 1991. At the time, the Soviet bloc constituted 10.5 percent of the global economy, according to Nicolas Véron, an economist at Breughel, a respected think tank in Brussels. By April 2022, Russia’s share of the global economy (including its few remaining allies) had shrunk to 3.5 percent. Although Russia’s gross domestic product expanded on a per capita basis for the first dozen years of this century, it peaked in 2013 at $16,000, and today Russia’s per capita GDP is $12,200, ranking it seventy-eighth among the family of nations.

These are not propitious circumstances under which to rebuild an empire. Even wealthy countries, starting in the mid-twentieth century, realized that colonialism was a luxury they could no longer afford. For a country like Russia, whose per capita wealth situates it (humiliatingly) behind several of its former satellites, including Hungary, Poland, Croatia, and Romania, the cost of reabsorbing Ukraine would be especially prohibitive. Waging war against Ukraine has already cost Russia nearly $1 trillion. That’s a pittance compared to what Russia will have to shell out if it wins.

Think of it from Moscow’s point of view: There’s the cost of rebuilding Ukraine, the cost of military occupation sufficient to contain whatever underground resistance continues, and the cost of reabsorbing a population considerably poorer than its own. From an economic point of view, losing the war to Ukraine is by far the better option. Winning it would put Russia in the same unhappy position as Max Bialystock and Leo Bloom at the end of Mel Brooks’s The Producers, when their painstakingly self-sabotaged Broadway flop becomes an accidental hit and bankrupts them.

Against this background, we learned last week that Russia’s economy contracted 2.2 percent during the first quarter of 2023, according to official government statistics. That number isn’t good, and probably it understates the trouble. Writing in Foreign Policy in mid-March, Agathe Demarais, global forecasting director at the Economist Intelligence Unit, warned that “Russia has made statistics a central part of its information war” to minimize the impact of Western sanctions and that we’d be saps to trust them. Writing in The Wall Street Journal in September 2022, Josh Zumbrun reported much the same thing. The quality of information coming out of Russia’s Federal State Statistics Service, or Rosstat, “is falling off a cliff,” Robin Brooks, chief economist at the Washington-based Institute of International Finance, a trade group for the financial services industry, told Zumbrun.

When I sense that somebody’s trying to sell me a bill of goods, I often turn to The Wall Street Journal. I worked in the Journal’s Washington bureau for the first half of the 1990s, and can second Robert Kuttner’s opinion (expressed in The New Republic, April 1984) that it is “America’s premier national daily,” superior to The New York Times and The Washington Post in depth if not in breadth. That the paper slipped only slightly after Rupert Murdoch bought it in 2007 is, I think, a minor miracle, and a tribute to the news staff’s baked-in culture of excellence. (The editorial page is another matter.)

My homily for the Journal is heartfelt, but I probably wouldn’t bother with it were it not for the fact that one of the Journal’s best reporters, Evan Gershkovich, is sitting right now in a Russian jail on trumped-up espionage charges. Gershkovich’s true offense may be that his last published Journal piece before his arrest, co-authored with Berlin-based Journal reporter Georgi Kantchev, was headlined, “Russia’s Economy Is Starting to Come Undone.” Economic growth has diminished, “likely for the long term,” Kantchev and Gershkovich reported. State revenue shortfalls are putting guns in conflict with butter. Perhaps worst of all, “long-simmering fears in Moscow” that Russia will become “an economic colony” of China are starting to be realized as Western sanctions make Moscow more dependent on Beijing to supply microchips and semiconductors.

On Friday, the Journal’s Zumbrun furnished additional evidence of Russia’s economic decline. The source was a surprising one: air pollution detected by the European Space Agency’s Sentinel-5P satellite, which was launched into outer space in 2017. The satellite’s purpose is to monitor the emission of specific pollutants harmful to the atmosphere. But incidental to this mission, the satellite can tell when countries that aren’t knocking themselves out to go green, like Russia, are reducing energy output and factory production.

The findings are fascinating. Rosstat says that industrial production rose 1.2 percent in March over the previous year. But Sentinel-5P recorded that industrial regions produced 6.2 percent less pollution over the previous year. It’s possible that the Urals were blanketed with solar panels while nobody was looking, but is it likely? After Western car companies pulled out after the Ukraine invasion, Russia said it would reopen these factories under Russian ownership. But Sentinel-5P recorded a 16 percent drop in emissions from these sites, suggesting Russia’s efforts to continue car production faltered.

In their March piece, Kantchev and Gershkovich concluded that Russia’s economy had “shifted to a low-growth trajectory, likely for the long term.” Russia wasn’t in great economic shape before it invaded Ukraine; now it’s in worse shape, and there’s no real hope things will get better. The war itself, of course, is going badly for the Russians, too, with Wagner Group mercenary chief Yevgeny Prigozhin last week threatening to leave Bakhmut on May 10 if he didn’t receive more men and ammunition.

On Sunday, The Guardians Pjotr Sauer reported that Prigozhin appeared to be backing down from his threat. If I were Russia’s finance minister, I’d advise Putin to beg Prigozhin to revive it. Putin could then declare victory and go home. It’s the smart financial move. But Putin clearly prefers to destroy Russia’s economy along with as much of Ukraine’s civilian infrastructure and population as he can get his hands on.