Russia Boosts War Chest; Will Spend $600 Billion on Defense as War in Ukraine Reaches Inflection Point

After announcing partial mobilization as the war in Ukraine reaches an inflection point, Russia is reportedly boosting its war chest by pumping in a massive $600 billion, according to reports.

Moscow is to commit a total of 34 trillion roubles for boosting national defense capabilities and security, Reuters reported exclusively, citing sources. The outlay will be completed between 2022 and 2025, a source close to the finance ministry told the agency.

The finance ministry calculations show that Moscow will spend 18.5 trillion roubles between 2022-2025 on national defense. Of this 4.7 trillion will be spent this year. The other areas that get the funds include national security and law enforcement.

Russian Rouble
Pixabay

Earlier, Russia had committed a total 10.9 trillion to be spent on national defense between 2022 and 2024.

Earlier this week, Russian President Vladimir Putin shifted gears in the ongoing war against Ukraine with the announcement that he has ordered a partial mobilization in the country.

This would be the first Russian ‘mobilization’ since World War Two. In a recorded message telecast on state TV, Putin attacked the West and warned that he would not buckle under the “nuclear blackmail”.

What are the Implications of Partial Mobilization?

1. Technically, by signing partial mobilization, Putin has placed the country’s people and economy on a wartime footing.

2. The move paves the way for possible conscription of Russian men of fighting age. A long-drawn war against Ukraine, which is supported by the West, will mean that Russia will have to increase its military strength.

Russian militaryRussian military wikimedia commons

3. The partial mobilization will begin on Wednesday. Though more details are yet to come, what this means is that Putin will immediately channel more money into the war machine. He has also said he is increasing the funding to boost weapons production.

4. The obvious implication of the mobilization is that Russian businesses and individuals will have to cough up more money to fund the war machine.

5. Russia could formally declare war on Ukraine. In February Russia said it was launching a special military operation against Ukraine. The terminology can change now, with the partial mobilization in place.

Russia Nuclear WeaponsRussia is likely to strike back with weapons of mass destruction. Wikimedia Commons

6. Putin is giving the clearest ever signal that he is not averse to the use of nuclear weapons, tactical or otherwise, as it battles a united West. He said Russia has “lots of weapons to reply” to the West.

7. The Partial mobilization coincides with the referendum move in the Donbas region. By formally annexing Luhansk and Donetsk as well as the southern regions of Kherson and Zaporizhzhia, Putin would be in a position to strategically alter the war narrative, the Kremlin calculates. Once the regions are technically annexed, Moscow will cite territorial integrity and sovereign rights in the war to hold on to the regions.

How Will Russia Fund the Expansion in Defense Spending?

Russia was slapped with tough economic sanctions by the western nations in the immediate aftermath of the start of the war in Ukraine in February this year. Russian assets abroad were frozen, the country’s sovereign ratings dipped and Moscow was forced into a technical default on its bonds. The West’s broader strategy revolved around hitting Russia where it hurts the most. The calculations were that an embargo on Russian fossil fuels will cut off funds, pushing the Russian economy into a state of despair and disrepair.

However, according to figures released in August, Russia’s revenue from energy export increased beyond conservative expectations. A Finland-based think tank calculated that Russia made $158 billion in energy exports in the six months of the war, from February 24 to August 24.

In another report, Reuters news agency said in August that Russia’s earnings from energy exports will touch $337 billion in 2022, which is a 38 percent rise from 2021. Citing a Russian economy ministry document, the agency reported that higher oil export volumes and rising prices contributed to a spike in Russia’s income from oil and gas.

What’s Russia’s Economic Outlook?

At the beginning of the war, and when the sanctions began impacting the Russian economy, Moscow was worried about the long-term impact of the western actions. According to the Kremlin’s initial estimates, the sanctions were to result in a more than 12 percent contraction in the economy. However, this began to change over the next few months. Russia now expects its gross domestic product (GDP) to shrink only 4.2 percent this year, according to Reuters.

“Overall, economy ministry forecasts seen by Reuters news agency earlier this week suggest the Russian economy is dealing with sanctions related to Russia’s invasion of Ukraine better than Moscow initially feared and the economy will contract less than expected,” the agency says.

Russia Expects Energy Exports to Stay Robust

Even as the West is plotting various measures against Russia, including phasing out oil and natural gas imports and banning coal imports, Moscow’s energy sale outlook remains healthy. A Russian economy ministry document showed that it expects energy output and exports will stay elevated until the end of 2025. This happens primarily because of two factors – Russia has been increasing production and Russia’s Asian customers like China, India, Japan and South Korea have been increasing purchase.

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