By John Q. Hosedrinker Despite sanctions and Western company withdrawals, the Russian economy surprisingly withstood the impact of the war in Ukraine for over two years. Domestic spending remained robust due to increased defense spending and government-backed loans. The MOEX stock index, after an initial decline, showed a steady recovery. This resilience was achieved despite significantly reduced access to foreign markets and rising inflation. Ultimately, Russian businesses largely adapted to the altered economic landscape.
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Russian businesses are beginning to bear the cost of the war in Ukraine, and the effects are becoming increasingly apparent. While the full extent of the economic impact remains unclear, various indicators point towards a slow but steady erosion of business viability across the country. The increased interest rates, now at an all-time high of 23%, are placing a significant strain on businesses reliant on loans, hampering growth and potentially leading to closures. This financial pressure is not merely an inconvenience; it’s a tangible consequence of the ongoing conflict and the international sanctions imposed on Russia.
Russian businesses are experiencing a range of difficulties. The war’s disruption to supply chains, combined with sanctions, has significantly impacted access to essential resources and international markets. This affects not just large corporations but also smaller, local businesses, creating a ripple effect across the Russian economy. The cumulative effect of these challenges is causing a decline in economic activity, even if the overall collapse predicted by some has not yet materialized.
Russian businesses are finding that the ongoing conflict is impacting profitability and long-term sustainability. Even seemingly minor inconveniences—like shortages of imported goods or difficulties obtaining financing—accumulate to present major obstacles to business operations. There’s a sense that the long-term outlook is uncertain, creating instability and hesitancy within the business community. The uncertainty also drives away investment and discourages entrepreneurship, further stifling economic growth.
Russian businesses are operating in an increasingly hostile environment, not only because of financial difficulties but also due to political pressures and the risk of further sanctions. The Kremlin’s control over the economy makes it difficult for businesses to operate independently, and the climate of fear and uncertainty dissuades open criticism or dissent. While the war machine may not yet be directly hampered, the pressure on businesses contributes to a broader deterioration of the national economy and a diminishing quality of life for ordinary citizens.
Russian businesses are not immune to the broader effects of the war, which are impacting the lives of ordinary Russians. The war has already resulted in a significant brain drain, with many young, educated workers leaving the country in search of better opportunities and stability. This loss of human capital will likely have long-term consequences for the Russian economy, further hindering its ability to recover and thrive. The shrinking pool of skilled workers means that the nation’s competitiveness will continue to suffer.
Russian businesses face a reality where the government’s actions are independent of the will of its citizens. The claim that the Russian people have a significant voice in the government’s decision-making processes is a naive assessment of the country’s authoritarian political system. The brutal suppression of dissent, including harsh prison sentences for voicing opposition to the war, underscores the lack of actual influence the populace wields over their government’s actions.
Russian businesses may be feeling the pinch, but whether this will translate into genuine pressure on the government remains an open question. Historical precedent, including previous periods of economic hardship under sanctions, suggests that the impact on the Russian war machine is limited. The regime’s priority is maintaining power, and as long as the military industrial complex receives the necessary resources, the conflict is likely to continue regardless of the financial distress faced by the rest of the population. The famous anecdote about vodka and food reveals a harsh truth: even in times of economic hardship, the most vulnerable bear the brunt of the consequences.
Russian businesses are in a precarious position, caught between the pressures of a failing economy and an unyielding government. While the immediate impact might not be a catastrophic collapse, the long-term consequences of the war and sanctions are likely to be profound and far-reaching. The gradual erosion of the Russian economy is a slow burn, with the ultimate effect on the war effort and the Putin regime still yet to be fully determined. The ongoing situation remains complex and fluid, with many variables in play, leaving the future of Russian businesses, and indeed the country itself, uncertain.