Russian Victory in The Economic War?

17.07.2022, Tomasz Konicz

The invasion of Ukraine is a military disaster for the Kremlin. But in the economic showdown Russia seems to have the upper hand – for now.

In the first weeks of Russia’s war of aggression in Ukraine, when the Kremlin’s megalomania led to the humiliating Russian retreat from Kiev and northern Ukraine, that military defeat seemed to be accompanied by economic disaster in Russia. The historically unprecedented sanctions imposed by the West in response to the invasion sent Russia’s economy and currency crashing in their initial shock waves. Western derision of the military impotence of Putin’s imperialism was accompanied by derision of the depreciation of the ruble, which briefly plummeted from a dollar exchange rate of 75 rubles at the start of the war of aggression to 135 rubles.


Russia’s inefficient, archaic, and highly corrupt military machine may still be stuck in eastern Ukraine, leaving the Kremlin to celebrate the laborious conquest of Luhansk Oblast as a military victory, but on the economic battlefield the tide has turned – for now. The ruble, which regained its pre-war exchange rate against the dollar back in May, is now trading at 58 rubles per greenback. After barely half a year of war, the Russian currency is worth more than it was before the invasion of Ukraine. Against the euro, this rise of the ruble, which reflects Russia’s economic stabilization, is even more evident: at the beginning of February, around 86 rubles had to be spent for one euro, now it is only 58 rubles. One of the most important goals of the Western sanctions strategy, namely to politically destabilize the Russian “home front” through currency devaluation, which is accompanied by spikes in inflation and losses in prosperity, has thus – so far – failed.

Not only that: now it is the over-indebted Eurozone, dependent on energy imports, that is suffering from the devaluation of its currency, while the skyrocketing prices for raw materials and fossil fuels have given the European currency union a whopping foreign trade deficit of 31.7 billion euros.[1] The further the euro falls, having already reached parity with the dollar,[2] the more expensive the imports of raw materials and energy sources become. The wind has thus shifted. It is now the eurozone that must fear for its stability, as the depreciating euro and high inflation lead to increased political tensions in the currency union. The return of a euro crisis seems likely, while the diverging economic policy interests of the German core and the southern periphery are creating new potential for conflict.
The Eurozone as the “Weakest Link” in the Economic War

With an EU-wide inflation rate of more than eight percent,[3] Italy, which has been in crisis for years,[4] is in debt to the tune of about 150 percent of its economic output,[5] so that any interest rate hikes demanded by Berlin from the European Central Bank (ECB) to combat inflation would quickly make this debt burden south of the Alps unsustainable. This is why the implied conflicts over crisis policy between Germany and the southern periphery are emerging, with Berlin opposing the continuation of expansionary monetary policy and attaching political conditions – such as austerity programs – to aid programs for European countries in crisis.[6] The over-indebted eurozone, plagued by economic imbalances and the place where the dominant German export industry is also increasingly suffering from supply bottlenecks and protectionism, can thus be seen as the West’s “weakest link” in the economic war with Russia. Even the FRG must reckon with a tripling of debt servicing costs due to rising interest rates.[7]

The economic war has thus – by means of the sanction-induced price explosion for fossil fuels – reinforced the already existing inflationary dynamics in the West.[8] The rapid interest rate hikes now being implemented by the US Federal Reserve to combat inflation[9] are causing financial market crises and recession in the US and Europe,[10] and economic collapses and debt crises in the periphery of the world system are likely this year or next as well (more details in the upcoming Konkret 08/2022).
Russia’s Surplus and Economic Slump

The Kremlin, whose military machine is embarrassing itself in Ukraine, has simply chosen the last good strategic moment for its war. The West, especially “German” Europe, has only just begun the already half-hearted, often sabotaged by lobbying, attempt to phase out fossil fuels,[11] so it is still highly dependent on these energy sources, which now gives Russia an advantage in the economic war – the financial fallout of the sanctions thus hits the Western core countries harder than Russia.

This is no exaggeration. Sanctions, which in the West have manifested themselves in widening deficits and an acceleration of inflationary dynamics, have led to rich surpluses for commodity exporter Russia, which has been able to tap new markets. The Russian Federation’s current account surplus (it captures goods, services and remittances) reached a record high of more than $70 billion in the second quarter of this year, as rising export revenues for Russian gas, oil or coal were accompanied by a sanctions-induced slump in imports of Western high-tech or consumer goods.[12] Moscow’s budget surplus is expected to have added up to more than 20 billion euros in the first half of 2022,[13] and this was mainly made possible by export revenues from the sale of oil and gas, which reached the equivalent of 100 billion euros in the first half of the year, around 66 percent of the previously forecasted annual volume.

The Western sanctions, on the other hand, appear to be having the intended effect, at least in terms of economic development. According to current forecasts, Russia’s recession will be far more severe than initially assumed (minus 7.1 percent), at 10.4 percent.[14] Despite all the fears of recession, it is almost certain that neither the USA nor the EU will experience a similarly deep economic slump this year. The situation is similar for the inflation rate. Inflation in the Russian Federation will be in double digits this year at 14.4 percent, significantly higher than in the USA and the EU, which are likely to keep their price increases below the ten percent mark.[15]

And yet these bare numbers can also be deceptive, as they do not simply lead to a proportional political and social fallout depending on their relative magnitude. Authoritarian-ruled Russia, a semi-peripheral country that lives off commodity exports, may ultimately win the economic war despite a more severe economic collapse and higher inflation. The goal of the economic war that accompanies the imperialist war in Ukraine is to shake the enemy’s “home front” through socioeconomic disruption and thereby force it to surrender.
Economic War and Crisis

Here, however, the Russian Federation seems to have a number of advantages that enable the Kremlin to politically survive a far more difficult economic situation than is the case in the West. One is simply the post-democratic character of the Russian state, which tends toward the overtly dictatorial. The possibilities for repression in Russia, where the mere criticism of the Russian invasion of Ukraine can result in prison sentences of several years, are much more far-reaching than in the West, where democratic standards such as the separation of powers and the rule of law still exist – and although they are rapidly eroding, they are still largely valid in substance.

In view of the increasing social and ecological crisis of capital, this authoritarian constitution of Russia or Belarus does not make these societies into discontinued models, but rather into capitalist models of the future. The Belarusian head of state Lukashenko is not Europe’s “last dictator,” as he is often dubbed in the European press. On the contrary: Lukashenko is Europe’s first dictator, he forms the vanguard of the authoritarian capitalist crisis administration, which “west-oriented” countries like Hungary or Poland can also join. The bare, unrestrained state power gives Moscow advantages in manifest crisis situations that the West – as yet – does not have,[16] as was most recently evident in the suppression of the uprisings in Belarus and Kazakhstan.

Moreover, in the entire post-Soviet region – to a lesser extent also in the eastern periphery of the EU – there are still historical and cultural moments that have a stabilizing effect, which are simply not present in the West. The memory of the chaotic and, especially in Russia, catastrophic system transformation in the 1990s is still vivid, so that the current crisis is perceived in a very different contemporary historical context than in the Western core of the world system, where there have been no comparable shocks to the social fabric for more than half a century. While the people of the West feel as if the sky is falling on their heads due to galloping inflation and looming energy crisis, in the East they are confident that things have been much worse before. What’s more, Putin can exploit the memory of the collapse of the Soviet Union, especially among the older generation, to maintain power, because he presents himself as a “factor of order” who can prevent the fall into crisis chaos, which according to Russian state ideology always comes from the West.

Moreover, in the post-Soviet space, subsistence crisis strategies, such as the dacha economy, are still alive, strategies which have been lost in the West due to the complete internal colonization of the core societies by capital under Fordism. In the majority of cases in the EU and the US there are simply no practical conditions for making ends meet by growing one’s own food, selling at informal markets and gathering wood in the forest, as was often the case in Russia in the 1990s. Russian wage earners are far more likely to be able to escape their wage dependency by moving into this informal sector than their Western class counterparts.
No Winners in Crisis Imperialism

And yet it is unlikely that this economic war can be won by Russia – or that it will have any “winners” at all. For one thing, the interaction between the events of the war and the situation on the “home front” is much more pronounced in Russia than in the West. Strategic setbacks on the front in Ukraine can quickly erode any remaining support for the war of aggression, especially given the Russian army’s losses. But crucial is the fact that Putin cannot order a general mobilization to rapidly advance the invasion with a similar manpower level as the Ukrainian army. After all, the most important prerequisite for rule by non-totalitarian authoritarianism is to maintain apathy and de-solidarization among the population, the majority of which somehow opportunistically comes to terms with dictatorial power, seeks its niches, cares only about its own advancement, and so on.

A general mobilization would deprive the population of this option to look the other way, to simply remain inactive and to continue to persist in political apathy. When one’s own life is at stake in a war of imperialist conquest, the people concerned are automatically awakened. In view of the military incapacity of the Russian army, the Kremlin should actually order general mobilization – and at the same time it can’t, if it wants to prevent the emergence of a broad protest movement that can’t be so easily crushed either.

Finally, the military as well as economic war between Russia and the West cannot be understood without taking into account the profound social and ecological crisis process into which the late capitalist world system is sinking. In this respect, it is a crisis imperialism that has entered its bloody, murderous stage in Ukraine.[17] The economic crisis not only formed the decisive factor that contributed to the outbreak of war,[18] it is also executed through economic warfare. The increasing clashes and power struggles of the state monsters, which turned Ukraine into an imperialist battlefield, make the losers of this crisis-imperialist “Great Game” socially and economically relegated, as they become completely trapped by the crisis process. Actually, in the medium term, there are no winners in crisis imperialism. The “winners” only descend more slowly. These power struggles, previously conducted using economic and political means, turn into military conflicts as the crisis intensifies.

Thus, on a systemic level, viewed objectively, the war over Ukraine functions as a crisis accelerator,[19] which further aggravates already existing crisis processes. As inevitably as late capitalism breaks down at its internal and external barriers, the course of the crisis is not set in stone. The impending devaluation of value can take the form of inflation or deflation. In the case of deflation, a fall in prices triggered by interest rate hikes, recession and a collapse in demand, Russia’s wartime fortunes would turn very quickly.

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Originally published on on 07/17/2022

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