Sanctions Hurting Russian Economy but War in Ukraine is Destroying It, Itskhoki Says

Paul Goble

            Staunton, Dec. 21 – Despite the hopes of some and the fears of others, Western sanctions are not destroying the Russian economy although they are hurting it; but Putin’s war in Ukraine for other reasons is having exactly that effect, according to Oleg Itskhoki, a Russian-American economist now teaching at UCLA.

            Sanctions have had an effect on the Russian economy, the scholar acknowledges, but not nearly as great a one as many had hoped and others feared. However, and particularly if one considers the longer term, it is the war in Ukraine that is having the far greater negative impact (istories.media/opinions/2023/12/20/razocharovanie-goda-sanktsii-rossiiskuyu-ekonomiku-razrushat-ne-oni-a-voina/).

            Indeed, the war has been “destructive,” Itskhoki says. “Now 10 percent of GDP is going for the war, more than the entire pre-war GDP of Ukraine! And even if it ends and Putin remains inn power, Russia will remain a country with a military economy. It already will not be able to exist in any other way. It will product arms for revenge.”

            “There is not just a military but an economic logic in this,” he continues. “If you stop this 10 percent of GDP, there will be a severe crisis as the stimulation that is now coming via state defense orders is keeping the economy afloat and even providing some growth.” That will have to continue “just to keep the economy where it is whether the war continues or not.”

            Consequently, “gigantic military spending by the government will continue for as long as Putin’s government can afford it, that is, for as long as oil prices remain high.” Of course, it is possible that these will collapse as they did at the end of Soviet times; “but before that … the entire National Welfare Fund will be exhausted.”

            In this situation, Itskhoki argues, one must assess “the real depth of Russia’s economic losses [by] comparing them with what they would have been at current oil prices but without the war. In that case, over two years, Russia’s GDP would have grown by give percent instead of remaining flat.”

            But there is another issue as well: “would oil cost as much as it does now without the war? It is often said that Putin is lucky, but he isn’t. Instead, he is an agent of chaos in the global economy” and that chaos ineluctably “leads to the higher oil prices” the world has to pay and that Russia receives the benefits from.