Page 37 - bne monthly magazine June 2024 Russian Despair Index

bne June 2024 Cover story I 37
is being spent on defence and one of the budget’s biggest expenditures.
The total spending on the military this year is slated to be RUB12.8 trillion ($140) in the current budget plan, up nearly a third (29%) from last year’s RUB6.58 trillion ($84bn) and RUB4.7 trillion ($75bn) in 2022.
“Andrei Belousov has been appointed defence minister, not least because of the growing defence expenses. I would like to remind you that the Soviet Union’s aggregate defence and security spending amounted to approximately 13% [of GDP] in the mid-1980s. In 2024, our total spending on defence and security will be about or slightly more than 8.7%. The approximate figure will be 8.7%. This is less than the 13% the Soviet Union spent, but it is still a considerable sum and a major resource, which we should use
sparingly yet effectively,” Putin said.
Andrei Belousov had been Minister
of Economic Development and a president’s aide in the Presidential Executive Office, and for the past
few years he was First Deputy Prime Minister in charge of economic matters.
"It goes without saying that he knows very well what should be done to incorporate the economy of our defence and security sector, and the Defence Ministry as its core element, into the national economy. This is extremely important. What I mean is that it will determine the innovative development of our industries with due regard for our economic and budget capabilities," Putin added.
The danger the Russian economy faces is long-term stagnation. As a lot of
civilian production has been switched to military output and capacity utilisation is already at a record high of 81%, at some point post-war this non-productive production will have to be switched back to civilian output.
The investments into the National Projects are intended to start this process now and support pro-growth sectors like construction, to soften
the pain of that transition. In general, Putin is also keen to keep life at home as normal as possible to head off any potential protests against the war and its cost to the Russian economy in order to keep his grip on power. Everyday
life in Russia has so far been largely unchanged by the war in Ukraine and indeed with nominal wages rising much faster than inflation real incomes have been rising, and that has been fuelling
a consumption boom.
Ukraine’s strategy of hitting Russian oil refineries is working
Ben Aris in Berlin
Ukraine’s strikes on Russian oil
refineries are doing what oil
sanctions have failed to achieve: reducing the Kremlin’s income from oil production, limiting its supply of fuel for the army and pushing up domestic prices, but without affecting the international markets for oil. Despite US fears, the effect of the attacks will be to drive international oil prices down, not up.
Since the drone war started earlier
this year, new long-distance drones have struck at least 20 targets deep
in Russian territory, causing fires and threatening to put refineries out of action for weeks as increasingly difficult to effect repairs are carried out.
The attacks do not destroy refineries. Thanks to the legacy of the Cold War, most refineries were built to withstand attack and have air defences, as bne IntelliNews reported in an article
looking at how much damage Ukraine’s drone attacks on oil refineries can do.
Nevertheless, Russia’s oil products production has fallen by an estimated 14% between January and March as a result, causing shortages for the civilian population, if not for industry and the military; Russia has significant over- production capacity to enable exports and only an estimated 40% of its refineries are in range. But the attacks have already caused the domestic prices for oil and diesel to surge.
The attacks have compelled Moscow to implement a six-month ban on gasoline exports and import gasoline from Belarus as well as asking Kazakhstan to create a reserve of 100,000 barrels in case of emergencies. One of the world's largest oil producers has been forced
to slash its refining capacity, which is damaging the economy it relies on to
fund the ongoing war in Ukraine.
Ukrainian strikes have achieved what Western sanctions have not: a reduction in Russia's ability to convert crude oil into the fuels needed to power its military.
But the strategy has made the US very nervous, with Secretary of Defence Lloyd Austin expressing concerns that these strikes might "have a knock-on effect in terms of the global energy situation" by pushing up global oil prices. That hasn’t happened.
Ukraine insists that targeting Russia's refineries will instead drive down international oil prices. By limiting Russia's refining capabilities, Ukraine effectively forces Moscow to export more crude oil, increasing supply and driving prices down.
“Russia is exporting more crude, while its refined exports have hit near-historic
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