Military economist Keupp (ETH Zürich) in interview
"For Russia, it's heading towards the Soviet Union".
The Russian economy is suffering from the consequences of the invasion of Ukraine. The arms industry is costing a lot of money, and there is a shortage of qualified workers due to mobilization. In an interview with ntv.de, military economist Marcus Keupp, lecturer at the Military Academy of ETH Zurich, predicts a bleak future for the Kremlin - also for German companies that have stayed.
ntv.de: Russian artillery fire has decreased by 75 percent in some places on the front lines in Ukraine. U.S. officials have yet to offer an explanation, do you have one?
Marcus Keupp: This is not a mystery, on the contrary, this already happened in the second year of the First World War. Back then, the warring parties shot artillery ammunition at each other relentlessly until they realized that their armaments industries could no longer keep up with post-production.
Russia depends on artillery for its warfare. How long, then, can the Kremlin's forces continue to wage such a war?
That is the question: Either there is an extremely powerful armaments industry that can produce these numbers or they take shells from their Soviet depots. Russia had about 17 million artillery shells before the war started, both since 1991 and ex-Soviet stockpiles. The average rate of fire since February has been about 30,000 artillery shells per day, perhaps 50,000 at its peak in the summer. Added together, then, just under eleven months into the war, Russia has fired about 10 million artillery shells so far.
Can the Russian arms industry make up for that?
The Russians' production capacity is only 1.2, maybe 1.7 million artillery shells per year. If they kept up their frequency of fire, they would have 233 more days of such ammunition. An army cannot fight a war if it runs out of ammunition in barely eight months. The country faces a problem: Russia did not expect the war to last this long. Therefore, they have been rationing their artillery ammunition since last fall.
For a supposed military nation, 1.2 million artillery shells per year doesn't sound like very much.
The Russian defense industry has always had two problems, even in the Soviet Union. First, corruption: much of the money earmarked for armaments ends up in the pockets of corrupt officials. Second, the Russian defense industry is technologically inferior: it can produce, but not very modernly. What Russia can produce is primarily 20th century ordnance. For a huge country with its supposed wealth, that's not much. It is out of all proportion to what the West and its allies can supply to Ukraine.
What role do the sanctions play in this?
The sanctions don't hit the arms industry that hard, especially when it comes to simple systems like artillery shells or battle tanks. When the large-scale attack began in February, many observers had hoped that Western sanctions would ensure that munitions supplies would falter. This overlooked the fact that the entire Russian arms industry has been sanctioned since 2014 - and not just by the United States. These sanctions primarily affect the Russian export business, not production. No Western company is allowed to supply components anymore, no Russian arms producer is allowed to export to the West. All circumvention routes are banned.
Nevertheless, Russia can still get its hands on Western components.
There is one exception: Iran. Again and again, pictures of Russian armaments emerge that contain Western chips, for example. These were then smuggled to Russia via Iran or purchased on the Chinese market.
Let's move on to the macroeconomic situation. The Kremlin's budget deficit is said to have been $47 billion last year. What remains of the Russian economy?
For Russia, it's back to the Soviet Union. Its economy had three principles: First, the primacy of the military - so money goes first to arming the army. Second, the immobilization of the population - food and rents were subsidized to prevent unrest. And third, importing the rest of the goods. The great irony is that Putin is popular with Russians because he has instigated a number of major social programs. He has improved the situation of pensioners and tried to alleviate poverty. He has financed this with the high profits from the export of gas and oil.
The West hardly buys any fossil raw materials from Russia anymore, so this source of income is gone. So where does the money come from?
First, Putin takes the money from the national welfare fund, i.e. the piggy bank. In view of the war costs, however, that won't last long. After that, social spending remains. The poverty rate in Russia will certainly rise significantly. At some point, Russia will look like the Soviet Union again, a gray country with an authoritarian military and an oppressed population. That is sad, but in my view the most likely scenario.
In addition, the Kremlin has mobilized hundreds of thousands of men and will probably continue to do so. These workers are missing from the domestic economy, right?
Russia has so far claimed they are mobilizing 300,000 people. But only some of those mobilized are on the front lines, the rest are probably being held back and apparently trained longer. The death toll is the only indication of how many there really are: At Bachmut, for example, about 600 soldiers are said to have died in a Ukrainian attack last time. The exact number mobilized is also irrelevant: it is estimated that the Russian economy is now short a million skilled workers. In addition to those mobilized, this figure also includes the 700,000 people who have fled. To make it clear how serious the situation is, there was an announcement just last week from the Russian Digital Ministry that any IT professionals who return voluntarily will not have to join the military.
That sounds very desperate.
Labor shortages are hitting Moscow's economy hard. The financial and service sectors in particular are very IT-intensive in Russia. Russian banks are currently beginning to think: How do we keep our business going if all these people are missing? The problem is not necessarily that they die in the military, but that they have fled to Dubai, China or Kazakhstan. These long-term consequences should not be underestimated. If Putin launches a second, third or fourth wave of mobilization, the economy will quickly perish.
Does that leave Russia with no long-term perspective?
Yes. In addition, there is a point that even some German companies are not considering: reparations. Let's assume that the war ends in late fall 2023 with a Russian defeat. Then I think it is extremely unlikely that there will be a major reorganization, such as at the Congress of Vienna in 1815, when the continent was reorganized after the fall of Napoleon. But then who will pay for the damage that has been done so far in Ukraine? As of now, it's $800 billion, and getting more by the day. There is no way that a beleaguered Russia, which is ultra-nationalist and revanchist, will do this voluntarily.
Then what?
Western countries will first seize and expropriate all Russian assets. In the USA there is already such a law, in France one is being created. What will probably follow is Russia's retaliation. They, too, will expropriate all Western companies that have remained. That will then also affect German companies. I think many Western companies don't realize that. They have not yet understood that the war is not just temporary, but that a new world order is just emerging. The consequences are much greater than the fighting in Ukraine. The whole world is rebuilding. Very few have understood what that actually means.
Translated with
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Russlands Wirtschaft leidet unter den Folgen des Überfalls auf die Ukraine. Die Rüstungsindustrie verschlingt Unsummen, durch die Mobilisierung fehlen Arbeitskräfte. Im ntv.de-Interview prognostiziert Militärökonom Keupp dem Kreml eine düstere Zukunft - auch für deutsche Firmen, die geblieben sind.
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