28 April, 04:57 PM

Putin the loser

Timothy Ash

UK Economist, covering Emerging Europe, Middle East and Africa.

Initially, after the news that Gazprom was cutting off gas supplies to Poland and Bulgaria, and then warnings of escalation/false flag operations in Transdniestr, I thought oh this is really worrying, Putin is escalating.
Listening to the Mike Kofman podcast yesterday, I was left with the impression that Putin is losing the military campaign, and time is not on his side.
He lacks the troops and kit attrition means that as time goes by Ukraine will have the superiority in arms/troops as Western re-armament kicks in. So Putin has to do something to stop Western arms supplies from getting into Ukraine.
And as Mike Kofman herein questions, why has Putin not hit logistics routes/infrastructure in Ukraine much harder? I was speaking to another military analyst the other day and he was suggesting that it is because the Russian military lacks the intelligence and military capability.
Ukraine is a huge country, and there are numerous supply routes - how to spot arms supplies being run in in white lorries, or white vans - Putin getting some of his own treatment there from the infamous “humanitarian convoys” Russia ran into DPR and LPR from 2014 onwards.
So Putin is left trying to bully/leverage Western foes with threats of escalation in Transdniestria, or cutting energy supplies. But he seems to lack the courage to bomb Western arms shipments directly, as that would take him into direct conflict with the West.
And he fears a direct conflict with NATO which he knows he would lose, and his only fallback then would be nuclear. His bluff seems to have been called.
And on Transdniestria, he has like 1200 Russian troops there and has failed to push the land corridor to Crimea much beyond Kherson.
As Kofman points out, he lacks the military capability to drive on from Kherson.
So warnings about the escalation in Transdniestria look like a bluff. Maybe he wants Ukraine to intervene there to get involved in a second front, to split their forces. But I don’t think the Ukrainians are that stupid.
But the basic problem for Putin is if he cuts gas deliveries to Europe, where else is he going to sell the gas? The gas pipelines run West, not East, and he cannot divert the gas easily to Asia, without major investment in pipelines.
On the cutting of gas supplies to Poland and Bulgaria, these are smaller consumers of Russian gas in the big scheme of things. And given sanctions, he now is cash and financing short. If he cuts gas supplies to Europe he loses $50bn plus in annual revenues, money that he now desperately needs to finance this war.
The Ukrainians would say bring it on, cut gas supplies, as you will be the loser. He will be the loser anyway, as in any scenario where Putin remains in power in Russia, Europe will max diversify away from Russian energy as Russia is now marked out as an unreliable supplier of energy. Putin has killed the golden goose which was generating over $100bn in annual energy export receipts. That business is gone.
So Putin’s threats seem hollow, and leave an impression of weakness - is this really the best that he can do?
Meanwhile, having just been asked to do a UK Radio interview on the costs to Russia of the current conflict, I started a back-of-the-envelope exercise to figure this out.
Here goes in goes:
* Russian financial markets, equities are down at least 50% over the year, and debt by as much as 80%. In terms of Russian financial asset values, Putin’s aggressive foreign policies have wiped something like $800bn off Russian financial asset values. At least three-quarters of this are held by Russians.
* CBR assets to the tune of $300bn have been frozen and at least another $100bn in other assets of oligarchs and large Russian entities, that’s a $400bn hit that is unlikely to be returned quickly to Russia, and likely will be used to pay war reparations to Ukraine.
* GDP is likely to be down 8-10% this year, which represents a loss of $180bn, assuming without war, real GDP might well have risen by 2-3% this year. So I take a 10% overall loss of GDP.
Tallying that up, I get a figure of close to $1.4 trillion, of which I reckon $1.2 trillion is a direct loss to Russia/Russians. That’s around $8000 per capita.
True this will be disproportionately lost by Russia’s middle classes and oligarchs given income inequality.  Nevertheless, ordinary Russians will surely feel the price of war in higher unemployment, higher inflation, lower real incomes, and lost opportunities.
So Russia is poorer to the tune of well over ONE TRILLION DOLLARS, and likely tens of thousands of Russian troops have been killed or injured, while Russia is losing the energy market West - so much winning from Putin.
I just wonder how long before Russians realize all this and Putin’s own goose will then be cooked.

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