“30% of my friends in business who could leave have left Russia and are not coming back. The others have all made preparations to move their families abroad with citizenship elsewhere.” -A prominent member of the Russian business community said to SOFREP anonymously.
The harsh economic punishment dished out by Putin against Western business interests that took a stance on the war has painted Russia into a draconian corner that will take decades to unwind if the state doesn’t fracture like Yugoslavia into smaller independent states, a very likely scenario.
Russia went from a country with a farly solid reputation, the host of the World Cup and the Winter Olympics, and with a flash of lightning, it became a global pariah.
Big Western business has pulled out like food giant McDonald’s. The days of shopping for luxury Italian handbags in Moscow are over for a long time.
We’re not just talking burgers. Many global brands and multinational companies have suspended business in Russia or sold up and pulled out completely, in protest at the Russian offensive in Ukraine.
Mr Govor, a Siberian oil magnate, aims to reopen about a quarter of the 850 rebranded McDonald’s restaurants by the end of the month.
Last month McDonald’s announced that it would leave Russia because of the “humanitarian crisis” and “unpredictable operating environment” caused by the war. -BBC
Putin has also pulled up the drawbridge of internet commerce and tried to cut Russian consumers off from the international market. They have resorted to the old ways of buying things from the West unavailable in Russian stores. They have others buy it for them in foreign counties and mail it to them.
There is also said to be a thriving black market in Dollars and Euros in Russia since they put restrictions in place to protect the Ruble. They are limiting how much account holders can take out of their own bank accounts to prevent people from dumping it for other currency they can buy things with internationally.
Putin doesn’t make many mistakes but invading Ukraine was a critical strategic error that is likely to cost him everything and set his own country back a generation economically, socially, and militarily.
The real long-term damage to the culture will be the massive exodus of talent. Russia isn’t the Soviet Union anymore with a closed border, people can leave, not easily, but they don’t get shot or imprisoned anymore for trying. Scraping the intellectual cream off the top of Russia will have a long tail and Harvard business school taught me that we are who we hire. You hire for culture and Government is no different.
What is left now is a Russia run exclusively by Putin’s cronies and second-tier “yes men”.
When I spoke to several Russians they were clear that there were no great outcomes. The war could take several directions.
- Prolonged war with massive civilian casualties. Bomb it off the map and rebuild with Russian loyalists in power. Putin will have to conscript citizens to build up his army to tip the manpower scales that are roughly 1:1 now. Invading forces typically need a ratio skewed in their favor. Getting Ukraine in a bag full of broken pieces will mean Russia will have upwards of 50 million hungry mouths to feed in a country with a wrecked economy and infrastructure that Russia will have to rebuild. This will take a lot more time and money than it took for West Germany to return East Germany to the fold after the Soviet Union collapsed.
- The war ends before Christmas with China brokering peace talks and asserting itself as a global superpower. This would mean Ukraine cedes land in the east to give Putin a face-saving exit but deals a blow to EU democracy and US prestige. This one is a long shot. Zelensky has made it very clear that he wants all of Ukraine back and the US goal is to see Russia crippled both militarily and economically.
- Putin is pushed further to the edge politically and drops tactical Nuclear weapons (his Ace up the sleeve) that puts us on the brink of WWIII. This further isolates Putin’s Russia and could be a difficult situation for China to navigate. There really is no way to imagine the reaction to this move or if Putin could even pull it off. His own people may balk at using these weapons and off him instead.
Regardless of the above scenarios, the damage to Putin’s Russia has created long and permanent damage that will not be undone for decades to come.
Most Russians I know with large businesses in the country are waiting it out but the line they’ve drawn in the dirt is mass conscription.
“If Putin starts demanding we all fight then we are out permanently. Only our parents are loyal to Putin.”
That’s the other interesting phenomenon, culturally Putin has support from a much older demographic but not a younger one. This younger generation grew up in relative freedom with no memory of the USSR. They have none of the emotional scarring it caused to their parents and grandparents. They’ve been to the West and like what they see.
Most people I spoke with said that most under the age of 50 have no real interest or stomach for waging war in Ukraine. Those over 50 aren’t going to be conscripted so they can afford to be a bit more hawkish in their outlook.
History has taught us that weak morale within any fighting force is the core ingredient for failure. America saw this in post-2003 Afghanistan when the war drifted into a 17-year fog bank or failed nation-building.
The ramifications of war in Ukraine to Americans will be continued high costs at the gas pump and rising food prices.
The latter will happen because of the continued agricultural disruption to Ukraine (most of Italy gets its wheat for pasta from Ukraine) and the global food shortage it will cause that will create increased demand for American agricultural products.
The Fed can try and fight inflation with interest rate hikes but the inflation wildfire is coming and the inflationary flames are being fanned by the war in Ukraine. Raising interest rates would cause some huge problems. The deficit is now more than $30 trillion, this is borrowed money the taxpayers owe to the government sometime in the future. Raising interest rates means raising it on the deficit as well, which will eat the budget. Every point the Fed adds to interest rates, adds more than $100 billion a year to the deficit just in interest payments.
Putin could try and throw more bodies at the problem but at the moment he is outgunned, understaffed, and headed to oblivion.
It appears Putin has learned nothing from America overextending itself over the last 20 years with murky foreign policy strategies, and that history is doomed to repeat.