Thread by @ThreshedThought

Let’s take a look at the economic side of Russia’s invasion of Ukraine.

A 🧵

Once wars go beyond a couple of months, they tend to become a battle of the economies—that is, who is will to turn a bigger part of their economy into a machine that produces arms and munitions.

Obviously, if you have two sides that are both willing to turn as much as possible of their economies over to the war, then the side with the bigger economy will tend to win (all other things being equal).

Wars are expensive; and bigger economies have a huge advantage.

Russia’s GDP is about $2 trillion; the EU’s GDP is about $20 trillion.

There shouldn’t be any problems here.

But of course, there is are differences between the EU and Russia in terms of approach to the war

- all other things are not equal.

There are two main differences:

- Russia spends about 40% of its GDP on the military (we think, but who knows?); the EU around 2%.

- Russia is willing to take extremely heavy casualties - over 1000 a day. The EU isn’t willing to take casualties.

And there is something else, which is probably more important than both of those:

- Russia sees this war as about its identity as an Imperial Russia, and therefore it is existential to it (if Ukraine exists Imperial Russia does not)

- Europe sees this as a war of choice

But this is having consequences for Russia … economic consequences.

Inflation in Russia (and particularly food inflation) is pushing 8-8.5% according to official figures.

By some measures inflation is up to 20%.

As a result, the central bank has had to put interest rates up to 21%, pushing credit out of the reach of normal consumers and businesses.

(The inflation is being caused by the huge amount of expenditure on the war into things like shells which then get destroyed; and the cash that factory workers earn creating those shells is then chasing after too few consumer goods because too few are being produced).

(In addition wages are going up because of so few workers - as many are serving in Ukraine, have fled the country to avoid the war, or are dead/injured)

In short … Russia’s economy is in deep trouble; and there is no easy way out.

And at the moment Putin is able to blame the West for the war/price increases/everything, but populations that cannot afford food are not compliant populations for long.

What about on the other side of the fence … in the West?

The war expenditure itself has had very little impact on the economies of Western countries.

(Although the initial invasion did spike inflation due to supply chain impacts, and the price of energy soaring. This has mostly subsided now).

This is largely because the West has not really given over any sizeable percentage of its economy over to the war in Ukraine.

In fact … there has been a struggle to supply Ukraine with the weapons that it needs.

And this makes a real difference - In 2023/4, when the US Congress delayed for months a huge package of support for Ukraine, Russia started gaining the upper hand on the ground.

And when the Bill was approved in April 2024, and the arms started flowing, Ukraine was able to stabilise its front line.

This money makes a huge difference.

And now - as I have written before - we are facing an incoming US administration that may not (probably will not?) support Ukraine to the same extent, if at all.

Considering that the US provides approximately 50% of the support to Ukraine this is a big deal.

The US has, so far, provided or committed to provide approximately $180bn of support to Ukraine.

So can Europe make up the shortfall?

Yes, it could, if there were the political will.

Estonia, for instance, is levying a 2% ‘security’ tax on individuals and businesses.

Estonia knows a thing or two about the Russians.

But there is actually an easier way …

At the start of the war, billions of dollars of Russian banking assets were frozen in the West.

And it has taken some time, but recently the EU has agreed to requisition the interest from those assets to give to Ukraine for its defence.

The interest from the frozen Russian assets is about $3bn per year.

Useful, but not going to change the price of fish.

However, by some accounts, there are up to $300bn dollars of Russian assets frozen.

Imagine, if we spend that money on Russia’s defeat in Ukraine.

$300bn would definitely change the price of fish.

This is something that I and other MPs have been calling for (cross Party)

And due to a brilliant intervention by my Lib Dem colleague @RichardFoordLD the government has agreed to talk to other countries that have begun investigating how to seize these Russian assets for Ukraine’s use to see how they have gone about it

@RichardFoordLD This is something that we will keep pushing, obviously.

@RichardFoordLD But zooming out … and when you consider the importance of economies when it comes to long term wars … there is only one real conclusion that you can draw

@RichardFoordLD And it’s the opposite one that you get from the media

@RichardFoordLD Russia’s economy is in a bad way, and Europe’s has hardly noticed the war.

If Europe chose to it could inflict defeat on Russia. Just like that.

And even with the US potentially pulling its support, there is a pot of Russian cash worth FIVE years of US support at the current rate.

These are economics that you cannot dispute, and that Russia would not be able to survive. They wouldn’t have an economy left at the end of it.

@RichardFoordLD It’s obviously not easy to requisition $300bn of Russian assets and there is obviously a process.

But as I said in my speech (scroll up):

If not now, when?

/ENDS