They hit a fresh monthly low of $US546 million ($833.4 million) in September. A current account surplus of 10 per cent of GDP has collapsed to zero. Budget revenues from oil and gas are down by 26 per cent over the past year alone. They could fall much further in 2026.
Russian air defences have proved unable to stop Ukrainian drone strikes on energy infrastructure deep inside the country. The attacks – now aided by US intelligence, which Joe Biden never allowed – have shut down a fifth of the country’s refining capacity and led to rationing at petrol stations.
The world has been flooded with oil.Credit: Bloomberg
The defence-industrial complex is consuming 12 per cent of GDP by some estimates, cannibalising all else. The Kremlin has kept going by forcing banks to fund weapons production, but these bad loans have undermined the banking system itself. Every kind of tax is on the table to plug the gaping holes.
This has been the year when Putin could no longer keep supplying guns and butter at the same time – literally, in the case of butter. Rosstat says butter prices rose 34 per cent from January to July, leading to a drop in butter sales of 15-20 per cent in supermarket chains.
“We are seeing a grinding away of the reserves of companies and ordinary Russian families whose savings are dwindling as they have to pay higher food and other prices. The social contract has been broken,” said Mark Galeotti, author of the book Putin’s Wars: From Chechnya to Ukraine.
“Putin had essentially based his regime on a deal that said, ‘You stay out of politics, you let us run the country – and, of course, embezzle hand over fist – and you too will have a steadily improving quality of life,’” he said.
‘We are seeing a grinding away of the reserves of companies and ordinary Russian families whose savings are dwindling as they have to pay higher food and other prices. The social contract has been broken.’
Author Mark Galeotti
“Nobody really believes that is going to return. Putin’s attempt to appeal to patriotism and national glory is threadbare,” he told Sir Richard Dearlove, the former head of MI6, on the One Decision podcast.
Putin clearly fears the spreading mood of war fatigue. The media censor Roskomnadzor is restricting calls and text messages on social media, the latest move in a wave of pre-emptive repression of all forms of dissent.
The monitoring group Na Syvazi said communications have been partially blocked on WhatsApp and Telegram in 34 regions of the country, including Moscow and St Petersburg. Roskomnadzor said it was to fight fraud but also to prevent “sabotage and terrorist activities”.
Russian dissident investigators at IStories say there has been a surge in the numbers tried and convicted for sabotage. Those sentenced for “confidential co-operation with foreigners” have risen twelvefold over the past year, while convictions for “terrorist attacks” have risen eightfold.
Putin has been reluctant to silence Russia’s irrepressible chorus of “milbloggers”, many of them army veterans and some with a celebrity following on Telegram. But they are pushing their luck too.
The Institute for the Study of War says several openly accused the Russian high command of lying to Putin at a meeting at the weekend. They disputed claims that 16 Ukrainian battalions were encircled at Kupyansk. The reality on the front was instead “100 per cent chaos”, wrote one. They accused the generals of fabricating success stories to befuddle Trump.
It is becoming harder for Putin to raise cannon fodder for his imperial war of choice, which has chewed up a million dead or wounded. There are reports that the regional governments are cutting their share of the sign-on bonus for a three-year military contract, which can reach $US45,000. They are facing a severe budget crisis.
Putin’s energy leverage over the West has evaporated.
The global oil glut is now so big that Trump can embargo Russia’s oil production without risking an oil price shock at home. He almost certainly has assurances from Saudi Arabia that it will open the floodgates further if necessary to stabilise the market.
Unless Putin is living in a dictator’s fantasy world, he must know that his military offensive in recent months has failed to break Ukraine’s “fortress belt” and that he is running out of money for an endless war of attrition.Credit: AP
The latest US sanctions are the potent “long-arm” variant that strike economic terror everywhere. They target any shipper, insurer, buyer or refiner, anywhere in the world, that dares to handle 3 million b/d of exports from Lukoil and above all Rosneft, run by Putin’s ex-KGB friend Igor Sechin. These are the two big beasts of Russian oil.
The EU has added another 112 tankers from Putin’s shadow fleet to its proscribed list. It has pledged to stop buying any further liquefied natural gas from Russia from January 2027, and about time too since the EU now imports more of Putin’s LNG than the rest of the world together.
Four fifths of Russian crude production now faces a US and UK embargo. China, India and Turkey buy most of it, at a discount. Their companies have to decide whether this profitable trade is worth the risk of defying the US Treasury and being shut out of the international dollar-based payments system.
The four Chinese state-owned oil companies – Sinopec, Petrochina, Zhenhua Oil and CNOOC – have already suspended imports of Russian seaborne oil. This is revealing. Might we infer that China’s rival and much-vaunted payment system in renminbi is clearly not yet ready for prime time? The Indian Oil Corporation will comply too. So will Mukesh Ambani’s Reliance Industries.
Russia will eventually find ways to circumvent the sanctions and keep selling oil, in diminished volumes and at a haircut price. Trump may, of course, change his mind.
But unless Putin is living in a dictator’s fantasy world, he must know that his military offensive in recent months has failed to break Ukraine’s “fortress belt” and that he is running out of money for an endless war of attrition.
Autocratic regimes are notoriously brittle. They can appear rock-solid and then suddenly collapse. But they can also keep going for years, if ruthless enough. To rely too much on the easy solution of a palace coup is to indulge in wishful thinking.
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The West is slowly winning. It must hold its nerve and ratchet up the pain. And for heaven’s sake, release the $US140 billion of Russian reserves sitting in Belgium. Specious legal objections have gone on long enough.
Putin has to know that Ukraine will have enough money to fight on to 2027 or 2028 if need be. It must be made absolutely clear to him that there is no victorious way out of a disaster of his own making.
The Telegraph, London
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