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The war in Ukraine is draining Russia’s inventory of weapons faster than replacements can be built, while industries critical to the defense sector warn on high interest rates.
More evidence is piling up that Russia’s military-industrial complex is nearing the brink after nearly three years of fighting in Ukraine.
President Vladimir Putin mobilized the economy for Russia’s invasion, resulting in massive amounts of state funds for defense contractors along with low unemployment as working-age people build weapons in factories or serve on the front lines.
But that also stoked inflation, which has hit 9% and even forced Putin to acknowledge that it’s “alarming.” Russia’s central has hiked its benchmark rate to 21% to rein in prices, but businesses are feeling the strain of all that monetary tightening.
In recent months, leaders in the defense industry and adjacent sectors that are critical to the war machine have sounded alarms.
The head of state arms giant RosTec warned that if rates stayed high, “then practically a majority of our enterprises will go bankrupt.” The owner of Russian steel giant Severstal said it’s more profitable for businesses to scale back operations and park their money in interest-bearing deposits. And the head of the Chelyabinsk Forge and Press Plant said at an economic forum that key areas of mechanical engineering could “collapse.”
Contractors in the Russian defense industry are reporting non-payments and higher financing costs, Alexandra Prokopenko, a fellow at the Carnegie Russia Eurasia Center, told the Washington Post.
Meanwhile, other analysts have predicted that the Russian economy can’t sustain Putin’s war on Ukraine past next year as the ability to replace battlefield losses with Cold War weapons runs out.
For example, the military is losing about 320 tank and artillery cannon barrels a month, while Russian factories can produce only 20 each month, forcing the Kremlin to dig into aging Soviet stockpiles. But that’s not enough, and Russia will run out of barrels sometime in 2025, according to a recent analysis in Foreign Policy magazine.
The situation was dire even last year, when Russia’s largest movie studio donated about 50 tanks and armored vehicles from the 1950s that it had been using a props.
“I knew that they needed them, so I got in touch with the Defence Ministry, and they took these vehicles,” Mosfilm director general Karen Shakhnazarov told Putin during a meeting last month.
This story was originally featured on Fortune.com
