Moscow's nuclear threats aggravate economic crisis in Russia

By Sultan Musayev | 2024-12-25

ALMATY -- As it continues to struggle in its war with Ukraine, Moscow is resorting more and more often to nuclear threats in an attempt to intimidate Kyiv and its Western allies.

However, the actions have had an unintended effect of worsening an already precarious economic situation inside Russia.

'Shooting itself in the foot'

Since the full-scale invasion of Ukraine began in February 2022, Russian authorities have repeatedly resorted to threats of nuclear war.

It began in September 2022 when Russian President Vladimir Putin said that Russia intended to "make use of all weapon systems available to us" to defend its territory, and he has made numerous threats since.

"In saber-rattling with nuclear weapons, the Kremlin is shooting itself in the foot," Elmira Suranchiyeva, a Bishkek economist, told Global Watch. "The international sanctions jolted the Russian economy, and with the nuclear rhetoric things got even worse."

The eighth package of European Union (EU) sanctions, which the EU adopted in October 2022, affected key sectors like financial services and oil.

Restrictions on Russian oil and petroleum products sharply curtailed Russian national income. In January 2023, Russia's oil and gas income dropped by nearly 40% from January 2022, the International Energy Agency said in February 2023.

The comparative revenues were $30 billion in January 2022 and $18.5 billion a year later.

Imports plummeted too, as the restrictions caused a shortage of critical components and technologies. That blowback took a toll on various forms of manufacturing, and surges of inflation in Russia followed.

Despite these ramifications, Moscow continued to use nuclear extortion. Last year Russia delivered its tactical nuclear weapons to Belarus, and in May of this year it started building a base for these weapons in Osipovichi, Belarus.

Furthermore, the Defense Ministry held exercises for non-strategic nuclear forces in the Southern Military District in May.

Fearing to trade with Russia

Economic partners from neutral and even friendly countries consequently began distancing themselves from Russia.

Supplies of equipment and technologies from China, coveted by Russia, were also restricted: Chinese companies started to approach deals with Russia more carefully, fearing fallout for their business in the West.

In March, VPost-media, a Russian site, reported that Chinese banks had started to ask Russian clients to verify that products they bought would not be used for military purposes.

"Friendly Chinese bankers are now putting up obstacles more often than unfriendly ones," a local entrepreneur told VPost-media.

Türkiye has begun to apply similar financial policies. This year a host of Russian companies have reported that Turkish banks have refused to accept funds from Russian clients trying to buy Turkish products.

The banks fear punishment for violating Western sanctions on Russia.

"Machinery exporters, who benefited most from [Türkiye]'s surging shipments to Russia in 2023, could see sales there fall by $1 billion this year ... That's a third of last year's sales to Russia," Bloomberg reported in May, quoting Turkish exporter Kutlu Karavelioglu.

In September, another Russian economic partner, India, slashed its imports of diamonds from Russia by 96% year over year. Indian purchases of Russian precious gems started to slump in April, right after the G7 countries banned diamond imports from Russia.

'Toxic relations'

The crisis in Russia has also hit the economies of its neighbors -- the Central Asian countries, which have been trading with Russia for decades.

In Kazakhstan, calls are increasing for Astana to crack down on Moscow.

"The economic crisis in Russia and the weakening of the ruble are flooding our market with cheap Russian goods, and that makes our manufacturers less competitive," Meruert Makhmutova, director of the Public Policy Research Center in Almaty, told Global Watch. "We need to protect our market from Russia."

Analysts are also urging neighboring governments to more actively monitor compliance with the restrictions so that "toxic relations" do not trigger even more secondary sanctions, which already have slammed some local companies.

Russia, which was kicked out of the SWIFT system, is trying to put alternatives in place with its economic partners, including Kyrgyzstan.

"I don't think Russia will be able to create similar initiatives in the foreseeable future. It's unrealistic," Almaz Tazhybai, a political analyst and director of the Center for Public Policy Analysis in Bishkek told Global Watch.

Hardship in Russia

These sanctions have hit ordinary Russians hard with inflation, a shortage of goods and a decline in income.

Although official statistics show a rise in average income in the past two years, data on inflation and the ruble's value indicate decreasing consumer purchasing power.

Stores are even locking up butter as desperate customers shoplift the formerly routine commodity.

An exodus from the country has made the crisis worse.

Figures on departures vary by source, but one investigation found that from the first day of the full-scale invasion to July 2024, 666,000 Russians left their country and did not return, DW.com reported at the time.

The figure includes highly qualified specialists, the loss of whom has further crippled the economy.

Restructuring the economy under new conditions and trying to offset the shortage of foreign investment and technologies require tremendous resources that Russia does not have, say economists.

"The nuclear extortion aggravated Russia's economic isolation -- it got a reaction in the form of harsher sanctions, a loss of trust and more careful business decisions," Suranchiyeva said. "Moscow will feel the effects of its threats for a long time."