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War against Ukraine hit Russia's economy hard - FT

War against Ukraine hit Russia's economy hard - FT War against Ukraine hit Russia's economy hard (Getty Images)
Author: Maria Kholina

The war against Ukraine is significantly impacting Russia's economy, causing internal prices to rise and compelling Moscow to allocate a third of its budget to military expenses, according to a document from the U.S. Treasury Department.

Rachel Lingaas, the chief sanctions economist at the U.S. Treasury, stated that Russia's economy would have grown by more than 5% if Putin had not initiated the war.

Lingaas added that the country lags behind other energy exporters, including the United States.

According to FT, Moscow spent over $100 billion, or nearly a third of its total expenditures, on military purposes in 2023. The foundation of the Russian economy, revenue from oil and gas, suffered this year, although there has been a slight recovery in recent months due to strengthening oil prices. Additionally, Western sanctions on oil trade with Russia did not have as significant an impact as initially anticipated, the newspaper notes.

Sanctions and Russia's military budget

In 2024, the Russian government intends, for the first time since Soviet times, to allocate almost a third of all expenditures to maintain the army and the defense-industrial complex.

10.775 trillion rubles (121 billion dollars at the current exchange rate of the Central Bank of Russia) will be spent in 2024 under the "national defense" category - 70% more than in 2023. Another 3.338 trillion rubles, according to the budget law, will be spent under the "national security" category, which includes budgets for the Ministry of Internal Affairs, the National Guard, intelligence agencies, and the Federal Security Service system. Thus, almost 40% of the budget will be spent on security structures.

Russian oil price cap at $60 per barrel, introduced in December of the previous year, reduced Kremlin's revenues by 14%.

An analysis by the Center for Research on Energy and Clean Air shows that the price ceiling cost the Kremlin €34 billion in export revenues over the past year, roughly equivalent to about two months' income.

Meanwhile, the U.S. government intends to halve Russia's oil and gas export revenues by 2030.