Despite its aspirations for power, a shaky war-economy might slow down Russia’s military ambitions
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The Ukraine war remains a key issue for Moscow in 2024, with implications for its position in global and regional affairs. With national defence spending reaching 6.3 percent of its gross domestic product (GDP) and a third of the federal budget, the Russian economy is firmly on a war footing. The Russian leadership continues to maintain its maximalist stance on conflict resolution, with demands ranging from Ukraine's neutral, non-aligned, nuclear-weapon-free status to its demilitarisation and the lifting of Western sanctions. In addition, Moscow insists that a ceasefire or truce will not be the endgame—which should be based on a solid international agreement between all sides. While the election of Donald Trump has opened a window of opportunity for peace talks, reaching a consensus between Russia and Ukraine and addressing the European security architecture would require the utmost effort.
The Russian leadership continues to maintain its maximalist stance on conflict resolution, with demands ranging from Ukraine's neutral, non-aligned, nuclear-weapon-free status to its demilitarisation and the lifting of Western sanctions.
At the global level, Russian efforts are divided on two fronts. The first is to navigate a mounting confrontation with the West. The emergency hotline with the United States (US) and the North Atlantic Treaty Organization (NATO) has made it possible to avert a collision, though Russia’s proclaimed ‘red lines’ have been tested several times. The Biden administration’s decision to allow the use of high-precision Army Tactical Missile System (ATACMS) to targets deep inside internationally recognised Russian territory has marked a new stage in the conflict. In Moscow’s eyes, this is an escalatory step because Ukraine cannot independently undertake the mission planning process for the ATACMS and “all flight missions [for these missiles] are entered by US military specialists”. Russia retaliated by launching “Oreshnik” intermediate-range ballistic missile and carrying out massive air strikes on Ukraine’s energy infrastructure. Despite a renewed nuclear doctrine and a growing number of nuclear hawks in Russia, President Vladimir Putin declared that “sufficient numbers of ‘Oreshniks’ effectively eliminate the need to use nuclear weapons.”
On the other front, Russia has stepped up its efforts to woo partners in the Global South to “construct a new world order” and overcome Western sanctions. While the Kremlin has succeeded in demonstrating that Russia’s isolation has failed, the goal of establishing new payment mechanisms, both bilaterally and in BRICS, has remained elusive. Even settlements in national currencies are not completely immune to sanctions. Moreover, as sanctions compliance has tightened, a growing number of companies and individuals from the Global South are being blacklisted by the US for their links with Russian entities.
Judging by the extensive official contacts and the bilateral trade volume (more than US$200 billion in January-November 2024), China is a crucial foreign partner for Russia. Chinese companies have sent machine tools and microelectronics to facilitate Russia’s military production and have continued to fill the niches in the consumer market. However, Beijing has been relatively cautious in response to US sanctions, maintaining a firm stance in its negotiations on bilateral projects. Russian businesses, now heavily reliant on cooperation with China, have encountered significant payment challenges, even in yuan. In addition, the construction of the Power of Siberia 2 gas pipeline remains in limbo due to fruitless talks on pricing.
Chinese companies have sent machine tools and microelectronics to facilitate Russia’s military production and have continued to fill the niches in the consumer market.
Since Prime Minister Narendra Modi visited Moscow in July 2024, Russia-India relations have moved at a brisk pace. While diplomatic contacts have been reinvigorated, structural obstacles to trade and economic cooperation persist. Following a period of inactivity, the defence partnership has shown some signs of recovery, as evidenced by Defence Minister Rajnath Singh’s meetings with President Putin and his Russian counterpart Andrey Belousov in early December 2024. The expansion of bilateral exercises and new agreements on the licensed production of Russian arms in India is likely to take place next year.
In an important shift, Russia’s cooperation with Iran and North Korea has accelerated significantly. Despite historical divergences with Tehran and some irritants, such as Russia’s support for the United Arab Emirates’ (UAE) claims to three islands in the Persian Gulf, Russia and Iran have expanded their defence and economic ties. Iran has supplied Russia with drones and short-range ballistic missiles and seeks to receive Russian advanced equipment in return. The two countries are close to signing a comprehensive strategic partnership agreement to formalise their closer military and security cooperation.
Pyongyang has gone a step further in its military support for Russia: in addition to providing arms, North Korea has sent troops to fight for Russia on the battlefield with Ukraine. So far, the North Korean soldiers have only been spotted in the offensive operations in the Kursk region. While this has raised hackles in Seoul and Washington, Moscow maintains the deployment is in line with Article 4 of the Russia-North Korea strategic partnership treaty, which provides for mutual defence.
The Khmeimim airbase has been key to Russian operations inside Syria, as well as supporting its military personnel in North and Central Africa.
The rapid collapse of President Bashar al-Assad’s regime in Syria has come as a complete surprise to Moscow. A major issue for Russia is retaining control over its military facilities. The Khmeimim airbase has been key to Russian operations inside Syria, as well as supporting its military personnel in North and Central Africa. The Russian Foreign Ministry quickly established contacts with Hay’at Tahrir al-Sham (HTS) to ensure the security of the Russian embassy in Damascus. Although Russia’s influence in Syria has suffered a major setback, it may be too early to write Moscow off in the regional landscape.
As expected, President Vladimir Putin secured a new term in March 2024, potentially allowing him to be in office until 2036. The trend towards consolidation of power has intensified with the progressive tightening of legislation and the crackdown on those who express dissent. As a result, all Opposition groups and many members of the intelligentsia have moved abroad. After a series of controversies, the Opposition has failed to unite and remains divided. Domestic politics in Russia has become insulated from any external influence and is now more contingent on intra-elite dynamics.
The Central Bank has opted for the latter, raising its benchmark interest rate to a record 21 percent in October.
The economic situation has become more problematic with slowing GDP growth (3.1 percent in Q3), labour shortages, rising inflation and a weakening ruble. This has posed a dilemma for the government’s economic bloc: turn a blind eye to rising inflation to maintain credit availability and higher demand or tackle inflation with a tight monetary policy. The Central Bank has opted for the latter, raising its benchmark interest rate to a record 21 percent in October. The latest statistics show that annual price growth reached 8.76 percent, exceeding the projections of the Central Bank (8.0-8.5 percent) and the Ministry of Economic Development (7.3 percent). Real inflation could be much higher, leading to further interest rate hikes. Such a policy has provoked a dose of criticism directed at the Governor of the Central Bank, Elvira Nabiullina, from some government officials, the banking sector and many businesses. She has maintained that Russia’s economy is overheated and high inflation is making economic growth unsustainable, posing serious long-term risks.
How Moscow manages the emerging cracks in the economy, along with external factors such as sanctions and a potential fall in oil prices, and whether this can force the Russian leadership to tame its geopolitical appetites remain key questions for 2025.
Aleksei Zakharov is a Research Fellow with the International Laboratory on World Order Studies and the New Regionalism Faculty of World Economy and International Affairs at the National Research University Higher School of Economics, Russia.
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Aleksei Zakharov is a Research Fellow at the International Laboratory on World Order Studies and the New Regionalism Faculty of World Economy and International Affairs ...
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