As the invasion of Ukraine started, there were a large number of pundits and experts who smugly noted that Russia had been hoarding a huge stockpile of money, and could do just fine with sanctions in place.
Just as we see with some military 'analysts', none of these people are overtly "pro-Russian". Many of them 'support' Ukraine. Instead, the tone is one of smug resignation, paraphrased as "Russia is very powerful, very wealthy, and very smart. Ukraine will put up a good fight, and the West will attempt to hurt Russia economically. But Russia will prevail. So sad".
But that huge stockpile of assets just got a lot smaller. And, knowing the level of corruption in Russia, sensible people can wonder how large it really was to begin with. We've already seen that military intelligence was deathly afraid to tell Putin anything he didn't want to hear. Could it be that Siluanov (Finance Minister) also fudged some numbers? How much of this is simply accounting gimmickry? We don't really know, but it should soon become clear in the months ahead.
As far as Siluanov's plan to make debt payments in rubles, this is indirect proof that the 'very wealthy' Russia doesn't have the money it claims to possess. Any loan agreement of this type specifies that payment is to be made in the lender's own currency (or possibly U.S. dollars). Even 'friendly' countries are likely to balk at this suggestion. It is, quite simply, a lever to control these countries: remain "friendly" or suffer the financial consequences. Of course, within a month or two, being "friendly" will entail these countries accepting payment in rubles anyway.
Russia can, of course, print up all the million-ruble notes it needs to make these debt payments. That means hyper-inflation. But that was always inevitable. Realistically, that $300B of frozen assets will just be sold off to pay the debt.
That leaves Russia with a hypothetical $340B to keep its economy afloat. As the nominally pro-Russian pundits note, Russia has a big military. It's losing tanks and other equipment daily. It's firing rockets, missiles, and artillery shells that will need to be replaced. It's burning up and transporting vast amounts of fuel. Russia is paying, feeding, and sheltering large numbers of troops -- both domestic conscripts and foreign mercenaries. Estimates at the start of the invasion were that it cost Russia $250M a day to field its force.
If Russia is so rich and so powerful, why is it draining its allies in Belarus, Chechnya, and Syria? Because it can 'pay' these countries with its worthless currency.
Okay. All you need to do is drive an armored car full of hard currency across the Russian border, which will result in corrupt officials seizing it. Seriously, even if you did make it Moscow with your cash intact, who thinks that the Russian Central Bank won't just confiscate your hard currency anyway? What have they got to lose? You'd sit in prison for months and probably be held hostage for more hard currency. Maybe that's why nobody is stepping up to buy this gold.
The sad reality is that border guards, and their corrupt commanders, who haven't been paid for weeks in anything resembling real money, would undoubtedly see your armored car as their payday. A bullet would be unceremoniously put in your skull, and everyone would deny you were ever there. Countries that are 'very wealthy' don't do things like this. Countries that are desperate for money do, though.
Gee, this is a strange thing for a country that has a huge stockpile of money to do. Also strange for a country that has rule of law. Anyone that has stashed away some hard currency will see it confiscated. Why, if they are sitting on $340B in assets? Because they aren't sitting on those assets, that's why.
Of course, these are one-time actions designed to work only in the short-term. The very short-term, in fact. Once these ploys are used, they become useless. It also is indirect proof that Russia is seeing diminishing returns from putting the screws to their allies. Also, China must not be as financially supportive as we have been led to believe.
ALLIANCES:
We all know that China and Russia have formed an alliance. China wants Russian military power and diplomatic support for its invasion of Taiwan. But we've already seen that Russian military power has been greatly exaggerated, and that it will take a long time for Russia to replenish its stocks. They have a serious problem buying raw materials, and their munitions industry is almost completely geared toward producing guns and ammo for guns. China needs whatever black-market chips and raw materials it can scrounge for its own needs. A whole lot of the titanium that Russia produces will go to China -- presumably at a big discount.
The Russian Navy is still a valuable asset. Its primary strength is in its submarine fleet, however. They can defend the Russian coastline adequately, but things like naval aviation have been allowed to deteriorate relative to the other services. And Russia has a lot of coastline to defend in both the Baltic and Black Sea.
Russia has long been the primary weapons supplier for the Indian military, but that looks likely to fade. Any arms sales to India will just mean less for their own forces. As a "friendly" country, Russia will continue to demand more and more from India, while offering less and less. While Pakistan is the primary adversary, China is increasingly becoming a problem in the north. The two countries nearly went to war several years ago, and China has been steadily building roads and railways almost up to the border of Nepal, Bhutan, and Assam. Nepal is already tacitly controlled by China. Bhutan has no military to speak of. China officially claims the whole of Arunachal Pradesh as part of "South Tibet", and further has claims around Kashmir.
Obviously, Russia is in no position to oppose China on these claims. China is in the position to bribe Pakistan with weapons and use it as a proxy to tie up Indian forces while easily moving into "South Tibet". Nepal would be eagerly gobbled up, with Maoist partisans welcoming their new overlords. Modi, the "Trump of India", would naturally cave to China if Russia tells him to.
It's possible that this could replace China's obsession with Taiwan in the short-term. India's position of setting itself up as a country "friendly" to Russia will win it no support in the West. Russia will essentially eat up Indian financial assets while hanging India out to dry. And this will not go unnoticed by other countries "friendly" to Russia.
Diplomatically, it's hard to see Russia as an asset on that front. Yes, Russia has a seat on the Security Council -- but so does China. Russia also has a depopulation problem. It has fewer young men to call up year after year. And they're in the process of squandering those numbers in Ukraine. They are also draining their allies of money and manpower, and cutting deals with Gulf monarchs that will be expensive over the long-term. Increasingly, Russia's role will be in sitting out conflicts -- while demanding a heavy price for their inaction. They need to conquer Ukraine to make this strategy credible. "Do you want us to make your country the next Ukraine?" will ring hollow if Ukraine prevails.
There are also territorial conflicts between Russia and China in the East, and Russia will have to concede a lot to their Chinese 'ally'. Russia will have a dwindling number of proxies to use as time goes on, while China will have an increasing number of financially-dependent countries to drain for its purposes. And the ability to hire trained mercenaries that are already familiar with Russian tactics, capabilities, language, and weapons systems.
Regardless of how the invasion of Ukraine goes, Russia will find itself as a vassal state to China within five years. They have a huge area to defend, with many porous borders. Any perceived Russian weakness will induce challenges in Georgia, Tajikistan, and even Iran. Any conflict with NATO will only accelerate those challenges.
The wars of the future will not be fought over Russian territory, but over Russian economic might. Russia has already shown itself to be ill-equipped for such economic warfare. It seems far more likely that Russia will end up selling off its gas and oil at bargain prices -- just to gain precious hard currency needed to finance its crumbling military. Will the "friendly" Gulf states like that? Probably not.
Last, but not least, our steadfast 'ally' Israel has chosen a path of neutrality in this conflict. This is an 'ally' that we give about $0.5M each day. They sat out Desert Shield. They sat out the invasion of Iraq. They shrugged for decades when asked to help out in Afghanistan. Now, Israel is concerned about 'provoking' Russia. This might cause problems on their borders. Unlike, I guess, Poland or Latvia or Lithuania. So, they launder Russian money instead. Sure, they could take out Russian positions in Syria. And, yes, that would weaken Russia's stature. But they can make a lot of money trading rubles for hard currency and supplying Russia with critical materials. So, gosh, this ally will have to sit this conflict out, too.
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