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  • rmacculloch

The Economics of War (Will Pres. Putin run out of cash?)

My great grand-father was born in Odessa, Ukraine, in 1873, before fleeing to NZ, so the conflict has a personal interest. Whilst living in London, I used to see a bit of the Russian oligarchs as they moved about, including Roman Abramovich in Hyde Park and in Jaks Restaurant on Walton St, Chelsea. Meanwhile Boris Berezovsky, another one, had his office in Down Street just around the corner from my flat in Shepherd Market, off Piccadilly. Traces of polonium were found there. Hopefully none leaked into my place. He had a (chauffeur-driven) Mercedes Maybach. Then died in mysterious circumstances in his country estate. It was a bit like a James Bond movie in central London.


One of the most extraordinary economics statistics relevant to the conflict, at least to me, is this one: the GDP of the whole of Russia and the GDP of Australia are roughly the same (!) Yes, Russia's GDP in 2020 was $US 1.48 trillion, whereas Australia's GDP in 2020 was just a little less at $US 1.33 trillion (!) Although Russia's population is about 5 times bigger than Australia's, its GDP per capita is only about one-fifth, so their total GDPs are very similar. The idea of Australia trying to subjugate a country the size of Ukraine is unthinkable.


Intelligence reports suggest that this war is already costing Russia about $US 15 billion per day. In ten days time that will add up to 10% of Russia's GDP. As a comparison, the total cost of the 2003-2010 Iraq War to America was about $US 1.1 trillion, which still represented less than 5% of US GDP. Yet that cost is nearly 100% of Russian GDP (!)


So it seems the Ukraine conflict could rapidly bankrupt Russia should it become protracted. As for the US, where the public debt to GDP ratio has soared over 100% in the aftermath of the 2008 Financial Crisis and surged with pandemic spending, it is desperate to fork out as little as possible on a military conflict, hence the sanctions.


So it may come down to the Ukrainian people and the strength of the human spirit in its fight for freedom & liberty.


Sources:

https://www.theguardian.com/uk/2006/nov/28/russia.politics