Resilience Between War and Crisis: Russian Society Licks Its Wounds

Russia, the country of ordinary people who reject war and mourn their loved ones, is trapped in a vortex of despair. The country’s economic resilience hides deep social wounds. As geopolitical tensions and the conflict in Ukraine drag on, the country faces a silent but devastating social crisis, comparable to that of the early 1990s after the collapse of the Soviet Union. Disturbing information emerges from hospital corridors about a significant increase in suicides, a sign of a society without prospects, where young people, trapped in an endless war, are destined to become cannon fodder on the Ukrainian front. This reality reflects the deterioration of the quality of life and the growing internal instability of the country. According to 2024 data from the World Health Organization (WHO), Russia has a suicide rate of about 25.1 per 100,000 inhabitants.

In this dramatic, almost dystopian context, the Russian economy has paradoxically demonstrated a surprising capacity for adaptation. However, the numbers tell a different story than the social reality. In 2023, despite severe international sanctions and a complex internal political context, Russia managed to limit the contraction of GDP to 0.5%, exceeding expectations thanks to the redirection of trade relations towards Asia and the Middle East. However, the price of this economic resilience has been very high: the increase in military investments has eroded crucial sectors such as education and healthcare, generating social discontent that threatens the long-term stability of the country, as reported by the Carnegie Endowment for International Peace, a major nonpartisan think tank dealing with international affairs.

The financial report for the first quarter of 2024 shows that 0.9235 billion euros were allocated to the education sector, with 81.7% of the available funds being used in the first four months of the year. Despite the efforts, education showed a lower efficiency in the use of resources than security and defense. In the health sector, 4.059 billion euros were allocated, with 59.1% used in the same period. In this sector too, a significant part of the funds remained unused, indicating possible restrictions or inefficiencies in management. For the water and waste sector, approximately 2.25 billion euros were allocated, but only 22.9% was spent in the first four months of 2024. In the energy sector, 13.29 billion euros were allocated for electricity, gas and steam, with 6% used in the same period. The figures earmarked for state management and military security are predominant: 354.5 billion euros, with a use of 56.1% of the funds allocated in the first four months of the year. To these is added a portion of the capital of federal investments for projects that may include security and defense components. For example, out of 857 capital projects, translated into approximately 31.85 billion euros, a portion is intended to support infrastructures that may have military applications.

As for the production index in the mineral resources extraction sector, in April 2024 it was 98.3%. Also in that period, 35.8 million tons of coal were extracted, with a slight decrease compared to 2023. The extraction of oil and natural gas saw a significant increase reaching approximately 24.17 billion euros, with an increase of 100.7% compared to the previous month; while that of rare metals was 2.15 billion euros.

The data shows that despite significant investments in raw material extraction and energy production, inefficiencies and delays in the use of allocated funds persist, which could negatively impact the economy in the long term. The situation echoes a ‘new Cold War’, with Russia seeking to assert its global role through military activities and control of energy and technological resources. In 2024, the Russian economy remains vulnerable to fluctuations in global energy prices and new sanctions, such as those recently approved by the Council of the European Union in Luxembourg.

This is the 14th package of sanctions against Russia, introducing new measures against Russian liquefied natural gas and ships supporting the war in Ukraine, including restrictions on oil tankers in the ‘shadow fleet’ that violate limits imposed by the EU and the Price Cap Coalition. A total of 116 names have been sanctioned (69 natural persons and 47 legal entities) and are subject to asset freezes and, in the case of natural persons, also to travel bans. Financial sanctions have been strengthened, banning EU banks from using the Russian SPFS system, the Russian alternative to the SWIFT system. New restrictions concern the export of advanced technology and certain industrial products. In addition, the package provides for compensation for EU companies operating in Russia.

In addition, on June 13, 2024, the Moscow Exchange suspended transactions in dollars and euros due to severe US sanctions, causing shares to plummet and exchange rate margins to widen by up to 20%. However, the ruble has shown surprising resilience, recovering in the Over The Counter (OTC) market, thanks to measures by the Russian Bank to ensure the circulation of foreign currencies (Federal State Statistics Service – ROSSTAT). During the same period, the MoscowExchange Index (MOEX) has surpassed pre-war levels, supported by domestic and allied investors, and the Russian Initial Public Offering (IPO) market has shown renewed vigor, highlighting the Russian economy’s commitment to the global arena.

According to economist Elvira Sachipzadovna Nabiullina, President of the Central Bank of the Russian Federation, “The increase in exports in March was accompanied by an increase in capital outflow, reflected in the accumulation of credits. Residents’ investment in foreign assets (excluding reserve assets) increased in March by $15.5 billion against an increase of $4.2 billion in the previous month: this mainly reflects delays in receiving payments for the largest exports in March, i.e., the currency of March exports will enter the country only in June”.

Despite signs of resilience, Russia remains vulnerable due to its heavy dependence on oil and gas exports, which constitute a significant part of GDP and state revenues. After the collapse of the USSR and the 1998 financial crisis, the country restructured its debt and modernized key sectors, but at what cost? This apparent strength hides significant vulnerabilities, exposing Russia to considerable economic risks. In the first quarter of 2024, exports of goods increased to 36 billion euros, up 30% from the previous month, despite a 3.2% annual decline (Federal State Statistics Service – ROSSTAT). Political and economic uncertainty has slowed down foreign investment and limited domestic growth. In the construction sector, growth rates have slowed, while the production of petroleum products has seen a significant decrease in March 2024: gasoline -7.9%, diesel -5.7%, fuel oil -22.2% (Russian Energy Ministry).

Russian economist Vladislav Inozemtsev describes Russian society as apathetic, perpetuating Putin’s power, despite growing domestic criticism. “Russia is a society without citizens and without expectations. This situation is the greatest achievement of Vladimir Putin, almost the only dictator who managed to build a prison from which most of the guests do not even want to leave or rebel”commented Inozemtsev.

Russia is therefore at a crucial crossroads; while strategic sectors are showing signs of vitality, growing social pressures threaten to undo this progress. Austerity policies and cuts to essential services threaten to increase inequality and fuel popular discontent. Long-term stability and progress are in jeopardy if the government fails to balance austerity and social support. The Russian government will face profound challenges. Managing international sanctions and global market volatility will require a balanced strategy that leverages economic resources and responds to the needs of the population. Only in this way can social collapse be avoided and national cohesion be maintained. The road to recovery seems to be one-way: the government will essentially have to end the conflict in Ukraine, start diversifying the economy, invest in innovation and, above all, be able to sustain social stability. Although this crisis seems insurmountable, it is not impossible. Only with courageous and radical decisions can Russia avoid the abyss and rewrite its future, even if many believe that this requires the dethronement of the ‘tsar’.