February 18, 2025: Last year Russia crippled their economy by emphasizing the production of weapons they could not afford. Russia was already suffering from economic sanctions imposed by its major trading partners in Europe and some in Asia. This led Russia to depend more on trade with China. To make this work China assured their Western trading partners that Chinese goods sold to Russia would not include weapons or munitions. At the same time China continued to ship munitions to Russia.

Last year Ukraine reported that Russian troops were using Chinese munitions and presented proof. When Chinese officials were shown these munitions, their excuse was that Russia must have obtained these munitions from third parties. China is a major exporter of munitions and those buyers could sell their Chinese munitions to anyone, including Russia. Up until 2023 the top five arms exporters were

United States

Russia

France

China

Germany

Within a year of Russia invading Ukraine, Russian arms exports collapsed and by 2023 Russian arms exports were down over 90 percent and the top five exporters became

United States

France

China

Germany

Italy

For Russian defense industries the news got worse as customers for Russian weapons were already turning towards Western manufacturers. India, long the top market for Russian weapons, was already turning to higher quality and more reliable Western weapons before Russia invaded Ukraine, and proved the superiority of Western weapons, particularly those from the United States. Ukraine was the first major conflict where the adversaries were both industrialized nations with well trained personnel and modern weapons.

The Russians took heavy losses fighting Ukrainians armed with American and European weapons. The Ukrainians also revolutionized warfare by developing drone warfare using hundreds of thousands of drones to dominate the battlefield and cause 90 percent of the Russian casualties. This forced all nations to rearm themselves with drones or face defeat against a drone equipped enemy.

Warfare was more than drones. Western nations supplied radars, information warfare systems, intelligence collection equipment, communications gear, and logistics systems to keep the troops supplied.

The Ukraine War created disruptive shortages worldwide. Russia, for example, now has a severe labor shortage. Because of the hundreds of thousands of Russian working age men killed or badly wounded in Ukraine, with at least as many being hidden from conscription by their employers, plus several million military age men who fled the country to avoid conscription, the pre-war labor shortage in Russia got much worse. Currently the Russian economy is short about 5 million workers. This is great for skilled workers because private and state owned firms offer high pay for qualified workers.

Shortages of unskilled workers can be partially addressed by allowing more foreigners, mainly from Central Asia, to legally enter Russia and find jobs. Foreign workers already in Russia illegally are being hired and legalized, though they are often conscripted. Russia is burdened with many war-related sanctions but has found ways to deal with sanctions to lessen their impact. Russian conscription officials are thrilled by the higher bribes offered by desperate employers.

The Russian invasion of Ukraine disrupted Ukrainian agricultural exports. By the end of 2023 Ukrainian grain production was reduced by 29 percent. Because Ukraine is such a major grain exporter, with 90 percent of the exports traveling by ship, the reductions in grain exports were felt most in poor countries where the population depended on Ukrainian grain imports for much of their food.

To make matters worse, the Russian Black Sea Fleet blockaded Ukrainian grain shipments by sea. This lasted over a year before Ukrainian developed methods to destroy or disable enough Russian ships using aerial and naval drones to force the Russians to move their remaining Black Sea Fleet ships to ports on the eastern coast of the Black Sea that were far from the Ukrainian grain shipping lanes along the west coast of the Black Sea. Most of these routes travel through the coastal waters of NATO members. Russia does not want a war with NATO and, aside from a few unmoored Russian naval mines that drifted into those shipping lanes and were dealt with, most of the normal Ukrainian grain exports have been getting out since early 2023.

When the Russians invaded in early 2022 the fighting reduced farming activity and reduced the amount of grain available by 22 percent. When the invasion began, Ukraine had large stockpiles of grain, and this delayed the impact of shortages by about a year. During the last year some other shortages have appeared and will apparently continue as long as the Ukraine War does.

The main beneficiary of this is Russia, which has long been the largest exporter of grain, followed by Canada, the United States, France, and Ukraine. Western economic sanctions on Russia make allowances for its grain exports to continue. In turn, Russia has not made it a priority to halt Ukrainian grain exports. Russia tried and failed to do that and has not continued its efforts in that area.

In effect, there is something of a truce when it comes to grain exports. The main reason is that much of the Russian and Ukrainian grain exports, which are 30 percent of the world total, go to relatively poor countries that depend on these exports to keep their populations fed and peaceful. Food shortages in most countries means local unrest and political instability.

While the potential problems with Ukrainian grain exports was resolved, the fighting inside Ukraine has caused a lot of other problems. This is especially true as the Russians have switched their missile attacks to civilian infrastructure targets. That resulted in nearly 600 Ukrainian water supply facilities damaged recently. That left 36 percent of Ukrainians without consistent access to water supplies and sewage disposal services. The water supply and sewage disposal industry in Ukraine has suffered $11 billion worth of damage so far. Even before the Russian invasion, Ukraine did not allocate enough money to keep water and sewage facilities in top condition. There was a similar situation with electric power production. Russia deliberately attacked power plants and many parts of Ukraine lost their electrical power. Repairs were made and blackouts were not permanent but, in many regions, they continued to be intermittent. Because 82 percent of Ukrainians live in urban areas, Russia does not have to attack a large number of targets to have an impact. Russia is definitely trying to turn the lights out, cut off the water and halt sewage services in Ukraine.

Economics almost always determines the outcome 0f a war. This is the case in the Ukraine war where one of Russia’s vulnerabilities turns out to be its trading and banking relationships with China. The problem here is that Chinese trade with western nations, especially Europe and the United States, is far larger and more valuable than trade with Russia. China obtains 5.1 percent of its imports from Russia while Chinese sales to Russia account for only 3.3 percent of Chinese exports. Most Chinese exports and imports are with the United States and Europe.

Western economic sanctions on Russia for the war hurt but its government and businesses had a lot of legal and illegal methods to keep the economy going despite the sanctions. Europeans and Americans noticed this and at the end of 2023 added financial institutions to the sanctions. This includes banks and the vital Society for Worldwide Interbank Financial Telecommunications or SWIFT system that makes it possible for all member banks to transfer money across borders safely and efficiently. SWIFT is a vast messaging network used by financial institutions to quickly, accurately, and securely send and receive information, such as money transfer instructions. SWIFT doesn’t hold assets or move money around but instead provides a secure messaging system for 11,000 banks and other financial institutions worldwide so member banks can quickly settle payments made for buying or selling goods or services.

Russia exports nearly 500 billion dollars’ worth of goods and services each year and imports about 200 billion of goods and services. With the sanctions on Russian use of SWIFT, their import/export activities began to collapse because there was no practical way to pay for imports or be paid for exports. SWIFT enables exporters and importers to quickly and easily make and receive payments. Without SWIFT you must deal with individual banks or find some other way to make and receive payments. The new sanctions prohibit SWIFT and banks, especially the ones that specialize in export/import transactions, from working with Russia. Few banks are willing to risk their access to the SWIFT system and normally import/report networks by violating the sanctions in continuing to work with Russia. Some Chinese banks tried to work out practical workarounds but gave up after a few months when they realized that they could be sanctioned and there were plenty of competing import/export banks willing and able to handle the business sanctioned banks could no longer service.

Russia found ways to continue importing and exporting after the banking sanctions came into effect. Despite that, throughout the first half of 2024, Russia found itself encountering more and more obstacles in financing its foreign trade. Russia could always find independent banks and smuggling networks to handle some trade, but at greater expense, including the risk of trade goods or payments being seized. This has been the case since they invaded Ukraine in 2022, were promptly sanctioned and adapted as best they could. These new banking/SWIFT sanctions are the most damaging of all sanctions imposed on Russia, while over two years of the original sanctions have significantly damaged the Russian economy. Inside Russia poverty rates are up and families of men mobilized, often unwillingly, into the army and sent to Ukraine, are angry and more frequently protesting in public. This is illegal in Russia but the protestors are so numerous now that there is no practical way for the government to arrest and imprison all of them. The Russian government still sends more troops to Ukraine but is also looking for some sort of compromise to end the war, and all those ruinous sanctions.