As Donald Trump mulls sanctions, Russia's military economy slows
Agencies
After three years of doom-defying growth, Russia's heavily militarized economy is slowing, facing a widening budget deficit and weak oil prices, all under the threat of more Western sanctions. Huge spending on guns, tanks, drones, missiles and soldiers for the Ukraine campaign helped ensure Moscow bucked predictions of economic collapse after it launched its offensive in 2022. But as Kyiv's most important backers head Sunday to Canada for the G7, where US President Donald Trump will face pressure to hit Russia with fresh sanctions, the Kremlin's run of economic fortune is showing signs of fatigue. 'It is no longer possible to pull the economy along by the military-industrial complex alone,' Natalia Zubarevich, an economist at Moscow State University, told AFP.
Government spending has jumped 60 percent since before the offensive, with military outlays now at nine percent of GDP, according to President Vladimir Putin. 'Almost every other sector is showing zero or even negative growth,' said Zubarevich.
Russia's economy expanded 1.4 percent on an annualized basis in the first quarter—down from 4.1 percent in 2024 to its lowest reading in two years. The central bank predicts growth of no more than 1-2 percent this year. Russia's economy 'is simply running out of steam', Alexandra Prokopenko, a former central bank advisor and now analyst based outside Russia, wrote in a recent note.
Putin, who has revelled in Russia's strong performance, has brushed off concerns. 'We do not need such growth,' he said at the end of last year, when the slowdown started. Rapid expansion risked creating 'imbalances in the economy, that could cause us harm in the long run', he said. Top among those imbalances has been rapid inflation, running at around 10 percent. The Central Bank last week nudged interest rates down from a two-decade-high saying price rises were moderating. But those high borrowing costs—combined with falling oil prices—are the main factors behind the slowdown, economist Anton Tabakh told AFP.
Russia's Urals blend of crude oil sold for an average of $52 a barrel in May, down from $68 in January—a big reduction in energy revenues, which make up more than a quarter of government income. Russia this year has raised taxes on businesses and high earners, essentially forcing them to stump up more for the Ukraine offensive. But the new income 'only covers the shortfall in oil sales', said Zubarevich.
With tighter finances, Russia's parliament was this week forced to amend state spending plans for 2025. It now expects a budget deficit of 1.7 percent of GDP—three times higher than initially predicted.
Ukrainian President Volodymyr Zelensky is urging Trump to whack a fresh set of economic sanctions on Moscow as punishment for rejecting ceasefire calls and continuing with its deadly bombardments of Ukrainian cities. 'Russia doesn't really care about such human losses. What they do worry about are harsh sanctions,' Zelensky said Thursday. 'That's what really threatens them—because it could cut off their funding for war and force them to seek peace,' he added. Trump's intentions are unclear. He has publicly mulled both hitting Moscow with new sanctions and removing some of the measures already in place.
Some US senators, including Republicans, have proposed hitting countries that buy Russian oil with massive tariffs, to try to dent the flow of billions of dollars to Moscow from the likes of China and India.
In Moscow, officials flip between blasting sanctions as an 'illegal' attack on Russia and brushing them off as an ineffective tool that has backfired on Europe and the United States. Russia has also talked up its ability to continue fighting for years—whatever the West does—and has geared its economy to serving the military.
Moscow still has the cash to wage its conflict 'for a long time', Zubarevich said. 'Through 2025 definitely. 2026 will be a bit tougher but they will cut other expenses. This (military) spending will stay.'
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Al Jazeera
5 hours ago
- Al Jazeera
Can divided European powers help end Israel's war on Iran?
The three largest European nations by population, Germany, France and the UK, held talks with Iranian Foreign Minister Abbas Araghchi in Geneva, Switzerland, on Friday, in an effort to avert a protracted war in the Middle East. US President Donald Trump, who has said he will decide within two weeks whether to join the assault on Tehran, denounced the talks with European leaders as a failure. 'Iran doesn't want to speak to Europe. They want to speak to us. Europe is not going to be able to help in this one,' he told reporters. Araghchi had said Iran was not attending the talks in Geneva to negotiate anyway, only to listen. However, he added, 'There is no room for negotiations with the US [either] until the Israeli aggression stops,' as Iran and Israel traded salvoes of missiles and drones. The US has been Israel's chief ally and supporter in all its wars, and is the only country with major military assets deployed in the region, which might be able to alter the course of the war. Why are the Europeans getting involved? Germany, France and the UK – referred to as the E3 in the context of Iran talks – helped negotiate a 2015 treaty with Iran. The 2015 treaty, the Joint Comprehensive Plan of Action (JCPOA), saw Iran agree to develop only peaceful nuclear programmes and to submit to independent monitoring. Russia, China and the United States also helped negotiate it, as did the UN. But Trump withdrew the US from the JCPOA in May 2018, during his first term as president. The E3 tried to keep the treaty alive but failed. Iran abandoned it a year after the US did. On Saturday, the EU high commissioner for external action, Kaja Kallas, who also attended the talks on Friday, issued a statement reaffirming 'commitment to Israel's security' and 'longstanding concerns about Iran's expansion of its nuclear programme, which has no credible civilian purpose, in violation of almost all the Joint Comprehensive Plan of Action (JCPOA) provisions'. But Israel's war in Gaza has divided the E3 over their approach to Israel, weakening European foreign policy unity further, although all want to avoid another war on Europe's doorstep. How are the E3 divided in their approach towards Israel? The E3 positions on Israel have diverged since Israel's war in Gaza began in October 2023. Germany has remained the most ardently pro-Israel, refusing to criticise Israel for indiscriminate bombing of civilians in Gaza and halting its funding to UNWRA, the UN agency assisting Palestinian refugees, which Israel accuses of aiding Hamas. Originally pro-Israel, the UK somewhat changed its stance after Labour's election victory last year. Earlier this month, the UK joined four other countries in formally sanctioning Israel's far-right national security minister, Itamar Ben-Gvir, and Finance Minister Bezalel Smotrich, for 'incitement of violence' against Palestinians in the occupied West Bank and Gaza. Israel called the decision 'outrageous' and 'unacceptable'. France is even more sceptical towards Israel. It was one of four EU members that started calling for a Gaza ceasefire in April last year. A year later, on April 9, French President Emmanuel Macron said he would formally recognise the state of Palestine within months, partly because 'at some point, it will be right', and partly to encourage Arab states to recognise Israel. France was reported to be lobbying other European nations to follow suit. Spain, Norway and Ireland all formally recognised Palestine the following month. What leverage do the E3 have with Iran or Israel? They are the three biggest economies in Europe, with a collective gross domestic product (GDP) of about $11 trillion. Two of them, France and the UK, possess aircraft carriers and expeditionary forces that have deployed to the Middle East and North Africa regions. They are also nuclear powers. Ultimately, though, none of these things is enough to sway either Iran or Israel on matters of national security. The true value of the E3 lies in their 'acceptability' to both Iran and Israel as good-faith mediators and their ability to work towards common goals with the US. 'Germany, France and the UK have attempted to mediate for more than 20 years, and their approach has been milder than that of the US,' George Tzogopoulos, a lecturer in international relations at the European Institute in Nice, told Al Jazeera. 'The same is happening now. We have a war crisis, and these three prioritise diplomacy for the conflict to stop if possible and for negotiations to restart.' Could the E3 broker a deal between Iran and Israel? It would be difficult, given their failure to resuscitate the JCPOA without the US. 'The main reason [the E3 failed with the JCPOA] is the conclusion, made by both the Trump administration, President Trump himself, and the Israeli government that diplomacy cannot work in the case of Iran and, therefore, the role of the three was sidelined,' said Tzogopoulos. But it is also difficult for them to coordinate with the US. Trump has now sidelined his own intelligence community to adopt the Israeli view that Iran is developing a bomb. On Friday, Trump told reporters that his director of national intelligence, Tulsi Gabbard, was 'wrong' when she testified that Iran was not building a nuclear weapon and that Supreme Leader Ayatollah Ali Khamenei had not re-authorised the country's suspended nuclear weapons programme. 'If Israel has evidence that Iran was dashing for a bomb, I think it needs to come out more publicly and share that, because nobody else is confirming that assessment,' said Kelsey Davenport, director for nonproliferation policy at the Arms Control Association, a nongovernmental organisation based in the US. 'If there is some coordination between the US and the E3, we might be more optimistic, but for Europe, for the E3 to act autonomously, I wouldn't bet my money on their potential success,' he said. 'The Europeans have very low chances,' agreed Angelos Syrigos, a professor of international law at Panteion University in Athens. 'The only people who can intervene seriously are the Americans. But I don't know if the Iranians are open to that. To have final peace, you usually need a decisive defeat,' he said, referring to the Yom Kippur War between Israel and Egypt of 1973, which led to the Camp David agreement six years later, and US intervention in the Yugoslav War, which led to the Dayton Accord in 1995. 'One party has to understand there is no military solution.' Could the United Nations Security Council find a diplomatic solution? No, say experts, because China, Russia and the US disagree on Israel and Iran. 'The Security Council won't find a solution to this,' said Syrigos. 'Either the US or Russia or China will veto it. The difference is mainly between the US and China. The Chinese have invested a lot in Iran in recent years. That's where they buy most of their oil; they send [Iran] materials for nuclear weapons. It's China that is mostly connected to Iran.' Russia has called on the US not to attack Iran, because of the risk of destabilising the region. But Russia also does not have the power to come to Iran's aid, said Syrigos. 'Right now, Russia is going along with the US. It doesn't want to get involved. It hasn't the power. So, it's turning a necessity into a voluntary act,' he said. 'The logic of war will guide diplomatic efforts at this point, and we cannot know how the war will go, or the extent of the damage to Iran's nuclear programme,' said Tzogopoulos.
Al Jazeera
8 hours ago
- Al Jazeera
Trump says US intelligence community is ‘wrong' on Iran
Trump says US intelligence community is 'wrong' on Iran NewsFeed US President Donald Trump says he doesn't care if his claims that Iran is close to building a nuclear weapon contradict US intelligence assessments, which the president characterised as 'wrong.' Video Duration 00 minutes 40 seconds 00:40 Video Duration 01 minutes 42 seconds 01:42 Video Duration 00 minutes 42 seconds 00:42 Video Duration 01 minutes 22 seconds 01:22 Video Duration 00 minutes 33 seconds 00:33 Video Duration 01 minutes 32 seconds 01:32 Video Duration 00 minutes 22 seconds 00:22
Al Jazeera
12 hours ago
- Al Jazeera
US judge blocks Trump's bid to ban Harvard from enrolling foreign students
A federal judge in the United States has blocked President Donald Trump's bid to block Harvard from enrolling foreign students, delivering the prestigious university another victory as it challenges multiple government sanctions amid a battle with the White House. Friday's order by District Judge Allison Burroughs in Boston preserves Harvard's ability to host international students while a lawsuit filed by the Ivy League school plays out in the courts. Burroughs, however, added that the federal government still had the authority to review Harvard's foreign admission policies through normal processes outlined in law. Harvard found itself embroiled in a polarising debate about academic freedom and the right to protest against Israel's ongoing genocide in Gaza as its pro-Palestine students demanded full disclosure of the country's oldest and wealthiest university's investments in companies linked to Israel and divestment from those companies. Trump and his allies claim that Harvard, and other US universities that saw similar protests, are unaccountable bastions of liberal, anti-conservative bias and 'anti-Semitism'. In May, Harvard sued the Department of Homeland Security after the agency abruptly withdrew the school's certification to enrol foreign students and issue paperwork for their visas, skirting most of its usual procedures. The action would have forced Harvard's roughly 7,000 international students – about a quarter of its total enrolment and a major source of income – to transfer or risk being in the US without the necessary documents. New foreign students would have been barred from coming to Harvard. The university said it was experiencing illegal retaliation for rejecting the White House's demands to overhaul Harvard policies related to campus protests, admissions and hiring. Trump, who has cut about $3.2bn of federal grants for Harvard and tried numerous tactics to block the institution from hosting international students, said that his administration has been holding negotiations with Harvard. 'Many people have been asking what is going on with Harvard University and their largescale improprieties that we have been addressing, looking for a solution,' Trump said in a post on Friday on Truth Social. 'We have been working closely with Harvard, and it is very possible that a Deal will be announced over the next week or so,' he said. 'If a Settlement is made on the basis that is currently being discussed, it will be 'mindbogglingly' HISTORIC, and very good for our Country.' Trump did not provide any details about the purported 'deal'.
