Russia’s foreign exchange reserves are frozen. Scholars- The wartime economy will not last long._1

Since Russia’s invasion of Ukraine in 2022, the country has been subjected to strict sanctions from the West. Despite transitioning to a wartime economy, it continues to grapple with frozen foreign reserves and technology restrictions. Some experts argue that, no matter how the war unfolds, Russia will be the primary loser in this scenario.

Anders Aslund, a Swedish economist and former advisor to Russia, recently shared his insights in a piece for Project Syndicate. He noted that while President Putin and his allies claim that these sanctions have fortified Russia, they paradoxically advocate for the lifting of all sanctions.

Views on the effectiveness of Western sanctions against Russia are divided. Some believe the impact has been minimal, while others contend that the measures should have been much harsher.

Aslund argues that the current sanctions are expected to decrease Russia’s GDP by 2% to 3% each year, effectively steering the economy toward stagnation. He warns that Putin’s circumstances are unlikely to improve, which could diminish his aggressive posture toward Ukraine.

As of March this year, Russia’s sovereign wealth fund saw its liquid reserves plummet from a high of $183 billion in 2021 to a mere $55 billion, which is just 2.8% of its GDP. Most of these reserves are tied up in investments that lack liquidity.

Consequently, Russia has been forced to cap its annual budget deficit at 2% of GDP since the invasion. Budanov indicated that with an estimated GDP of $1.9 trillion, this translates to an annual deficit of about $40 billion, suggesting that Russia’s foreign reserves could run dry by next year.

Regarding the ongoing conflict in Ukraine, John Mearsheimer, a political science professor at the University of Chicago, shared his perspective during an interview with Chinese media. He stated that Ukraine would face significant challenges in surviving through 2025. Mearsheimer predicted a shift towards a “frozen conflict” by late this year or early next, envisioning Ukraine as a dysfunctional state that has ceded substantial territory.

A notable figure in international relations, Mearsheimer proposed a simple path forward: first, prevent Ukraine from joining NATO; second, ensure Ukraine’s neutrality. He believes these two steps could significantly facilitate a resolution. However, he observes that the U.S. currently appears more interested in supporting Ukraine’s NATO membership rather than promoting its neutrality.