Russia’s new war era

Russian President Vladimir Putin has appointed a new defence minister as Russian forces push ever further into northern Ukraine.

In a significant shifting of the Kremlin’s pecking order, Sergei Shoigu, Russia’s 68-year-old defence minister of 12 years has been replaced by economist Andrei Belousov, a 65-year-old former deputy prime minister.

Citing the need to be more financially innovative to win the war, Kremlin spokesman Dmitry Peskov said: “The Ministry of Defence should be absolutely open to innovation, to the introduction of all advanced ideas. Therefore, the president chose Belousov’s candidacy.”

Shoigu is now head of the Security Council, taking over from Nikolai Patrushev who has been one of Putin’s closest advisors – the two have been friends since their time in the Leningrad KGB in the 1970s.

Putin’s reshuffle comes at a time of serious financial worry for Gazprom, Russia’s state-owned energy giant. What was once the most profitable company in Russia selling huge amounts of gas and oil to Europe has just reported losses of $7 billion in 2023.

Western sanctions on Russian gas after its invasion of Ukraine have forced Gazprom to take its business elsewhere. There are many buyers in Asia, notably China and India, but Asian countries pay less than their European counterparts.

For example, last year Russian gas was sold to several European countries at $12.9 per million British thermal units (mmBtu). The same gas was sold to China at $6.6/mmBtu.

Add to the sanctions the mysterious underwater explosions and consequent gas leaks on the Nord Stream 1 (NS1) and Nord Stream 2 (NS2) natural gas pipelines between Russia and Europe earlier in the war and it’s not hard to see why Putin is worried.

These concerns will no doubt be at the heart of Putin’s decision to appoint an economist to lead the war effort. What’s more, Belousov doesn’t have 50,000 Russian soldiers’ deaths on his CV as Shoigu now does. Belousov, at least in military terms, has a clean record and is not open to the same criticisms as Shoigu.

But, while there are undeniable difficulties, Russia is not in any financial crisis. The International Monetary Fund (IMF) expects Russia to grow 3.2 per cent this year, compared with a strong 2.7 per cent for the  US or UK’s measly 0.5 per cent. Russian defence spending has surged to 6 per cent of GDP, which has fuelled economic growth.

That is fine for now, but as Alexander Kolyandr writes in The Spectator: “Russia is mortgaging its future to pay for today’s war and economic growth.” Lower productivity, a lack of foreign investment and war debt is all coming down the pipe while Putin’s war machine grinds on.

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