June 26, 2024: Russian leader Vladimir Putin seeks to portray himself as a savvy manipulator of the economy and able to produce positive results from a pile of problems and failures. Since Russia invaded Ukraine in February 2022, Putin has had to deal with one calamity after another. The first shock was that the quick victory did not happen. Instead the initial attack was not only defeated but most of Russia’s modern tanks were destroyed or captured. Russia’s major trading partners were NATO countries and NATO imposed economic sanctions and forced Russia to sell its oil at a discount. Essential imports, especially electronics and precision machinery, that used to come from NATO countries were no longer available although some of these items could be obtained, at higher prices, via smuggling networks that purchase the items from legitimate suppliers but sell them to seemingly legitimate customers who are actually smugglers. Worldwide, there is always a need for professional smugglers and the sanctions on Russia were seen as a bonanza. Russia resorted to near $100 billion in deficit spending since the invasion began. A wartime economy was adapted, with the usual infrastructure and social expenditures cut. There was another problem, with millions of Russians, most of them military age men, leaving the country. This, plus the growth of the military and over half a million soldiers killed or disabled, caused a severe labor shortage. This led to higher wages, but the defense companies could pay the most and non-defense manufacturing suffered. Much of military spending goes for weapons manufactured by firms that cannot get the components, especially electronics, they need. The result was weapons of lower quality. It’s one thing for defective missiles to miss their target, but defective aircraft and armored vehicles can be fatal to their users and create a loss of confidence among the troops.

Russia adapted, but so did Ukraine which used its detailed knowledge of Russian military production to target key Russian production facilities for attacks. These are carried out by missiles or UAVs equipped as bombers and, if that is not possible, Ukraine has the option to use operatives inside Russia to attack or sabotage targets. So far, these efforts have caused some damage but not halted Russian missile production. The quality of the new Russian missiles is less than before, and Russia accepts this because most of the missiles will still work as intended. Russian-made missiles and munitions were always known to be less reliable and an increase in unreliability is considered acceptable to the Russians, though a relief to Ukrainians be targeted. Dud missiles are not harmless. They will land somewhere in Ukraine, and some will even explode when they hit the ground. Ukrainians are used to Russian missiles and shells not exploding when they land nearby, realize the things might still go off, and usually call for EOD (Explosive Ordnance Disposal) teams to deal with them.

The shabby construction of recently manufactured Russian missiles reduces the number of effective attacks on Ukrainian targets. NATO and Ukraine are continuing and expanding these efforts to all manner of military items, some of them dual use. This includes truck tires. Russian-made truck tires were notorious for their poor quality and unreliability. Before the war, vehicle owners would, if they could, buy foreign tires but that was not an option in wartime. NATO sanctions and Ukrainian sabotage efforts have made tires produced in Russia even more unreliable. This has a disruptive impact on the Russian economy and for Russian troops it’s another reason why supplies or reinforcements don’t arrive on time, if at all.

The Ukraine War has been bad for Russian defense industries and continued sanctions has put many firms out of business while others are barely surviving. A similar disaster took place after the Soviet Union dissolved in 1991 and military procurement funds nearly disappeared for most of the 1990s. Since the late 1990s surviving Russian defense firms have been trying to rebuild. The Ukraine War seemed, at first, to be a source of more business. There was more activity, but of the malevolent kind that brought more problems rather than more procurement money.

The Russian invasion of Ukraine in February 2022 and Ukraine’s successful defense came as an unpleasant shock to China, which had increasingly been doing business with Ukraine and following developments in both Russia and Ukraine. The Chinese were also shocked to find that their assessment of the situation in Ukraine after Volodymyr Zelensky was elected president in 2019 was more accurate than Russia’s. Vladimir Putin seemed to dismiss Zelensky, an entertainment lawyer and sometimes performer, as an opportunistic actor and comedian while the Chinese saw Zelensky as a shrewd political operator who quickly disrupted Chinese plans to abscond with a lot of Ukrainian military technology and manufacturing trade secrets. China was surprised at how badly Russia misjudged Zelensky’s preparations of Ukraine for a Russian escalation or invasion. China had admired how Russia used special operations and political preparation in 2014 to quickly seize the province of Crimea. A similar effort to take two provinces (Donbas) in eastern Ukraine a few months later was only partially successful. China was waiting for Russia to come up with another bright idea to deal with that. China was not expecting Russia to blunder into a major miscalculation by invading Ukraine.

That invasion triggered an unexpected imposition of heavy sanctions on Russia. The mess in Ukraine has fundamentally changed the relationship between China and Russia. The most obvious changes for China are economic. Foreign trade accounted for about 28 percent of Russian GDP and about half was disrupted by the 2022 sanctions. China is Russia’s largest trading partner and, together with Belarus and a few other nations, continues to trade with Russia. The other half is currently halted, or soon will be, by sanctions. Russia has experience in evading economic sanctions and knows that greed in notoriously corrupt countries provides customers willing to switch to heavily discounted Russian oil. There are many similar but smaller customers. The discounts can be high; sometimes 20-30 percent off the world price, which is currently a hundred dollars a barrel. Even with heavy sanctions and smuggling related discounts, Russia is still making as much as they used to before the Ukrainian escalation.

Several NATO (the North Atlantic Treaty Organization) nations still bought Russian oil and natural gas because they could not afford to cut those imports completely until they had sufficient alternate sources and avoided an economic collapse. This took about a year, which was an essential move to avoid economic collapse in NATO nations getting most of their oil and gas from Russia.

Although China is a major customer for Russian oil and gas, a new pipeline has not yet been built to get them the product. Importing oil by sea is much more expensive because that is smuggling and risky. That means a larger discount and more risk of confrontations with NATO naval forces sent after tankers used for smuggling. Russia has threatened to use its handful of modern nuclear subs to go after NATO merchant shipping and risks seeing their small nuclear submarine force disappear at sea. Western navies stalk Russian nuclear subs in peacetime and Russian subs seek to do the same to Western nuclear missile (SSBM) submarines. This is an activity dating back to the Cold War and little is made public about who is ahead in the peacetime stalking competition.

All this degrades future Russian economic prospects. That has a negative impact on Russian allies. These foreign supporters now see their powerful patron as less powerful than believed and now feel desperate or simply afraid. And then there is China, which does not have allies, only trading partners and tribute states. Russia is now moving from trading partner to the lower tribute state status.

China has paid attention to how Ukraine prepared and how the West responded. This is important for China because of their plans and efforts to take possession of Taiwan and the South China Sea. Taiwan was also paying attention, especially since 2014 and increased its preparations to defeat a Chinese attack. Massive sanctions on China would be another matter because China is now the largest trading nation in the world, followed by the U.S. and Germany. These three nations are the only ones with trade exceeding a trillion dollars. Russia was 19th before the sanctions and with the sanctions will be fortunate to remain in the top 30 nations. If China did face the degree of sanctions Russia received, the results would be catastrophic because while the Chinese economy is much larger than Russia’s, it is much more sensitive to major disruptions. While China is still a communist police state, there is greater risk of major internal unrest if the economy is mismanaged. Incurring heavy sanctions is seen as mismanagement.