The Kremlin can Afford the Luxury of a Second Anti-NATO Front

There is a commonly held view that Russia cannot sustain a new front against NATO or the rest of Europe because its economy is a mess and it is already being drained by its aggression in Ukraine. And indeed, the Russian economy is a mess – as Bank of Finland Institute for Emerging Economies (BOFIT) assessments show. And BOFIT has been tracking the Russian economy for 30 years.

But neither does BOFIT data show that the Russian economy is collapsing. BOFIT analysis consistently shows that the Russian war economy is cannibalising every economic variable that matters for long term prosperity. Civilian economy productivity, investment, growth and social services and welfare are all sacrificed upon the altar of Putin’s imperial ambitions. Still, that does not mean that Putin cannot pursue his goals for as long as the population puts up with the cost of doing so. Above all, long-run economic decline is a poor predictor of the moment of economic collapse.

The truth is that:

• Economically failing nuclear states are as likely to represent a greater threat as thriving ones on the stage of world affairs.
   
• Russia today, and the Soviet Union before it, have an extraordinarily high ‘sacrifice ratio’ – defined as its ability to deliver GDP to the battlefield rather than to civilian society. The Russian economy probably delivers about $10-$12 to the Ukrainian battlefield for every $100 of GDP. The US spent less than 20 cents per $100 of GDP per year from January 2022 to December 2024 (for a total of 0.53% of GDP). After that, so great was the electoral pain of sacrifice, it insisted on being paid! Russia’s sacrifice rate also dwarfs that of China.
   
• The Russian people, in the words of Margaret Thatcher (discussing the Kursk nuclear submarine disaster in Sept 2000), ‘are not like us. They still do not value human life in the same way as we do.’ The government of Russia represents that de-humanising ethos. And the population of Russia puts up with suffering at the hands of its government that few other populations would – irrespective of whether they live under autocracy or democracy.

If Russia were to open another front with Europe, it would seek to avoid a war of attrition like in Ukraine. The war aims would be to reduce Europe to subservience. The war would be prosecuted kinetically but with extensive use of the tools of grey-zone warfare, such as disinformation, cyber warfare and direct sabotage. The cost of this type of conflict, while significant, would be a small fraction of the war of attrition in Ukraine – at least in its initial stages. At a guess, such a grey-zone front might cost an additional 2-3% of Russian GDP compared to the all-in costs of 9-10% of GDP for the Ukrainian theatre.

In sum, many of the factors that determine whether a new anti-Nato front would be economically sustainable for Russia are not economic at all. But there is one critical input to the war machine which is a binding constraint: demography! Will the Kremlin run out of soldiers?

The Economics of Attrition

Putin has been politically astute in not forcing young people to go to war (after initial missteps which led to mass exodus from Russia). Putin entices young people to go to war with highly lucrative contracts (paid to their survivors if they die). Yes, there is still conscription – while conscripts are not supposed to participate in the ‘Special Operation’, many do when they have lucrative contracts dangled in front of them. Nevertheless, the political result has been to avoid a build-up of anti-government feeling of the Afghan war, fought by unwilling conscripts.

The sign-on bonus for a three-year military contract is $40,000-50,000. Wages are $2,380 per month. Average Russian private sector wages are $1,230 per month and in poorer areas east of Moscow they are $600 per month. Most of the soldiers come from these poorer areas (Siberia and the Far East).

Assuming Russia needs to sign up 500,000 ‘new’ soldiers a year, at $45,000 per signature bonus, that would carry a total cost of $22.5 billion, or the equivalent of 1% of GDP and 6% of fiscal spending. That describes a constraint on recruitment, and a growing one, but it needs some qualification.

First, it assumes all the annual bonuses are a marginal increase in fiscal spending. In reality, at least half already figures in the budget for existing contracts. So, the marginal increase is less. Second, the wages of the new recruits are assumed equal to those they replace. They may rise making the issue more critical. Third, there are marginal costs of state transfers made to demobbed wounded soldiers which are ongoing and add to the costs listed here.

Russia still has a 7-8 million male population between 21 and 29 yrs old. The actual number of men eligible for military service is far higher – some estimates put it in the 20 million plus bracket. The median age of the Russian population is 40.

But let us work with that lower (7 million) number. There are 600,000 Russian soldiers fighting in the ‘Special Operation’. Losses are running at 360,000 per year and another 100,000 per annum must be rotated at the end of their contracts. So, Putin needs nearly 500,000 new soldiers per year. That is doable, from a pool of 7 million young people, for a very long time, provided they are willing to sign contracts.

The budget cost of paying cannon fodder looms larger than the body bags. But it is still not a binding constraint. Paying total military three years contract at the rate of 500,000 soldiers a year is probably costing the Russian government 1% of GDP. But this cost will rise as the returning body bags make future contracts less enticing.

At the same time, the legacy costs of paying benefits to the families of lost and injured soldiers will rise. Adding it all up, admittedly a ‘guesstimate’, might show the combined effect would be a 1.5% increase in the budget deficit per year.

This is bad, and worse because GDP growth has collapsed from 4% to 1.4% per annum, and looks like its staying there. The result would be an 8-9% budget deficit in 5 years. Russia has of course still got a 30% of GDP captive (because it cannot escape Russia legally) savings rate and a compliant banking system that lends to whomever it is told to make loans to. But at that level of budget deficit and sovereign debt accumulation the writing would be on the wall.

Still, the snag is that this day of reckoning for the Russian economy is still rather a long way off. Of itself, the economy could stagger on like this for 3-5 years. Russia is likely to remain an economy in decline judged by almost any calculus, except in its ability to wage war.

And that it can and will do. For Russian civilians, prospects don’t look great. But domestic revolution is unlikely. Of course, in the long term the ‘war economy’ is unsustainable. But the deterioration is not likely to constitute a ‘real and present relief’ for the rest of us, alas.

© David Roche, 2025, published by RUSI with permission of the author.

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