Russia may be forced to end its war in Ukraine as the economy reaches a “burnout” point, it has been claimed.
After President Vladimir Putin launched the full-scale invasion, the West hit Moscow with wide-ranging sanctions.
As a result, Putin became increasingly reliant on Russia‘s cash reserves and has had to implement numerous measures to prop it up.
This has culminated in the Russian Central Bank raising interest rates to a record 21% to try and combat inflation.
The Institute for the Study of War (ISW), a US-based think tank, believes this economic situation could leave Russia unable to fund its war.
They said: “Russian resources are finite, and Putin cannot reckon with these costs indefinitely. Russia‘s economy will reach a burnout point.”
The think tank added: “Russia‘s economy and war effort is coming under increasing strain.”
This comes after an ally of Putin even warned that many businesses in Russia will go bankrupt if this economic reality continues.
Sergey Chemezov, CEO of the state-owned Rostec, said: “There is no 20 percent profitability anywhere. Maybe in the drug trade, but even the sale of weapons does not bring such a profit.
“It is simply not profitable for enterprises to use borrowed funds, as I have already said many times. It is just that if we continue to work like this, then practically the majority of enterprises will go bankrupt.”
Speaking to Newsweek, another expert on Russia‘s economy echoed these concerns.
Vasily Astrov, senior economist at the Vienna Institute for International Economic Studies, said: “The main problem is that this will further weigh on private-sector investments, which have already started weakening, because the borrowing costs are now reportedly exceeding the profitability in many sectors.
“The counterargument of Ms. Nabiullina is that this will create the window of opportunity for the businesses that invest out of profits rather than by taking credit, and that this is the way it should be.
“I am not convinced about this argument—and I am not sure that it is a very wise strategy for the central bank to fight inflation at all costs, especially since the latter has been increasingly driven by supply-side factors.”