Putin believes that the main objectives of the war have already been achieved, according to Reuters.
Putin believes that the main objectives of the war have already been achieved, — Reuters
The Kremlin leader, Vladimir Putin, is increasingly concerned about the distortions in the wartime Russian economy, while the new U.S. President Donald Trump insists on ending the war in Ukraine.
This is reported by Reuters, citing five sources familiar with the situation.
Despite numerous rounds of Western sanctions imposed after the invasion of Ukraine in 2022, Russia's economy, driven by the export of oil, gas, and minerals, has shown steady growth over the past two years. However, due to labor shortages and high-interest rates implemented to combat inflation—accelerated by record military spending—domestic activity has become strained in recent months.
According to two sources familiar with the Kremlin's stance, this has fostered a sentiment among some segments of the Russian elite regarding the desirability of negotiating an end to the war.
Donald Trump, returning to the presidency, has promised to quickly resolve the largest conflict in Europe since World War II. He stated that additional sanctions and tariffs against Russia are likely if Putin does not engage in negotiations, adding that Russia is heading toward "great problems" in its economy.
A senior Kremlin aide indicated that Russia has not yet received any concrete proposals for negotiations.
"Russia is certainly economically interested in negotiating a diplomatic end to the conflict," said former Deputy Chairman of the Central Bank of Russia Oleg Vyugin, pointing to the risk of exacerbating economic distortions as the country sharply increases military expenditures.
Previously, Reuters reported that Putin is willing to discuss ceasefire options with Trump, with both sides needing to accept Russia's territorial "gains" and Ukraine having to abandon its NATO membership aspirations.
Trump's advisors, as the agency notes, "forgot" about the politician's campaign statement that the war, ongoing for nearly three years, could be ended in a day. A White House National Security Council representative, Brian Hughes, commented that Trump is "focused on ending this brutal war," engaging a wide range of stakeholders.
Days before Trump's inauguration, the outgoing U.S. President Joe Biden's administration imposed the broadest sanctions package aimed at Russia's oil and gas revenue. Biden's National Security Advisor Jake Sullivan noted that this would provide Trump with leverage in any negotiations, applying economic pressure on Russia.
Putin has stated that Russia can fight for as long as necessary and that Moscow will never bow to another power regarding its key national interests.
The Russian economy, worth $2.2 trillion, has demonstrated remarkable resilience during the war, and the Kremlin leader praised top economic officials and businesses for navigating the strictest Western sanctions ever imposed on a major economy.
After a decline in 2022, Russia's GDP grew faster than that of the European Union and the U.S. in 2023 and 2024. However, this year, the Central Bank and the International Monetary Fund predict growth of less than 1.5%, although the government forecasts slightly more optimistic prospects. Inflation has approached double digits, despite the central bank raising the base interest rate to 21% in October.
"There are some issues here, namely inflation and a certain overheating of the economy. The government and the Central Bank have already been tasked with cooling the pace," Putin said at the annual press conference on December 19.
"War objectives achieved"
In 2024, Russia has made significant progress compared to the early days of military operations, now controlling almost one-fifth of Ukraine. According to a source familiar with the Kremlin's position, Putin believes that the main objectives of the war have already been achieved, including control over territories connecting mainland Russia with Crimea and weakening the Ukrainian army.
The Russian president is also aware, as noted by the source, of the pressure the war is putting on the economy, mentioning "really big problems," such as the impact of high-interest rates on businesses far from the defense industry.
Russia has increased defense spending to a post-Soviet maximum of 6.3% of GDP, accounting for a third of budget expenditures. And as these expenses have been inflationary, coupled with labor shortages, this has led to rising wages.
Putin's concerns
As two sources familiar with the discussions about the economy in the Kremlin and government reported, during a meeting with business leaders in December of last year, Putin's disappointment was quite evident. He reprimanded senior economic officials upon hearing about the decline in private investments due to the cost of loans. Notably, Central Bank head Elvira Nabiullina was not present at the meeting.
Some of Russia's most influential businessmen, including Rosneft head Igor Sechin, Rostec head Sergey Chemezov, aluminum magnate Oleg Deripaska, and major shareholder of the steel company Severstal Alexei Mordashov, have publicly criticized high-interest rates.
Putin himself has called for a "balanced solution on the rate," and the Central Bank has maintained the rate at 21%, despite market expectations that it would rise by 200 basis points.
According to one source, Nabiullina faced pressure not to raise rates from two of Russia's most influential bankers—the head of Sberbank Herman Gref and VTB head Andrey Kostin—who feared that Russia was heading toward stagflation.
In her speech following the decision, Nabiullina denied succumbing to pressure. She stated that criticism of the central bank's policy intensified when rates were high.
Former economic aide to Putin, Elvira Nabiullina has been the head of the Central Bank since June 2013. Without her, her supporters believe, Russia's economic stability during the war would have been at risk. Furthermore, according to three sources, Putin trusts the head of the Central Bank and will not change her in this situation.