00:00Despite more than three years of war, huge military expenses and waves of sanctions,
00:06Russia's economy appears to be thriving.
00:12But as President Trump threatens harsh economic sanctions...
00:15We just don't see any progress being made.
00:18...and cracks begin to show how long can it last.
00:21War has been a huge stimulus for the Russian economy, but they can't continue doing this forever.
00:26The reality is they're likely to run out of money.
00:31Since launching its full-scale invasion of Ukraine, Moscow has ramped up its military spending.
00:35If we go back to 2022, Russian defence spending was about $50 billion a year.
00:42They are now spending close to $150 billion a year on their military.
00:49As the war continues, President Trump has vowed to turn up the economic pressure on Moscow,
00:53threatening tariffs and secondary sanctions if a ceasefire isn't reached.
00:58Russia could be so rich right now. Instead they spend all their money on war.
01:04They spend everything on war and killing people and it doesn't make sense.
01:08But Russia has shown it can adapt to economic pressure.
01:11Since launching its full-scale invasion of Ukraine, it has become the most sanctioned major economy on the planet.
01:17We had statements from Western leaders like turning the ruble to rubble.
01:22This was intended to bring the Russian economy to a complete halt.
01:26It was meant to make the continuation of the war completely unpalatable.
01:31Despite this, in 2024, Russia's economy outpaced the growth of most advanced nations, including the US.
01:38There was a deep economic contraction in 2022. It was 2% of GDP.
01:44And by the way, that's about the same as the impact of Covid on the Russian economy.
01:48But what's interesting is that they bounced back very, very quickly.
01:52Analysts say Russia was able to avoid the impact of current sanctions by reorienting its economy.
01:58The EU was lost as an export market almost entirely.
02:02The two big export markets for Russia are China and India.
02:06Effectively, they have reorientated towards the export of fuels to China and India.
02:11Because that reorientation was possible, that's one of the reasons the sanctions haven't really bit in as much as we might expect.
02:19In addition, Moscow turned its economic focus on supplying its war effort in Ukraine,
02:24with even the most unlikely companies focusing on war.
02:27Russian state TV broadcasts a segment about a bread factory that swapped dough for drones.
02:35They're spending a tremendous amount of money on armaments.
02:39So this being the expansion of the military-industrial complex, that's hoovered up labour.
02:45So we've seen unemployment in Russia actually fall to a 30-year low.
02:49Russia has largely been able to sustain these high levels of spending thanks to its oil and gas sector,
02:55which makes up around 20% of Russia's GDP.
02:58But analysts warn this can't last forever.
03:01By rights, Russia should have a budget surplus at the moment.
03:04That surplus should be going into their national wealth fund.
03:07What we've seen is that they're spending far more than they're bringing in.
03:11And the way they are supplementing that is by running down their remaining reserves.
03:17So at the present burn rate, we see them running out at about 2030.
03:23With President Trump threatening to come down hard on Russia,
03:26concerns are growing that this could have far-reaching consequences.
03:31There's been a suggestion of 100% secondary tariffs.
03:35So those who buy from Russia, say buy Russian oil, would be hit with tariffs entering the US market.
03:42China and India are the main buyers of Russian oil.
03:45They collectively account for almost half of Russian exports.
03:49Let's imagine if they were to stop buying Russian oil completely.
03:53That would be catastrophic for the Russian economy.
03:56Russia looks to oil and gas receipts for anything from a third to half of its annual budget.
04:01More broadly, this would create a tremendous oil shock in the world.
04:05So the price of oil would rocket.
04:08It could be recession-inducing.
04:10Trump's threats also come as cracks in Russia's economy are beginning to show.
04:16Now, inflation has been high, but wage inflation has been even higher.
04:20So if anything, the standard of living of Russians has improved.
04:25The problem, of course, is that this is not sustainable.
04:29That eventually Russia is going to hit the fiscal buffers.
04:33Despite the economic risks, experts believe Russian President Vladimir Putin
04:37remains committed to his goal of seizing as much of Ukraine as possible.
04:41And that Russia will try to sustain its military economy for years to come
04:45as it eyes conflicts beyond Ukraine.
04:48If you look at Russian defence expenditure, 2025 is likely to be a peak.
04:54But that's on the basis that at some point there will be a ceasefire.
04:57At that point, we'd expect the pen spending to moderate.
05:01But we don't see spending going back to the 2022 or 2021 level.
05:06It's going to stay elevated.
05:08Russia would say that it still faces threats.
05:12It would argue that NATO is a threat, so they need to be prepared.
05:15I think they do understand that at some point this war will have to come to an end.
05:19But of course, politically, Russia is going to seek to do that on its own terms.
05:31I think we've set a point.
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