Roughly two years after its invasion of Ukraine, Russia now finds itself the recipient of more than 13,000 global sanctions. Despite this, the IMF predicts Russian GDP growth to be 2.6% in 2024, driven by its 14.9 trillion rubles in defense spending, a fourfold increase from 2021. These figures have dumbfounded Western critics, who expected the economy to show signs of distress after such forceful measures. In fact, the result is a turbocharged economy, one with 490,000 new recruits and a record low unemployment rate of 2.9% in 2023. This ‘Military Keynesianism’ has proven to be a short-term driver of success yet undermines a looming problem: how to ensure Russia’s economy does not experience hyperinflation and recession in the medium to long term? In some ways, advisors have actively taken measures targeting economic fallout, by requiring strict requirements on capital controls and increasing its interest rate to 16%, but more needs to be done. These economic indicators may not seem consequential to foreign policy making, but as evident with the Soviet Union in 1917, hyperinflation was a highly cited factor that led to extreme civil unrest and revolution. Furthermore, the long-term structural damages of a wartime economy, that of working-class labor shortages, productivity decreases due to a lack of education, and depleted reserves, will certainly have cost-push ramifications. Thus, with Russia’s inflation rate hovering around 7.4% in January 2024, overarching economic strategies need to be considered to maintain stability and order, both of which are vital to the regime’s longevity.

The first strategy is for Russia to increase trade volumes. This ideology is underpinned by the importance of trade in dampening inflation expectations. Chiefly, trade fosters a more competitive market environment, as domestic producers are incentivized to improve efficiency and restrain price increases. Furthermore, trade also diversifies suppliers, stabilizes the exchange rate, and facilitates efficiency gains, all of which are crucial in the mechanics of price stability. However, this also implies Russia needs to reassess trade relations. For example, with the shrinkage of EU energy imports, Sino-Russian trade has taken its place, reaching $240 billion in 2024, raising the question of overreliance. Similarly, countries such as India, Turkey, Brazil have all followed suit, helping Russia circumnavigate whimsical $60 oil price caps and affirming the resilience of market forces. Although some exports are masked via ghost fleets and shell companies to sidestep western oversight, Russian exports fell by 28.3% to $425.1 billion in 2023, further validating the need for a trade-oriented growth strategy.  

Secondly, Russia could contemplate imposing a price ceiling on essential goods experiencing spiraling price increases. Despite the Russian central bank’s inflation target of 4.0% in 2025, the cost of goods, such as bananas surging by 42% and white cabbage by 23%, show no sign of deceleration. Thus, in the interest of consumer affordability and social order, price ceilings can send a clear signal of the government’s intention to stamp out inflation and relieve the economic burden of citizens. However, price ceilings must be selectively applied to goods, clearly communicated, and rigidly enforced, otherwise the result can be devastating shortages and unintended black markets. This finding was evident with Nixon’s 1971 price controls, which sought to alleviate the effects of oil shocks but ultimately failed due to administrative complexity and public dissatisfaction. Therefore, wielded carefully, this tool of market distortion can prove to restore stability to a rampant economy, especially during wartime.

Finally, Russian must take measures to prevent the further depreciation of the ruble. In January 2020, one dollar traded for 62 rubles, but today it has reached 90 rubles. This extreme depreciation will make it difficult for Russia to service its $326 billion international debt load and for importers who are purchasing goods with a devalued currency. While Putin has traditionally advocated for limited direct market intervention, the current situation demands a reassessment, especially in a floating rate regime where fluctuations can be drastic. Therefore, this strategy implores Russia to deploy its $576 billion dollars in foreign reserves to prop up its currency. This would manifest itself by the Russian Central Bank selling its reserves and buying rubles in return. Yet with $300 billion dollars of it frozen by the West, it poses an interesting tradeoff for the country: Given limited resources, how does Russia strategically allocate the reserves to achieve the largest impact on economic stability?

All things considered, the first option emerges as the most optimal strategy considering resource constraints and potential reactions from other states. This is because the first step benefits Russia both economically and geopolitically. Trade has a strong indirect effect on the prevention of price spirals. Moreover, trade can allow Russia to deepen ties with foreign countries, and even turn economic partnerships into political alliances. Over time, these partnerships can unite countries with the goal of counterbalancing Western influence, taking on the NATO-centric global order. As a result, the remaining options are less optimal. The second strategy demands significant coordination efforts. Even with successful implementation, the price ceilings will lead to a reduction in product quality and even innovation. Meanwhile, the third option, although idealistic, carries execution risks. With a leeway of $276 billion dollars in liquid foreign reserves, the reserves must also serve purposes of facilitating trade and meeting debt obligations, other than supporting the currency. However, it would be misguided for the ministry to simply dismiss these two strategies as they can still be effective when registered in smaller doses.

Thus, the real proposition for Putin is if he values economic stability over territorial expansion. Either way, the fate of Russia, and subsequently the world, is depended on the depth of his aggression.