Russia’s War With Ukraine Already Costing Russian Economy

Russia’s War With Ukraine Already Costing Russian Economy

MOSCOW — President Vladimir V. Putin has ushered in a crisis for his country — in its economy and identity.

The Kremlin is hiding the reality of the country’s attack on Ukraine from its own people, even cracking down on news outlets that call it a “war.”

But the economic carnage and societal turmoil wrought by Mr. Putin’s invasion is becoming increasingly difficult to obscure.

Airlines canceled once-ubiquitous flights to Europe. The Central Bank scrambled to deliver ruble bills as the demand for cash spiked 58-fold. Economists warned of more inflation, greater capital flight and slower growth; and the S&P credit rating agency downgraded Russia to “junk” status.

The emphasis on hiding the war’s true extent was a sign that the Kremlin fears that Russians would disapprove of a violent, full-scale invasion of Ukraine, a country where many millions of Russians have relatives and friends.

Even so, more public figures with ties to the state spoke out against the war, including a lawmaker in Russia’s rubber-stamp Parliament. Business owners tried to assess the consequences of an economic crisis that appeared already to be beginning, even before sanctions were fully in place.

Facing the greatest test yet of its reality-distorting prowess, the Kremlin’s propaganda machine for the moment appeared to be keeping widespread opposition to the war in check. There were no signs that the war could undermine Mr. Putin’s hold on power, and in the event of a speedy victory, analysts noted, it could end up strengthening it.

But the enormous risks of the war, along with the economic pressure the country was suddenly under, have created a new and more treacherous reality for both the Kremlin and Russia’s 145 million people.

Russians have been stunned at how quickly the economic impact of the war was being felt. The ruble hit its lowest level ever against the dollar, which traded at about 84 rubles on Saturday compared to 74 a few weeks ago. That sent prices for imports surging, while sanctions on Russia’s largest banks wreaked havoc in the financial markets and new export restrictions promised to scramble supply chains.

“Those who shout that Putin is great and bravo to him are no longer shouting as loud,” said Lalya Sadykova, the owner of a chain of beauty salons in St. Petersburg. “They’re in shock from what is happening, from how quickly prices are changing and how suppliers are stopping deliveries.”

The chief executive of one of Russia’s biggest electronics retailers, DNS, said on Thursday that a supply crunch had forced his chain to raise prices some 30 percent. Days earlier, the chief executive, Dmitri Alekseyev, had posted on Facebook: “For the life of me I can’t understand why Russia needs a war.”

“I understand that the prices in stores provoke frustration,” Mr. Alekseyev wrote. “But that’s the reality.”

S7, Russia’s second-largest airline, suspended all of its flights to Europe because of airspace closures to Russian companies, an early sign that the cheap and easy travel to the West that middle-class Russians had grown used to could become a thing of the past. Photos of retailers changing or removing their price tags went viral on social media.

“We’re all waiting for what happens next,” said Anastasia Baranova, describing a wave of cancellations on Friday at the hotel she runs in St. Petersburg. “It’s as though the whole country is on pause.”

The Kremlin rushed to maintain its narrative, signaling the start of a new and more brutal phase in its long-running crackdown on dissent. The government’s communications regulator slowed down access to Facebook and warned 10 Russian news outlets that their websites could be blocked. The outlets’ declared offense was publishing articles “in which the operation that is being carried out is called an attack, an invasion or a declaration of war.”

Even as a vicious battle for Kyiv unfolded on Saturday morning, a Russian Defense Ministry statement about the situation in Ukraine made no mention of the Ukrainian capital or any Russian casualties. The ministry, which typically releases sleek and copious footage daily of the Russian military in action, published no videos of its combat operations in Ukraine.

And Russia’s state-run news channel on Saturday showed footage of a peaceful day in Kyiv to try to counter the videos of violence spreading on the social network Telegram.

“As you can see, the situation in the cities is calm,” the anchor said. “No explosions, no bombings, unlike what some of the Telegram channels are writing.”

A hint of the potential opposition came on Saturday when Mikhail Matveyev, a Communist lawmaker who had voted to endorse Mr. Putin’s recognition of the Russian-backed separatist territories, wrote on Twitter that he had been tricked.

“I was voting for peace, and not for war,” he wrote, “and not for Kyiv to be bombed.”

It was a rare crack in the firmament of the Parliament, where dissent over Mr. Putin’s key foreign policy decisions has been virtually nonexistent in recent years. Tatyana Yumasheva, the daughter of former President Boris N. Yeltsin who helped bring Mr. Putin to power, posted an antiwar message on Facebook.

The Garage Museum of Contemporary Art in Moscow, a sleek showcase of a Westward-looking Russia founded by the Kremlin-friendly oligarch Roman Abramovich, declared it would cease working on new exhibits until the “human and political tragedy” ceased in Ukraine.

“We cannot keep up the illusion of normality,” the museum said. “We see ourselves as part of a greater world that is not broken up by war.”

Still, it appeared on Saturday that the Kremlin’s enforced blinders were doing their job, as were the clear dangers of voicing dissent. The spontaneous antiwar rallies that brought several thousand people to the streets in cities across the country on Thursday, with more than 1,500 arrests, were not repeated at that scale on Friday.

While many in Russia’s intellectual elite voiced horror and the fence across from the Ukrainian embassy in Moscow filled up with flowers, there was little evidence of a broader groundswell of opposition.

“The propaganda is working very well,” said Anastasia Nikolskaya, a Moscow sociologist. “It’s not that anyone is welcoming the war, but it is being seen as a last-ditch measure that is necessary.”

The main determining factor for what comes next, of course, will be what happens on the battlefield in Ukraine — the longer the war lasts and the greater the loss of life and destruction, the more difficult it will be for the Kremlin to cast the war as a limited operation not directed against the Ukrainian people.

Andrei Kortunov, director general of the Russian International Affairs Council, a research organization close to the Russian government, said he believed that the Kremlin expected the fighting to last no more than two weeks.

If Russia forced a capitulation of the Ukrainian army within that time, with limited destruction and limited Russian and civilian casualties, Mr. Kortunov said, Mr. Putin should be able to count on continuing domestic support.

But if the war does not go according to plan, Mr. Kortunov cautioned, the country could see “serious political consequences and consequences for the popularity of the leadership.”

“Victory will write off a lot — not everything, but a lot,” Mr. Kortunov said. “If there is no victory, then there may be some complications because of course, many doubt that there were no other policy alternatives.”

There were indications that recent days were only the beginning of a new chapter in Mr. Putin’s conflict with the West and of his crackdown on freedoms at home. Dmitri A. Medvedev, the vice chairman of Mr. Putin’s security council, speculated in a social-media post on Saturday that Russia might reintroduce the death penalty or seize foreigners’ assets in Russia as a response to Western sanctions.

“The interesting part is only beginning … ,” he wrote.

Despite the economic pain, sanctions are unlikely to alter Russia’s course in the near term, analysts say. Russia has the reserves to prop up the ruble, and the Kremlin has worked to insulate the economy from external shocks since it was hit by sanctions over the annexation of Crimea in 2014.

The real cost of sanctions will be Russia’s long-term development, said Yevgeny Nadorshin, chief economist at the PF Capital consulting company in Moscow. Incomes will further stagnate, and the country’s middle class will continue shrinking. Many of the country’s manufacturers that launched the production of modern trains, cars and other products over the past decade, will face serious trouble if the West bans technology exports to Russia, he said.

The country will be stable, Mr. Nadorshin said, however this stability “will resemble a swamp where nothing happens and changes even as forests burn around it.”

“Some reeds will bloom in this swamp, but there will only be scorched land around it,” said Mr. Nadorshin. “You can get into that swamp, but you will get stuck in it and you may eventually drown.”

And beyond the economic impact of the war, many Russians could not yet imagine coming to terms with living in a country that had launched an unprovoked assault on its neighbor. A steady stream of people came to the Ukrainian embassy in Moscow on Friday, bringing flowers. A police officer prevented a woman from also leaving a small sign that said: “Yes to peace.”

“I fear meeting Ukrainians and looking them in the eye,” said a designer, Aleksei, 28, declining to give his last name for fear of repercussions from the security services. “That is the scariest thing of all.”

Alina Lobzina and Oleg Matsnev contributed reporting from Moscow.

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