Every Tuesday, The Ukrainian Week/Tyzhden publishes an overview of the political, social and economic situation in Russia and Belarus in partnership with the Foreign Policy Council “Ukrainian Prism”. The Council’s Russian and Belarusian Studies Programme presents a new weekly #aggressoranalysis, in which Iaroslav Chornogor and Anton Oksentiuk analyse the latest news in Russian domestic and foreign policy.
This week’s highlights: Wagner’s defeat in Mali, the new arrest of Shoigu’s former deputy and the economic situation in Russia
Domestic policy takeaways:
- Economic situation in Russia: analysis of statements and decisions of the Central Bank of Russia. Last week, Elvira Nabiullina, the head of the Central Bank of Russia, made several significant statements regarding the state of the Russian economy. She reported that the country’s reserves of labour and production capacity are “almost exhausted,” pointing to a severe limitation in the business sector’s ability to increase the production of goods and services. This issue is compounded by high consumer demand fueled by substantial government payments to military personnel. These payments include one-time bonuses for signing contracts, large compensations for deaths in the war, and regular salaries. Research by Re: Russia has revealed that the Russian government spent 3 trillion rubles on military payments in the past year. This expenditure represents 1.5% of Russia’s GDP and accounts for 7.5-8.2% of this year’s federal budget expenditures.
- Nabiullina acknowledged that the Russian economy is experiencing “overheating.” Analysts at the Central Bank of Russia have officially recognised that wage growth exceeding productivity increases leads to inflation, exacerbated by insufficient production capacity. In response, the Russian authorities decided last week to raise the key interest rate from 16% to 18%. This hike will result in higher interest rates on bank loans, which is expected to impede business development and the expansion of production capacity. Consequently, the Russian economy faces a paradox: the ongoing war and substantial military payments are worsening its economic difficulties. This issue is also affecting the labour market. A recent analysis by Ukrainian Prism highlights a record labour shortage, as reported by the Central Bank of Russia, which continues to grow.
- Despite these challenges, the Russian economy continues to show statistical growth, largely due to substantial subsidies and defence contracts within the military-industrial complex. If these subsidies were to end, a sharp decline in GDP growth would likely follow. This factor should be considered when evaluating Russia’s “willingness” to negotiate an end to the war.
- Russian authorities prohibit soldiers from having phones and making public statements. The Russian authorities, through the State Duma, have enacted a series of stringent and substantial amendments to the bill “On Disciplinary Arrest During Mobilization, Martial Law and Wartime.” These amendments, introduced at the eleventh hour by deputies from the ruling United Russia party, impose significant restrictions. Primarily, they prohibit Russian soldiers from using devices with Internet access, such as telephones. The amendments grant commanders the authority to impose punishments, including up to 10 days of arrest, for a broad range of “offences.” While Russian media has focused on the phone ban, it has largely overlooked other more critical prohibitions. These include arresting soldiers for disseminating information that identifies them as members of the Russian armed forces or details about the activities and actions of military leadership, military units, or other military entities.
- Due to the law’s vague wording, military commanders are compelled to impose punishments for a broad range of actions. For instance, it effectively bans nearly all contact between military personnel across the front line. This measure was introduced in response to a recent surge in public complaints from Russian soldiers about their own command.
- The bill still requires approval from the upper house of parliament and the Federation Council and must be signed by the president before it can be enacted. The swift introduction of these amendments suggests coordination with the Kremlin and the Ministry of Defense. Some Russian “military experts” have reported that military police have already started confiscating phones, even though the law has not yet been fully enacted. These amendments have sparked significant discontent among “war correspondents,” who portray themselves as representatives of ordinary soldiers and have gained limited influence in the Russian media during the conflict. They warn that a “total terror” campaign will now be unleashed against “undesirable” soldiers, particularly targeting those who discuss problems with equipment or other issues online.
- FSB arrests another former deputy of Shoigu. We continue to witness further arrests of Russian military officials. Last week, it was revealed that the FSB had detained former Deputy Minister of Defense Dmitry Bulgakov on corruption charges. Bulgakov, who served under Minister Shoigu, left his position shortly after the mobilization announcement in the fall of 2022. He was responsible for army logistics and likely lost his position due to issues discovered in this area. This claim is supported by Russian media; for instance, the pro-government outlet RIA Novosti reported, citing a law enforcement source, that Bulgakov established a system for supplying the military with substandard goods at inflated prices. This arrest is part of a broader FSB campaign to purge officials loyal to Shoigu and to bolster its own authority and anti-corruption efforts within the Defense Ministry.
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- Similar arrests targeting business figures connected to officials close to Shoigu are ongoing. Andrei Belkov, the CEO of the Russian Defense Ministry’s Military Construction Corporation, has also been detained on corruption charges. This company is responsible for constructing various facilities for the ministry. Belkov was under the supervision of the recently arrested Deputy Minister of Defense, Timur Ivanov. Ivanov’s arrest triggered Shoigu’s dismissal and initiated a sweeping crackdown on military officials and generals.
Foreign policy takeaways:
- Russia’s Wagner suffers losses in Mali. Reports indicate that Wagner PMC forces have suffered a significant defeat in Mali. Local Tuareg rebels ambushed and completely destroyed a group of Russian mercenaries. Casualty estimates vary, but between 20 and 50 mercenaries are known to have been killed, along with the destruction of vehicles and damage to a Mi-24 helicopter. The death of Nikita Fedyanin, a Russian propagandist and administrator of the Wagner-affiliated “GREY ZONE” telegram channel, has also been confirmed. This incident has caused considerable shock within Russian media. It highlights a decline in Wagner’s effectiveness following the assassination of much of its leadership in the summer of 2023 and the subsequent direct control of its African operations by the Russian GRU. This decrease in operational efficiency is likely due to the influx of inexperienced fighters and a shortage of skilled officers within the Wagner ranks.
- Even before the full-scale invasion of Ukraine and Prigozhin’s death, Wagner PMC had garnered substantial favour from several dictatorial regimes in Africa with ties to Russia, largely due to the effectiveness of its fighters. However, the recent defeat is noteworthy primarily due to the extensive media coverage it has received. This coverage has significantly tarnished Wagner PMC’s reputation.
- Another significant outcome of this incident will be the heightened competition between the remaining “African” units of Wagner PMC and the newly established “African Corps,” a Russian paramilitary group that began operations in Africa in late 2023 and early 2024, currently active in Burkina Faso. Some prominent Russian military bloggers speculate that this new structure might replace Wagner forces in Mali. However, it seems unlikely that the African Corps will fully replace Wagner PMC due to its relatively small size. Additionally, the African Corps has previously participated in battles in the Kharkiv region during Russia’s offensive operations.
- Negotiations between Putin and Syrian dictator Bashar al-Assad in Moscow. Last week, Putin met with Syrian leader Bashar al-Assad in Moscow, though the specifics of their discussion remain undisclosed. It is highly probable that their talks focused on the potential restoration of diplomatic relations between Syria and Türkiye, a key issue in the Syrian conflict in recent weeks. In early July, Turkish President Recep Tayyip Erdoğan indicated that Turkey was prepared to invite Assad for talks aimed at mending relations between the two countries, mentioning Russia as a potential facilitator. This context likely explains Assad’s visit to Moscow. Russian presidential spokesman Dmitry Peskov confirmed that the discussion included the topic of restoring diplomatic ties between Türkiye and Syria. The lack of extensive coverage in Russian media suggests that the talks were relatively limited in scope.
- For Russia, an improvement in relations between Syria and Türkiye would further affirm its influence over Syria. However, this development is unlikely to affect the dynamics of Russian-Turkish relations.
