[Choi Junyoung's World+] Why the War Is Rapidly Shifting in Russia's Favor

Successful Reorganization of Russia's Wartime Industry
Continuous Expansion of Weapons Production Capacity
Abundant Oil and Gas Continue to Supply the World
War Capabilities Sustained Despite US Sanctions
Neighboring Countries Increasingly Call for Ceasefire
Attention on Whether the War Will End Sooner Than Expected

Choi Jun-young, Senior Advisor at Yulchon LLC

The international atmosphere surrounding the Ukraine war has recently undergone rapid changes. There have been ongoing mentions of a ceasefire from neighboring countries, including T?rkiye (Turkey). Pope Francis has also urged the Ukrainian side to surrender and agree to a ceasefire. Compared to the various ceasefire mediation attempts by different countries immediately after the outbreak of the war in 2022, which failed to achieve results and were halted, the recent changes can be seen as evidence that the situation is shifting.

The change in the situation was driven by a shift in the battlefield dynamics. Ukraine, having successfully defended against Russia's offensives in 2022 and regained much territory through a surprise counterattack on the northeastern front, prepared a large-scale offensive in 2023. Western countries, including the United States, expected Ukraine to achieve success once again on the southern front with various support including tanks, but the well-prepared Russian defensive lines were not breached. As winter 2023 began, Russia intensified its offensives on the eastern front and succeeded in capturing key Ukrainian strongholds that were previously considered impregnable. Observing this, several countries have become convinced that the war is tilting in Russia's favor and have begun mediation efforts. Considering that ceasefires and negotiations in war typically intensify once the balance of power is determined, many countries are confident that Russia's advantage in the war has solidified.

This change in the situation feels unfamiliar to us. Until now, we believed that the Russian military was suffering heavy losses and that Russia's defense industry was in disarray, struggling under Western sanctions. However, despite significant casualties and chaos, Russia has managed to recover and reverse the situation over time. The limits of Russia, which were expected to become apparent quickly, have yet to be seen. For NATO member countries bordering Russia, such as Estonia, these changes in Russia are causing concern. Regarding 152mm shells, Western experts initially believed Russia's production limit was about 2 million rounds annually. However, Russia has continuously expanded its production capacity and is expected to increase output to over 4 million rounds by the end of 2024. Adding the quantities coming in from countries like North Korea, Russia will be able to stockpile sufficient amounts alongside frontline usage.

A U.S. soldier is loading 155mm shells supporting Ukraine onto a C-17 transport aircraft at Dover Air Force Base, Delaware. Photo by AP and Yonhap News

This transformation in Russia indicates the successful reorganization into a wartime industry, albeit belatedly. If the war until 2023 was fought with stockpiled supplies, from 2024 Russia has shifted to a full-scale wartime economy, deploying more resources to the frontlines. Russia's defense industry has long been regarded as inefficient. Despite massive budgets, it was notorious for failing to meet scheduled deadlines and costs. From the Western perspective, which prioritizes economic efficiency, downsizing or closure would have been rational decisions, but Russia maintained capabilities through close ties between politics and business, reluctantly providing substantial subsidies and various costs. However, the unexpected war allowed the inefficient defense industry to demonstrate its capabilities. After the initial chaos, Russia's traditionally simple but durable and mass-production-specialized defense industry began to leverage its strengths. Currently, Russia's manufacturing utilization rate exceeds 80%, maintaining an all-time high. Naturally, unemployment remains below 3%, indicating near full employment. The 2024 defense budget increased to 7.5% of GDP, and about 3.5 million people, or 2.5% of the total population, work in the defense sector. During this process, wages in the defense sector have steadily risen, with machinists and welders reportedly earning more than lawyers in Moscow.

Some view Russia's massive troop mobilization and defense industry activation as coercive measures, but in reality, results are being achieved through wage increases. For example, wages at gunpowder production plants have risen from about 25,000 rubles (approximately 370,000 KRW) per month before the war to 90,000 rubles (approximately 1,320,000 KRW) now, securing manpower. Without declaring a full mobilization order, to maintain necessary troops on the battlefield, Russian military authorities are recruiting volunteers by offering monthly salaries of 200,000 rubles (approximately 2,920,000 KRW) and promising sufficient pensions in case of injury or death. The significant wage increases resulting from competition between military authorities and the defense industry for manpower have led to wealth redistribution and an expansion of the middle class.

Russia's abundant oil and gas continue to support its war capabilities by being supplied to the global market in various ways despite sanctions from the United States and other Western countries. Russia reportedly plans to increase its defense budget by 70% to 11 trillion rubles (approximately 161 trillion KRW) if the war continues into next year. To secure war funds, Russia has raised domestic oil and gas prices, which were previously supplied at low prices, thereby increasing related tax revenues. With large-scale military spending underway, inflation is naturally rising. Russia's inflation rate in the second half of 2023 reached 7.5%.

Currently, Russia faces the challenge of simultaneously securing additional war funds, managing growing public dissatisfaction due to reduced social spending caused by increased military expenditure, and curbing inflation. However, these aftereffects are secondary, and Russia's military advantage on the frontlines is becoming increasingly clear. It is now time to prepare for how the unexpectedly rapid end of the Ukraine war will unfold, what repercussions it will bring, and how it will affect us.

Choi Jun-young, Specialist at Yulchon LLC · Global Legal and Policy Analyst