Russia's economic strain in occupied Ukrainian regions The price of conquest

A recent article by Foreign Affairs offers an in-depth analysis of the economic implications of Russia's invasion and occupation of southeastern Ukraine. It highlights that while Russian President Vladimir Putin has framed the war as a nationalist campaign to repel Western advances and reclaim territory, the economic consequences of these conquests may turn out to be disastrous for Russia. Despite the high stakes, the occupied territories, including Crimea, Donetsk, Luhansk, Kherson, and Zaporizhzhia, present severe challenges that could drain Russian resources rather than enrich them.

The article underscores that while Russia has expanded its territorial control, the human cost has been enormous, with depopulation and resistance hindering economic productivity. The mass exodus of Ukrainians, particularly from the Donetsk, Luhansk, Kherson, and Zaporizhzhia regions, has significantly reduced the labour force. Estimates suggest that around five million Ukrainians remain in these areas—56% fewer than in 2014—further straining Russia's hopes of revitalizing the economy in the conquered regions. Those who remain are often elderly, less educated, or in poor health, which limits their economic potential. Additionally, a lack of local cooperation, rampant crime, and lawlessness hinder the functioning of regional economies.

The article goes on to explain that even in terms of infrastructure, the regions are far from an economic asset. Artillery, drone, and missile strikes have devastated cities like Mariupol and Bakhmut, and critical infrastructure such as roads, bridges, and railways have been destroyed or severely damaged. The human and material costs of reconstruction are staggering, with Russian authorities pledging an $11 billion development program, though much of this will likely go toward military purposes, and past efforts have been marred by corruption.

Economically, the occupied territories, including the coal-rich Donetsk region, are underperforming. Coal production has plummeted to just a fraction of pre-war levels, and other vital industries have either been dismantled or absorbed into Russian production chains. Even Crimea, which has been under Russian control since 2014, has not escaped the economic downturn. While Russia has invested heavily in militarizing the region, it has been unable to revive its prewar tourism-based economy. As a result, Crimea’s economy has shrunk by 16%, and the broader regions remain heavily reliant on Russian federal subsidies.

The article further addresses the broader economic toll on Russia itself. With casualties mounting, military expenditures soaring, and economic sanctions isolating Russia from the global market, the country’s economy is suffering. Energy exports have been reduced, with losses estimated at $136 billion due to oil sanctions. Inflation has soared, purchasing power has eroded, and corporate debt has spiked. These economic pressures have strained the Russian economy to its breaking point, and the prospect of a financial crisis is increasingly likely.

Ultimately, Foreign Affairs presents a grim picture of Russia's economic future. Even if Russia retains control over the occupied territories, the devastation caused by the war and the population loss leave little room for meaningful economic recovery. The occupation will likely be seen as a pyrrhic victory for Moscow—if it is considered a victory at all—offering no strategic or economic benefits, only immense costs and long-term consequences for Russia’s future. This assessment serves as a cautionary tale for other would-be aggressors, illustrating the dangers of territorial conquest and imperial expansion in the modern age.

By Vugar Khalilov