The Grand Paradox: Why Launch a War With Cash in Hand?

By 2021, the Russian Federation held one of the largest foreign currency reserves in the world — over $630 billion. It had a manageable national debt, consistent current account surpluses, and a centralized financial structure capable of pumping liquidity into nearly any sector of its economy. By the metrics of fiscal capacity alone, Russia was well-positioned to initiate a national renewal, not a war.

But that is precisely the paradox. Instead of investing in infrastructure, education, affordable housing, innovation, or healthcare, the Kremlin redirected the full force of its political and financial capital toward a high-risk geopolitical gamble. Why?

The answer lies in the very nature of Putin’s political economy, and more specifically — in the threat that modernization poses to the value of the assets held by Russia’s ruling class.

The Kremlin’s Fear of Growth

Unlike functional democracies, where GDP growth often translates into broader prosperity and social stability, the Russian system is structurally inverted. Mass prosperity, from the Kremlin’s point of view, is a threat.

Poverty is not a byproduct of mismanagement — it is a deliberate security mechanism.

Here’s why: If the government were to flood the economy with liquidity, lower credit rates, expand access to housing, science, and tech sectors, and invest in citizens’ wellbeing, it would catalyze social mobility. That, in turn, would devalue the artificial scarcity upon which oligarchic fortunes are built.

From metals and energy to real estate and telecommunications, the wealth of Russia’s elites depends on two things:

• Monopoly control of assets
• The systemic suppression of competitive innovation and inclusive prosperity

In this structure, value is preserved not by growth, but by stagnation — by preventing capital diffusion to the broader population. In this model, economic dynamism is inflationary for elites.

The Coming Devaluation: A Crisis for the KGB-Capitalists

By 2019–2021, multiple structural risks converged:

• Global demand for hydrocarbons faced long-term erosion from the green transition.
• China’s economic slowdown threatened export dependencies.
• Domestic inflation began creeping upward.
• Western investors began to quietly discount the Russian story — not just politically, but economically.

The specter of a Russian-style deflationary spiral loomed — not for the masses, who already lived in precocity, but for the oligarchic portfolios.

What happens when the “virtual” value of your monopolized assets faces global discounting? You seek a geopolitical shock to reassert relevance — and preserve value.

This is what Ukraine became: a war to preserve asset prices by destroying any prospect of economic liberalization.

Why Reform Was Never an Option

A genuine reform path — introducing competition, protecting property rights, investing in institutions — would have created a real middle class. That class, in time, would have demanded political participation, media freedom, and accountability.

In the mind of Putin and his KGB-rooted inner circle, this wasn’t growth — it was regime suicide.

Moreover, asset revaluation through domestic competition or democratized capital access would mean the end of rentier dominance. The cheap labor pool would shrink, the asset bubbles in Moscow’s real estate would deflate, and speculative holdovers from the 1990s — banking, logistics, and raw export conglomerates — would rapidly lose their primacy.

War as a Shock Doctrine in Reverse

Putin’s war is not unlike a shock therapy — but instead of using war to introduce liberal market reforms, it was used to prevent them. The full-scale invasion served several key purposes:

• Froze the domestic economy in a state of emergency, blocking reform
• Cemented the patriotic narrative to suppress dissent
• Transferred the cost of economic hardship to the public under the banner of war
• Created massive state procurement flows to loyalist firms, militarizing corruption

By turning Russia into a fortress state, the regime neutralized any expectation of modern economic transformation — and thereby preserved the value of elite-held assets.

The Human Cost of Balance Sheets

For the average Russian citizen, the war changed little materially. Years of low wages, debt burdens, and regional decay meant that a default or currency crash would barely register in real terms. But for the ruling class, the war became a hedge against economic irrelevance.

To maintain the paper value of their holdings, they traded blood for liquidity.

This explains why the regime showed no interest in pre-war modernization, even with hundreds of billions at its disposal. The actual modernization of Russia would have broken the back of its kleptocratic class. War, by contrast, preserved their wealth at the cost of national development.

Conclusion: War as Asset Insurance

Western analysts continue to debate the ideological or geostrategic roots of the war. NATO. Russophobia. Imperial nostalgia. All of these may carry some truth.

But the deeper logic lies elsewhere.

War became the mechanism to avoid re-pricing the empire.

The invasion of Ukraine was not just about Ukraine — it was about preserving the fictitious valuations of a regime built on scarcity, control, and exclusion. Modernization would have devalued those assets. Peace would have cost them power.

So they chose war.