Popular economist argues Russian coup was about sanctions

The popular YouTube channel Money & Macro published a new video Saturday looking at the Russian economy and western sanctions. His most surprising result: Evidence exists that the Russian economy is shrinking, sanctions are helping, and the shrinking triggered the coup.

Yevgeny Prigozhin became famous in the West as the leader of the Wagner private military company. PMCs, technically illegal in Russia, allowed Russian President Vladimir Putin to send troops around the world without angering his citizens. And, when Putin invaded Ukraine, Wagner became a convenient way to employ unsavory recruits. Prigozhin famously recruited violent criminals from prisons and then sent them into the meat grinder.

And Prigozhin got fat stacks in exchange for running the company. Putin recently said the Russian state paid Wagner over $1 billion from January to May 2023, over $200 million per month.

But Russia is running out of cash. Russian government revenues have always been strongly tied to the price of oil. But the price cap on Russian oil has allowed India, China, and the other countries still buying it to negotiate for much lower prices. The official price gap between Russia's Ural Crude and the worldwide benchmark Brent Crude used to hover at just a few dollars. Now, Russia gets $19 less per barrel than the Brent price.

Meanwhile, the Russian state and average people have to pay smugglers to get key goods banned under sanctions. Russia gets a lot of these goods, anyway. But it pays for the privilege.

Now, Putin floated a windfall tax on all businesses that made 1 billion roubles a year since 2021, taxing them for 10 percent of their gains. For oligarchs like Prigozhin, that bites hard.

And so it could be, according to Dr. Joeri Schasfoort at the Money & Macro YouTube channel, that sanctions are causing or at least adding to the chaos in Russia right now.

Indeed, there was speculation that Prigozhin may have aborted the coup because he didn't get the support he expected. Maybe he thought his fellow oligarchs would throw their weight behind him. Prigozhin could negotiate and end to the war and make the taxes unnecessary, after all. But when none were willing to publicly back him, Prigozhin backed down.

If true, Ukraine has a lot of Russian chaos left to look forward to. Russia claims its economy grew slightly after the invasion, even as most of the world economies grew much faster. And Schasfoort and others point to numerous signs that Russia's numbers since 2022 are bunk.

Sanctions, inflation, the rising cost of the war, and dwindling currency reserves can all get worse. Hopefully, economic failures continue to undermine the war effort.

But even Schasfort points out that the data is muddy and other causes could be behind the recent turmoil and coup. Whatever is causing it, lets hope it happens a lot more. The Ukrainian counteroffensive is slow and costly. Russian dysfunction saves western lives.