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The most important thing Russian President Vladimir Putin tries to impress on Ukraine’s western friends is that he has time on his side, so the only way to end the war is to accommodate his wishes. The apparent resilience of Russia’s economy, and the resulting scepticism in some corners that western sanctions have had an effect, is a central part of this information warfare. 

The reality is that the financial underpinnings of Russia’s war economy increasingly look like a house of cards — so much so that senior members of the governing elite are publicly expressing concern. They include Sergei Chemezov, chief executive of state defence giant Rostec, who warned that expensive credit was killing his weapons export business, and Elvira Nabiullina, head of the central bank. 

This pair know better than many people in the west, who have been taken in by numbers indicating steady growth, low unemployment and rising wages. But any economy on a full mobilisation footing can produce such outcomes: this is basic Keynesianism. The real test is how already employed resources — rather than idle ones — are being shifted away from their previous uses and into the needs of war. 

A state has three methods to achieve this: borrowing, inflation and expropriation. It must choose the most effective and painless mix. Putin’s conceit — towards both the west and his own public — has been that he can fund this war without financial instability or significant material sacrifices. But this is an illusion. If Chemezov’s and Nabiullina’s frustrations are spilling into public view, it means the illusion is flickering.

A new report by Russia analyst and former banker Craig Kennedy highlights the huge growth in Russian corporate debt. It has soared by 71 per cent since 2022 and dwarfs new household and government borrowing.

Notionally private, this lending is in reality a creature of the state. Putin has commandeered the Russian banking system, with banks required to lend to companies designated by the government at chosen, preferential terms. The result has been a flood of below-market-rate credit to favoured economic actors.

In essence, Russia is engaged in massive money printing, outsourced so that it does not show up on the public balance sheet. Kennedy estimates the total at about 20 per cent of Russia’s 2023 national output, comparable to the cumulative on-budget allocations for the full-scale war.

We can tell from the Kremlin’s actions that it sees two things as anathema: visibly weak public finances and runaway inflation.

The government eschews a significant budget deficit, despite growing war-related spending. The central bank remains free to raise interest rates, currently at 21 per cent. Not enough to beat down inflation driven by state-decreed subsidised credit, but enough to keep price growth within bounds.

The upshot is that Chemezov’s and Nabiullina’s problems are not an error that can be fixed but inherent to Putin’s choice to flatter public finances and keep a (high) lid on inflation. Something else has to give, and that something else includes businesses that cannot operate profitably when borrowing costs exceed 20 per cent.

Putin’s privatised credit scheme, meanwhile, is storing up a credit crisis as the loans go bad. The state may bail out the banks — if they don’t collapse first. Given Russians’ experience of suddenly worthless deposits, fears of a repeat could easily trigger self-fulfilling runs. That would destroy not just banks’ but the government’s legitimacy.

Putin, in short, does not have time on his side. He sits on a ticking financial time bomb of his own making. The key for Ukraine’s friends is to deny him the one thing that would defuse it: greater access to external funds.

The west has blocked Moscow’s access to some $300bn in reserves, put spanners in the works of its oil trade and hit its ability to import a range of goods. Combined, these prevent Russia from spending all its foreign earnings to relieve resource constraints at home. Intensifying sanctions and finally transferring reserves to Ukraine as a down payment on reparations would intensify those constraints.

Putin’s obsession is the sudden collapse of power. That, as he must be realising, is the risk his war economics has set in motion. Making it recede, by increasing access to external resources through sanctions relief, will be his goal in any diplomacy. The west must convince him that this will not happen. That, and only that, will force Putin to choose between his assault on Ukraine and his grip on power at home.

martin.sandbu@ft.com

LOS ANGELES − Fire crews on Sunday were racing to gain an upper hand against infernos that have ignited across the Los Angeles area amid ominous new wind warnings as flames threatened additional Southern California communities.

Aircraft unloaded water and fire retardant on hills where the Palisades Fire − the most destructive in the history of Los Angeles − ballooned another 1,000 acres to a total of 23,654, destroying more homes. The expansion of the fire, which was 11% contained, to the north and east spurred officials to issue more mandatory evacuations to the west of the 405 freeway as the blaze put parts of Encino and Brentwood in peril.

Cal Fire official Todd Hopkins said the Palisades Fire had spread into the Mandeville Canyon neighborhood and threatened to jump into the upscale Brentwood community and the San Fernando Valley.

The Palisades Fire is one of six blazes that have erupted since Tuesday, leaving at least 16 people dead. Four of the six fires remained active on Sunday.

Santa Ana winds that have fueled the blazes for the past week were expected to strengthen Sunday morning in Los Angeles and Ventura counties and again late Monday through Tuesday morning. Sustained winds could reach 30 mph, with gusts up to 70 mph possible , forecasters said.

“Critical fire-weather conditions will unfortunately ramp up again … for southern California and last through at least early next week as periodic enhancements of off-shore winds continue,” the National Weather Service said. “This may lead to the spread of ongoing fires as well as the development of new ones.”

The unrelenting toll: From unhoused folks to beachfront Malibu homeowners, wildfires hit all of LA society

Developments:

∎ About12,000 structures have been damaged or destroyed from the wildfires, which have consumed about 38,000 acres of land total, according to CalFire.

∎ Evacuation orders throughout the Los Angeles area now cover 153,000 residents. Another 166,000 residents have been warned that they may have to evacuate, Los Angeles County Sheriff Robert Luna, said.

∎ Gov. Gavin Newsom announced an investigation into water supply issues that may have impeded firefighters’ efforts.

At least 16 people have died between the Eaton and Palisades fires, the Los Angeles County Medical Examiner said Saturday.

The Palisades Fire had at least five deaths, according to medical examiner records, and 11 people have died in the Eaton Fire.

Of the 16 total deaths in both fires, the only victim identified by officials was Victor Shaw, 66, who died Wednesday protecting his home in Altadena. Another victim was man in his 80s, but authorities did not release his name, pending notification of next of kin.

To the northeast, the Eaton Fire stood at 14,117 acres and was 15% contained after ripping through parts of Altadena and Pasadena. More than 7,000 structures were damaged or destroyed,  Fire Chief Anthony Marrone said.

In Altadena, California official Don Fregulia said managing the Eaton Fire and its impact will be a “huge, Herculean task” that he said will take “many weeks of work.”

Progress was reported Saturday in bringing electrical power back to some Los Angeles neighborhoods.

Southern California Edison CEO Steven Powell said there are now about 48,000 customers without power, “down from over half a million just a couple days ago.”

Yes fire officials warned public safety power shutoffs were again likely to prevent new fires being ignited.

“They help save lives,” Marrone said. “Yes, they’re a challenge to deal with, but it’s certainly better than having another fire start.”

Richard and Cathryn Conn evacuated from the Pacific Palisades neighborhood earlier this week, only to find out that much of their neighborhood had been decimated. But they still aren’t sure about their four-bedroom house where they’d lived for over a quarter-century.

“You can visualize every room,’’ Richard Conn, 75, said, “and then you know there’s a 50% chance it doesn’t exist anymore.”

“If you have ever wondered what it was like living in Dresden after the World War II firebombing, you should come to the Palisades,” he said.

They also don’t know what’s going to happen next as dangerous weather conditions have made it difficult to contain the fires, and more brush fires seem to keep popping up all over the county.

“I feel like people are panicking,” said Gary Baseman, 64. Read more.

As California fire officials are still getting to the bottom of what sparked the wildfires raging across Los Angeles, and politicians point fingers at one another, climate change is helping drive an increase in large wildfires in the U.S.

“Climate change is leading to larger and more severe wildfires in the western United States,” the latest National Climate Assessment previously reported. These fires have “significant public health, socioeconomic, and ecological implications for the nation.”

But is climate change the main factor in California? It’s not quite that simple. Reporters from the Arizona Republic, part of the USA TODAY Network, dive into this topic. Read more here

Contributing: Jeanine Santucci, Eduardo Cuevas; Reuters