Putin's Victory in Taking Donbas Will Cost Him Billions

The Kremlin has confirmed that it will formally annex four areas of Ukraine where occupied areas have held referendums to join Russia in recent days, but President Vladimir Putin's victory in the Donbas region is likely to cost him billions of dollars just as the economic sanctions imposed by the West start to hit Russia.

On Thursday, Russia announced that it would recognize the Donetsk People's Republic (DPR), Luhansk People's Republic (LNR), the Kherson region and Zaporizhzhia as part of the Russian Federation. Days earlier, votes held by Russian-backed separatist groups showed an overwhelming majority chose to join Russia. The referendums have been widely condemned by Ukraine and its Western allies as a sham.

As Putin prepares for Friday's ceremony officially folding the four regions into Russia, some are reminded of the 2014 annexation of Crimea—a decision that cost the Kremlin billions of dollars. According to the Geopolitical Intelligence Services Reports, Moscow has had to funnel between $1 billion and $2.7 billion a year into restoring infrastructure.

Although that cost is manageable for Russia's $1.7 trillion economy, experts estimate that Putin's latest win in Ukraine will likely cost him much more.

Yuri Zhukov, an associate professor of political science at the University of Michigan, told Newsweek that the cost of rebuilding these territories will go "beyond the costs of infrastructure projects in Russia-occupied Crimea."

"This is more on the scale of Syria or even parts of the Soviet Union post-WWII," he said. Estimates have put the cost of rebuilding Syria up to $400 billion.

Putin Referendum Russia Cost
Russian President Vladimir Putin meets with heads of leading engineering schools and their industrial partners in Veliky Novgorod on September 21, 2022. The cost of taking on four territories in Ukraine will cost the Kremlin billions of dollars. Sputnik

In the Donbas region, where there has been fighting since 2014, more than 14,000 people have died in the last eight years as Ukrainians and Russians fought for control over the contested land. Ukrainian President Volodymyr Zelensky staked his presidential campaign on coming to a resolution with Putin over the area, which has become the center of the current war in Ukraine.

Air strikes on the battlefield have led to enormous destruction. Back in May, Zelensky said that Russian troops had "completely destroyed" the Donbas region after a series of offensive bombardments. Some estimates suggest that it would cost between $100 billion and $200 billion to rebuild the civilian infrastructure, like bridges and buildings, that has been decimated by the war.

Many of Russia's rural areas are already in need of rebuilding, according to William Reno, the chair of Northwestern University's political science department. So, it will be difficult for Russia to find enough resources to go around, and the annexed areas are likely to be the last to receive those reinforcements.

In the wake of the referendum, Russia will also have to take on all the basic utilities onto its grid, according to Michael Kimmage, a former member of the U.S. Secretary of State's policy planning staff. The expenses, Kimmage said, would be "through the roof."

Taking back the Donbas was one of Putin's stated goals for the war since the beginning and Russia has widely regarded the referendum as evidence that Ukrainians support Putin's goals.

However, local reports say that residents were forced to mark ballots at gunpoint as armed guards went door to door to collect votes. Serhii Hayday, the Ukrainian head of the Luhansk region military administration, also said on Telegram, "Rumors are being spread that people who vote against are being taken away somewhere. This is deliberately done to intimidate the local population."

Putin Referendum Annexation Russia
A woman casts her ballot for a referendum at a polling station in Mariupol, Ukraine on September 27, 2022. Russia announced that it would formally annex the four regions in Ukraine that held referendums to join Russia this week. Stringer/AFP

Zhukov expects Russia to rely heavily on the forced labor of Ukrainian prisoners of war and local civilians to rebuild the territory. Even if Putin manages to get cheap labor, "the costs to the Russian economy will still be high, not even including damage from additional rounds of sanctions that this will inevitably provoke."

The upcoming costs that the Kremlin is poised to shoulder also come as Russia begins to feel the effects of the economic sanctions imposed by the West, making the annexations an even bigger financial burden for Putin.

Leaders from around the world have repeatedly condemned the referendums as "illegal" and a "stunt." NATO has vowed not to recognize the votes and maintained that the referendums will not deter Western allies from continuing to support Ukraine.

The U.S. is also prepared to impose "additional enhanced sanctions," including on entities and companies outside of Russia that support Moscow and the referendums, once the vote is declared, national security adviser Jake Sullivan said over the weekend.

While Russia has managed to maintain its economy despite the sanctions, in large part because of its oil revenue, Kimmage said Putin's facing the "calm before the storm" with regard to Russia's economy. He noted sanctions are set to hit this winter so money dedicated to the rebuilding of the new territories will be "very tight."

Russia's war effort is already putting extraordinary strain on the country's finances and when combined with the diminishing revenue from sanctions and the economic isolation of Russia, the Kremlin is in a tough financial position to then take on four new territories.

"For the short term, the Russian state will only be able to rebuild administrative buildings and militarily important infrastructure in the Donetsk and Luhansk regions," Lawrence Reardon, a professor of political science at the University of New Hampshire, told Newsweek. "But undoubtedly the rest of the region will languish, bereft of Russian investment and international aid."

While Biden has promised to maintain sanctions for as long as necessary, experts believe Putin is betting on the economic hurt of the war being short-lived. Knowing the cost of taking on the four separatist-backed regions, Reno said Putin is likely hoping that his withholding of energy from Europe causes a political shift.

Protests have already broken out in several countries because of the hardship Putin's war has caused Europeans and energy prices are expected to skyrocket in the winter. Some Europeans are growing tired of the impact sanctions on Russia are having on them and Putin's hoping it forces politicians' hands, according to Reno.

"Russia's government plays a long game toward the goal of lowering their costs of conquest," he said.

Zhukov agreed that Putin has already calculated how the cost of taking the Donbas will play out. "Putin is betting that Russians are happy to pay these costs, and that he can recreate the nationalist euphoria that followed Crimea's annexation in 2014," he said.