By Eric Vandenbroeck and co-workers

Putin’s New Hermit Kingdom At War With the West and Its Elites

Since he returned to office in January, U.S. President Donald Trump’s aggressive outreach to Russia has marked a stark shift in U.S. foreign policy. Ending years of isolation of the Kremlin, the Trump administration has offered numerous concessions to Russian President Vladimir Putin, raising hopes among some Western observers that the United States might be able to bring about an end to the war in Ukraine after more than three years of fighting. So far, although Russia has shown an interest in engaging with Trump, there is little indication that it is prepared to wind down its military operations. But even if the administration’s efforts succeed in bringing the Russian government to the negotiating table, there is a far larger obstacle to achieving peace: Russia’s dramatic internal evolution since the war began.

Trump will also skip Ukraine-Russia peace talks as Putin evades negotiations. From the various alleged peace proposals that have been leaked to the press, there seem to be plenty of "sticking points". There are differences over the territorial concessions Ukraine would be required to make, security guarantees, sanctions relief for Russia, and the sequencing - that is, the order in which obligations undertaken are carried out.

The war in Ukraine is central to Putin’s legitimacy, leaving him no rational incentive to end it voluntarily. At least since the end of 2022, the Kremlin has portrayed its war in Ukraine as a “war with NATO,” and confrontation with the West has become a key element of the regime’s ideology. To truly end the conflict, therefore, will likely require little short of a change of regime in Moscow—and one driven by actors within Russia who neither benefit from the war nor align with Putin. The current U.S.-led effort to jump-start peace talks has largely set aside the more crucial question of a long-term strategy toward Russia, both under Putin and after Putin.

Already well before 2022, the character of the Putin regime had changed significantly, as Putin moved away from the West. For years, the Kremlin had been building an ultraconservative, revisionist ideology centered around antimodern values. After 2012, when Putin returned to the presidency, the Kremlin began tightening its grip on Russia’s elites, embracing an archaic militarism, and widening its repression of civil society. Since the full-scale invasion of Ukraine and especially over the past year, however, that evolution has gone much further. Putin had expected a quick and cheap victory, not a protracted war; the situation has forced him to accelerate the restructuring of Russia’s political, economic, and social systems to tighten his grip on the nation. Along with a progressive militarization of the Russian economy, these changes have created severe tensions within the regime.

The United States ignores these internal changes at its peril. Rather than preparing for a postwar future of renewed relations with the United States and Europe, Putin has put Russia on a slippery slope of self-reinforcing and perpetual conflict with the West. If the regime gets its way over the next three to four years, Russia could arrive at a sociopolitical equilibrium that looks less like a capitalist authoritarian country with private-sector elites and more like a North Korean–style militarized autocracy. For the Kremlin, such an equilibrium could help it withstand even major challenges to its rule, as Pyongyang did during a devastating economic crisis in the 1990s. Moreover, given Russia’s large size and military strength, this kind of transformation could also pose profound risks to global security.

Yet Putin’s bid to remake the Russian state has also created new vulnerabilities for the regime. The Russian economy has become deeply imbalanced, with the country’s overwhelming dependence on oil revenues to support war-related fiscal expansion. Especially amid sinking global oil prices, this has made the Russian budget especially vulnerable to further sanctions. Moreover, tensions are emerging among Russian elites as a result of Putin’s efforts to push aside existing business leaders, bureaucrats, and others in favor of loyalists who adhere to the regime’s ideology or at least pay lip service to it, such as war veterans. To prevent Putin and his inner circle from consummating this transformation, the West will need to exploit these vulnerabilities. But this will require applying more economic and military pressure on Russia while simultaneously sending signals and offering incentives to potential elite dissenters—those most affected by the Kremlin’s rapid and forceful transformation of Russian society and who are capable of stopping it.

A pro-military poster in Moscow on Monday, 12 May.

 

Restive Elites

Political scientists have long identified three primary threats to autocracies: military defeats, popular uprisings, and palace coups. For nuclear-armed Russia, a full military defeat by an external power is implausible. Moreover, like other authoritarian regimes, the Kremlin has devoted major resources to neutralizing opposition forces within Russian society and has an extensive apparatus for suppressing potential uprisings. Nevertheless, the potential for a seizure of power by members of the existing bureaucratic hierarchy, supported by elements of the military and business elites, remains a significant risk. As a result, Putin has shifted much of the Kremlin’s focus to Russia’s elites.

Consider the Prigozhin mutiny. In June 2023, Yevgeny Prigozhin, the head of Wagner, the Kremlin-supported private military company, was able to seize the city of Rostov-on-Don, including the Southern Military District headquarters overseeing the war in Ukraine, with no resistance. He also tried to march his men on Moscow. Few among the bureaucratic, business, and even military elites denounced the mutineers, exposing limited support for Putin. This weakness was underscored five days later, when Putin felt compelled to meet with Prigozhin and Wagner commanders to stabilize the situation, despite having publicly accused Prigozhin of treason. Although the crisis was quickly defused and Prigozhin was eliminated two months later, the mutiny dealt a significant blow to the regime.

The elites’ lack of loyalty to Putin in 2023 was no accident. Since the 1990s and the early years of this century, Russia’s business leaders and upper level bureaucrats have been focused on attaining economic independence—using Russia’s relatively open market for personal material gain. For many years, the Russia state allowed private sector capitalism to flourish relatively unimpeded. In their implicit contract with Putin, Russian elites ceded political authority in exchange for wealth and personal freedom, but they were not required to risk their lives or fortunes for the state or its leader. Nor did the Kremlin have much control over their business activities and sources of wealth. But the mutiny underscored for Putin that the country’s current business leaders and high-level bureaucrats cannot be relied upon at moments of regime crisis. At the same time, the Kremlin’s Mafia-like hierarchy of power is inherently fragile, relying on a shared belief in the leader’s strength and the regime’s perpetuity. Up to the present, this system has been largely held together by rents, primarily from hydrocarbons, making it susceptible to dangerous weakening by economic sanctions or the need to mobilize vast resources for war. These factors have made Putin’s Kremlin particularly vulnerable to shifts in perception among the top strata of Russian society.

 

The End of Normal

The Kremlin’s growing concerns about unreliable elites have been heightened by Russia’s fragile economic outlook. At first glance, despite over three years of sweeping sanctions and war, the economy has been resilient. Through much of the first couple years of war, the government was able to inject significant funds into the economy, thanks to the efficiency of the private sector, the use of large accumulated reserves, poorly structured sanctions, and windfall revenues in 2022. This fueled economic activity, wage growth, and rising demand. The regime could simultaneously finance the war, meet social obligations, and distribute economic rewards to elites. This apparent wartime boom sustained the illusion of normalcy. The war also created new opportunities, particularly through niches left by the exit of foreign businesses—although these have now been exhausted.

Beneath the surface, however, the picture is bleaker. Military spending has spiraled out of control, creating a budgetary black hole. Defense spending has more than doubled, from $65.9 billion in 2021 to $149 billion in 2024, and continues to go up. Not the least of the growing costs are the huge incentives and signing bonuses the government must now pay volunteers to recruit them into the armed forces, as well as payments for North Korean “services.” (Thus far, the Kremlin’s payments to Pyongyang for ammunition and military participation are estimated to have reached $20 billion.) Putin’s May 2024 replacement of his longtime defense minister, Sergei Shoigu, with the economist Andrei Belousov, was intended to impose fiscal discipline on the military, but there have been few discernible efficiency gains. For 2025, military expenditure will amount to 32.5 percent of the entire federal budget. To maintain this level, the government is for the first time reducing social spending: clearly, Putin can no longer sustain the illusion of normality.

By shifting toward a mobilization economy, with the state as the primary customer not only for defense but across other key sectors, the government has created severe fiscal strain. In contrast with previous years with surpluses, the budget has run deficits since 2022—$33 billion in 2022, $32 billion in 2023, and $34 billion (1.7 percent of GDP) in 2024. With no access to foreign capital, this seemingly small budget deficit will become more and more threatening every year. For now, it is being covered mainly by drawing on the National Welfare Fund, which as of April 2025 had only $35.4 billion in liquid assets.

To offset costs, the government is raising personal and corporate income taxes and cutting social spending by more than 10 percent. Meanwhile, oil price declines have led to a tripling of the official budget deficit forecast, leaving remaining reserves barely sufficient to cover the gap. A further oil price drop or new sanctions could force even deeper cuts to nondefense spending. These cuts may affect elites too, for example, by reducing federal subsidies to potentially rebellious regions like Chechnya. The government has also resorted to printing money, further fueling inflation.

The labor market is equally strained. Worker shortages following Putin’s September 2022 mobilization and mass emigration have forced civilian sectors to raise wages to compete with the military. Consumer demand is increasingly met by imports, weakening the ruble and pushing prices up. To curb inflation, the Central Bank raised its key interest rate from 7.5 percent in July 2023 to 21 percent in October 2024; nevertheless, inflation reached 9.5 percent at the end of 2024 and exceeded 10 percent by March this year. Experts from government think tanks and institutions warn of a potential inflationary spiral. High interest rates also limit the viability of domestic borrowing. Along with interest rate hikes, exchange rate volatility has increased the risk of corporate defaults.

These intertwined issues have significantly raised the chances of broader economic destabilization. A global financial crisis, coupled with OPEC’s expansion of the oil supply, could sharply depress prices for Russian exports, leading to uncontrolled inflation and the collapse of the ruble. Even without such shocks, continued downward pressure on oil prices and new sanctions are likely to have devastating medium- and longer-term effects. Adverse economic trends may erode public confidence in the regime’s durability and shrink the rents available to elites, undermining the foundations of the existing hierarchy of power. To counter this risk, the Kremlin has accelerated its efforts to transition to a new model of political and social control and replace the most unreliable segments of the political and business elite with loyalists personally tied to Putin.

 

Korean Coercion

For Putin’s Kremlin, building a new kind of regime has involved several interconnected elements. One is a shift in official narratives about the war. Until the fall 2023, for example, state propaganda maintained that there was no war, only a “special military operation”—a strategy that allowed most citizens to carry on their ordinary routines. By late 2023, however, the state narrative began to shift, and the Kremlin began also to refer to a new permanent “war” with the West. The Kremlin also started talking about Russian elites in terms of their loyalty to the regime. In February 2024, Putin addressed the Federal Assembly, declaring that elites were no longer those who “lined their pockets in the 1990s” but rather the “workers and warriors” who were proving their loyalty through action. This rhetoric was quickly echoed by figures such as Alexander Dugin, the far-right ideologist, and Sergey Karaganov, head of the Council on Foreign and Defense Policy, who had called for a nuclear strike on Poland in 2023, as well as various government officials. In June 2024 Alexei Chekunkov, a former investment banker who had become Minister for the Development of the Russian Far East, publicly criticized Russia’s entrepreneurial culture of the 1990s and proposed a model of “patriotic socialism” instead.

This new rhetoric has been backed by targeted actions against members of the elite and prominent cultural figures. The “almost naked party” scandal of December 2023—when several show business figures were caught flaunting a defiant dress code—marked a fundamental shift in the relationship between the state and citizens. The Kremlin deemed such a display unacceptable in wartime and began asserting its right to intrude into private life—something even the late Soviet Union, from the 1960s onward, generally avoided. With its heavy-handed reaction, the regime signaled for the first time an intent to regulate private behavior, using tactics increasingly reminiscent of North Korea or Iran.

To reinforce regime loyalty, Putin also launched, in February 2024, a new program to integrate top military veterans into the workforce. Called “Time of Heroes,” the initiative seeks to channel former soldiers who are handpicked for their fealty and management skills into political posts. Although local politicians initially resisted, and sought to exclude veterans from party lists in the September 2024 regional elections, graduates of the program were assuming regional leadership roles by the end of the year. Through processes such as these, the Kremlin has set out to incrementally replace traditional elites with its own loyalists. Along with the arrest of seven corrupt generals (including three former deputy ministers), Putin’s May 2024 sacking of Shoigu was part of an effort to address internal dissatisfaction about pervasive corruption in the military hierarchy. In fact, these changes to some extent echoed earlier demands by Wagner leader Prigozhin. Such purges also provide opportunities for officers actively involved in the Ukraine war to advance within the military hierarchy.

At the same time, the Kremlin has begun an increasingly aggressive effort to nationalize private-sector assets. In 2022, the government began seizing assets belonging to foreign owners who left Russia when the war started. The following year, it began a more limited effort targeting Russian-owned assets as well. As of March this year, over 411 companies both foreign and Russian, with a combined value of $30 billion, have been nationalized, representing about 5 percent of the total capitalization of the Moscow Exchange. But even these numbers do not reflect the broader effects of this campaign on the Russian business community. Informal threats of nationalization have become an effective way for the government to coerce business owners to cede their property to politically favored individuals at a minuscule share of its market price.

The government has also begun consolidating key industries under Kremlin-linked entities. Since mid-2023, the Kremlin-affiliated Roskhim group has expanded its dominance of the chemical sector. In February 2024, the Rolf car dealership was nationalized and subsequently transferred to a Kremlin affiliate. And in June of that year, Russia’s biggest online retailer, Wildberries, was taken over by regime-affiliated groups. In January 2025, the General Prosecutor’s Office also requested the nationalization of the Domodedovo airport near Moscow, because its main owner has Turkish and UAE citizenship as well as Russian. In March, Vadim Moshkovich, the billionaire owner of Rusagro, Russia’s leading agricultural conglomerate, was arrested for alleged criminal fraud. Also this year, in a new tactic, the government has begun seizing property from some of the country’s largest business owners.

It no longer appears to matter what legal pretext the security forces use to justify these asset and property seizures or arrests. Increasingly present in these actions are various groups with coercive power, including current and former employees of state security agencies (including Putin’s body guards), and such figures as Ramzan Kadyrov, the former warlord and close Putin ally who is head of the Chechen Republic and who has a personal army. Amid the Kremlin’s dwindling revenue streams and growing demands from these groups, the redistribution of property has become a primary government resource. The exact mechanism of redistribution—whether through nationalization, criminal charges, or outright business takeovers—is irrelevant. The government now uses the law as a weapon to expropriate property from bona fide owners, including those previously seen as regime supporters. Loyalty no longer guarantees protection unless the target in question has informal access to Putin. As Russia’s available economic resources shrink, the regime’s only way to reward those with coercive power is by reallocating assets, often at the expense of even loyal business owners, further raising tensions within the elite.

A logical extension of the Kremlin’s property-redistribution campaign came this month, when the Constitutional Court ruled that the statute of limitations for disputes over privatization should begin not from the date of the transaction but from the completion of a prosecutor’s investigation identifying violations. This decision effectively eliminates any time limit on the review of privatization deals from decades earlier, many of which contain legal flaws. This means that a large share of Russia’s private assets are now at risk. This threat has been exacerbated by severe constraints on the outflow of private capital from Russia, both because of increased informal FSB control over capital movement and the short-sighted design of Western sanctions, which have effectively trapped private capital inside the country.

Russian President Vladimir Putin greeting North Korean army generals in Moscow, May 2025

 

Fortress Mentality

The final piece of the Kremlin’s effort to remake the state is ideological change. At least since 2012, Putin has sought to build and enforce a dominant ideology built on illiberal values and historical revisionism. Once-marginal ideas from the Izborsky Club, an antimodern think tank, have increasingly gained mainstream acceptance, including the view that Russia is a “besieged fortress.” Yet the Kremlin has failed to offer a positive vision of the country’s future. Instead, to preempt dissent amid economic hardship, it has intensified efforts to isolate Russian citizens from independent information. Independent media have been crushed, and the number of political prisoners has surpassed that of the late Soviet period.

These interconnected measures reflect a comprehensive effort to build a state that will soon have many of the attributes of the North Korean model. Putin has adopted autarkic self-reliance and other ideas that appear to draw on North Korea’s Juche ideology—the doctrine formulated by Kim Jong Il in 1982 that seeks to foreground national economic and military self-reliance. Since the full-scale invasion of Ukraine, Putin has also forged a military alliance with Pyongyang and is now reshaping Russia’s elite in ways that echo North Korea’s social hierarchy.

The Kremlin is unlikely to abandon this project anytime soon. The inherent inflexibility of the mafia-state structure, the transformation of the elites (by self-selection before 2022 and forced restructuring since then) , the growing reliance on those with coercive power, and the effect of years of ideological indoctrination of the people have reinforced the regime’s shift toward a North Korean model. Moreover, the survival of the new system requires perpetuating the confrontation with the West, which has become Putin’s legitimating cause, as well as declaring periodic “victories” in this struggle. These forces have produced a vicious circle. The war in Ukraine has given rise to powerful, well-organized groups in Russia that have a vested interest in the conflict’s continuation and the exacerbation of the war with the West. Putin can no longer buy the support of public employees as he once did and now substitutes them with war beneficiaries such as defense industry workers, whose incomes have risen dramatically, as well as contract “volunteers” and their families, whose earnings have also increased several times over. These constituencies are better organized than public employees and, in the case of veterans, possess military experience that is desirable to the Kremlin. But their inclusion only further militarizes the state and heightens the risk of new conflicts as war and coercion become societal norms.

Comparing Putin’s new state to an updated version of the Brezhnev-era Soviet Union, as some Western analysts have done, is misleading. Unlike the Soviet elite of the late Cold War, who prioritized stability and coexistence with the West, Putin’s inner circle lack a coherent ideological framework or long-term vision. Communist ideology, for all its flaws, provided the Soviet leadership with a structured worldview. In contrast, contemporary Russia has no constructive development model. Dmitry Medvedev’s presidency from 2008 to 2012 (during which Putin served as prime minister) briefly hinted at a modernization agenda, but it yielded no substantial outcomes or long-term vision. By 2012, it was clear that Russia’s ruling elite was destined to lose under any global order. This has left the Kremlin with few options other than global destabilization and geopolitical blackmail, a strategy for which the Kim regime in Pyongyang provides a powerful model. In deciding on this course, Putin has also rendered futile any attempts to cajole, lure, or appease him.

Russian soldiers rehearsing for a military parade, Moscow, May 2025

 

A Russian Rescue?

If Russia, with its large nuclear arsenal, were to make a full transition to North Korean autocracy, it would pose enormous geopolitical challenges. Such a regime would also be a natural close ally to China. But this trajectory is not inevitable. To succeed, the new model will require far greater state control over citizens’ lives and harsher curtailments of personal freedoms. Labor shortages and xenophobic tensions against migrants will heighten the challenge, raising the likelihood that the government will have to coerce the population on a larger scale.

The initial erosion of political freedoms in Russia—beginning with the Yukos affair in 2003 (when the company’s CEO and main shareholder was convicted of tax evasion and fraud) and culminating in the constitutional amendments of 2020—was gradual and, for many years, offset by rising living standards or at least promises of stability. Now, the Kremlin has little to offer aside from rising taxes, price inflation, and harsher state interference. The primary victims will not be ordinary citizens but the business and bureaucratic elites, who have the most to lose and are most likely to be replaced by regime loyalists who lack independent power bases or private-sector wealth.

If the government continues to tighten repression at a time of diminishing resources and a gloomy economic outlook, it could destabilize the country. Opposition from within the elite, fueled by systemic financial and governance pressures, could trigger a breakdown. Still, such crises might not result in immediate regime change, since Russia currently lacks the prerequisites that would be needed. As of now, no major and powerful elite group in Russia could gain from unseating Putin. As a result, a partial collapse could lead instead to prolonged instability, akin to what has happened in Venezuela under President Nicolás Maduro, but with the added risk posed by Russia’s nuclear arsenal. Still, the prospect of increased repression and redistribution of property, especially combined with some positive alternative, might encourage those who stand to lose most to confront the Kremlin.

The West is not irrelevant to Russia’s future. Western actions can either accelerate or impede the transformation of the Putin regime. Concessions that enable Putin to declare victory, not to mention achieve Ukraine’s outright defeat, could entrench him further in power. Moreover, the notion that a peace deal with Moscow will bring significant benefits to American business is an illusion. Many U.S. corporations have already lost billions of dollars in Russia; their assets were simply seized by the Kremlin and handed over to loyalists. In the absence of sweeping political change, there is no guarantee that the Kremlin will not do the same in the future. Alternatively, continued and stepped-up Western military aid for Ukraine and increased sanctions on Russia could expose the regime’s vulnerabilities. But sanctions that are perceived as purely punitive risk strengthening Putin’s narrative that the West is an enemy of the Russian people.

For the United States and its allies, there is not much time left to steer Russia from its current path. So far, the West has failed to present a compelling postwar vision for Russia and a plan to achieve it—one that is realistic internationally and that can directly appeal to Russians themselves. Such a vision, when combined with Russia’s failure to achieve military success and effective sanctions designed to undermine the regime’s power structures rather than punish Russian society as a whole, could help send the right signal to disgruntled Russian elites, encouraging them to risk challenging Putin’s rule before their situation deteriorates further. But if current trends are allowed to continue, Europe may soon encounter a completely militarized autocracy on its borders that is similar to North Korea’s in structure, and far more dangerous. And the United States might have to countenance a military union between Russia and China.

 

 

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