Russian Advances in Ukraine Indicate Modern Warfare Could Become Economic Exercise in Cost-Cutting

Russia is expanding its invasion of Ukraine in an attempt to press its current advantages in manpower, aviation, and ammunition. This potential push toward the second largest Ukrainian city, Kharkiv, coincided with an unexpected shakeup in Russian President Vladimir Putin’s government; the ousting of Moscow’s long-time Defense Minister and his replacement with a civilian economist. Defense is big business in Russia these days, expected to comprise 8.7% of its GDP in 2024. Though a large chunk of that certainly comes from the manufacture of traditional equipment like tanks and artillery shells, growing output of low-cost glide bombs and UAVs are what is allowing Russia to continually saturate frontline positions with powerful explosives.

What it lacks in technological development, relative to its western counterparts, Russia has made up for in volume. Economic disparities between what it costs to strike a target and what it costs to defend it are beginning to widen and this could significantly change the face of modern warfare unexpectedly. The US and Europe will need to increase their spending to expand the output of local defense industry supply chains, but also to discover innovative and affordable solutions that respond to emerging threats.

Related ETF: SPDR S&P Aerospace & Defense ETF (XAR)

Amid a renewed Russian occupation of areas within the Kharkiv Oblast, and the threat of Moscow opening yet another front in the Sumy Oblast to its north, Ukraine’s armed forces are looking increasingly overwhelmed across a fractured frontline that spans 1,200km. Geolocations and mapping from various open source intelligence (OSINT) channels suggest Russian incursions into the areas east of Kharkiv city have already managed to secure at least 130km² across two separate bridgeheads that are now closing in on the villages of Vovchansk and Lypsti. These are two of the largest settlements in the area, making them likely to serve as key footholds in a widely-expected assault toward Kharkiv – the second-largest city in Ukraine – and lands along the banks of the Siverskyi Donets River. The bulk of 50,000 personnel gathered within the Russian regions of Belgorod, Kursk, and Bryansk are yet to deploy to the front, suggesting that the most aggressive phase of this ongoing push has yet to begin.

This is only a snapshot of the recent Russian advances, which are also grinding through several portions of the Donetsk Oblast to the south. Significant breakthroughs remain few and far between, but the constant, gradual advance of Russian forces does indicate that Moscow continues to hold the initiative and is likely inflicting painful casualties on Ukraine’s defenders, who report running dangerously short on artillery and air defense munitions. These fighters risk falling deeper into a war of attrition against a nation with a much larger military-industrial base and a population that is more than 4x the size of their own. While Ukraine struggled to get a controversial mobilization bill passed for many months, which only recently managed to clear the country’s Parliament, Russia claims to have recruited 100,000 new volunteers in the first quarter of 2024 alone, with plans to add a total of 745,000 contract soldiers in 2024. Though it is unknown how reliable those figures are, Russia likely swelled its ranks by hundreds of thousands of new recruits in 2023, targeting a goal of expanding the total strength of their armed forces to 1.5 million by 2026. For context, Russia initiated its invasion of Ukraine in February 2022 with 200,000 troops or less.

The rush to build up troop reserves by Russia and a new wave of mobilization in Ukraine signals that the war is not only set to continue for some time, but it will be costly. High rates of attrition in Ukraine are not only heavily impacting each side’s manpower, but their equipment, ammunition, and vehicle losses as well. This is increasingly turning modern warfare into an exercise in economics and…