How China Is Benefiting From the Russia-Ukraine War | Andrei Illarionov and Pavel Luzin

The Russia-Ukraine war is escalating more. Now refineries are getting hit and major infrastructure is getting hit on both sides. Is there an end to this war and how fast can it be? Today we sit down with Andrei Ilarionov, who was an advisor, economic advisor to Putin. At the same time, we sit down with Pavel Luzhin, who has studied the backers of this war. What's the economic engine behind this war? Putin's main goal is not economic benefits. His idea is to restore so-called historic Russia, which includes Ukraine, Belarus, and Baltic republics. We also get into another side of this war, which many people may not know about, is China's influence in this war. China is gaining time. As long as Russia takes the Western attention, takes the Western resources, China has time for economic and military preparations for possible clash with the United States. I'm Siamak. Welcome to Market Insider. Andrei, it's great to have you on. Welcome. Thank you very much, Siamak, for inviting. We want to talk to you about the Ukraine and Russia war. There's a lot of effort to stop it, but it looks like this is still exasperating. It's getting worse. You're right. First of all, what we need to know about this war, this is a long war this is already very long war usually people talking about um its launch on february 24th 2022 much more advanced experts know that there was first stage of this war that has been launched on february 20th year 2014 which is 12 and a half years ago but real beginning of this war was on september 17th year 2003 what happened back then back then putin launched operation for capture of the ukrainian island in the strait of kerch between black sea and sea of azov island under the name tuzla and we need to understand that this war already up to today is lasting for 23 plus years. So you don't think negotiations would end the war, but is there any benefits that Russia is waiting to get out of this? For Putin, the main goal is not economic benefits. If he would pursue economic benefits, he would never start this war because he has lost so much during this 21 year of the war, we cannot even imagine. He had tens and hundreds of billions of dollars of different resources coming to Russia, coming to him personally, coming to his friends. He's not interested in money at this moment. He's not interested in economic benefits. He's interested in ideological goal. And his ideological goal, about which he was talking not once, it is a so-called restoration of historic Russia which includes not only Russia itself but Ukraine, Belarus and Baltic republics plus Moldova and plus some other areas. Now Ukraine just hit some of the refineries in Russia so there's the attacks are extending inside Russia Is this impacting Russia's economy? Yes, it has a serious impact according to some calculations about 45% of the Russian oil refinery industry has been lost. Certainly, it does not mean that it cannot be restored, but it will take time. But in the peak of the Ukrainian attacks on the Russian oil refinery industry, the losses were about 45%. Putin himself not once admitted that the attacks of Ukrainian forces on Russian economy cost Russian economy at least 1% of GDP, which is, by the way, it's a substantial amount. And what is important, it is admittance from Putin himself. So that is why Putin himself understands that a very serious losses on Russian side have been incurred due to Ukrainian attacks. Another number that Putin himself used, Once again, not Ukrainians, but Putin, that Ukrainians destroyed during the summer campaign of 2024 more than 100 ships in the Black Sea. It's an impressive number. If we look into the number of tanks, armored vehicles, planes and so on, Putin used in this attack against Ukraine almost all stocks that Russia inherited from the Soviet Union. And Soviet Union produced these military techniques, munitions, weapons during 80 years after the Second World War. And most of them have been destroyed during this war. So that is why it's a very, very substantial losses on the Russian side due to Ukrainian resistance. There has been also sanctions on Russia and Russian oil and energy. How does Russia keep continuing this war? if there has been damages done to them. We need to distinguish between the losses Russia got as a result of attacks of Ukrainian military and losses due to sanctions imposed on the Russian economy. The impact of sanctions imposed on Russia is pretty limited. In fact, these years from 2022 to 2024 were one of the years with the most revenues that Russia received from exports, from energy exports, from oil exports. The year 2022 was a record high revenues from energy exports, regardless of sanctions imposed on Russia. So that is why we should be very cautious in assessment of the sanctions imposed on Russia. Yes, there are some sanctions, personal sanctions, some technological sanctions, some sectoral sanctions that had some impact. But as for macroeconomic sanctions, they are pretty limited. So how's Russia generating all this revenue? Are they selling to China or are they allowed to sell to other countries? their energy? Russia sells energy to China, to India, to Turkey, to a number of countries in Asia, in Latin America. And we need to admit some European countries still do buy energy from Russia. They have substantially reduced the volume of energy, both oil and gas and oil products. Nevertheless, some of them, not only Hungary, not only Slovakia, but even Netherlands, even France, still do buy some energy from Russia the total amount of resources that Russia receives from its exports it's close to 400 billion u.s dollar a year since Russia spends on this war against Ukraine and against Europe about 200 billion u.s dollar a year this year and next year according to the budget draft so that is why revenues from exports could easily cover 50% of the total military expenditures on this war against Ukraine and Europe. So with 50% of the revenue from the exports, they can easily cover the cost. This is a little bit simplistic calculation because we do understand that export by itself cannot be transferred immediately into budget revenues. It will be only a portion of that. Nevertheless, it gives a sense that with such export revenues as 400 billion U.S. dollars a year for Russia at the moment, there is no big problem to finance these military efforts. And if this situation continues, Russia would be in a position to finance this war endlessly. Now, what about the Russian people? Do they have a sentiment against this war or are they for this war? It is very hard to judge, because right now, the political system in Russia is a totalitarian one, and we cannot get real views and opinions of people. Some of them, it is my estimate, at least 30-35%, are very active pro-Putin, pro-aggression, pro-war. They would like to to continue. Maybe a quarter of people are very actively against the war, but they cannot express themselves because it will send them behind bars. And some of those people who were openly critical have been put in jail for 8, 10, 12 years. And that is why not very many people are able and ready to risk their freedom for expressing their views. So Russia is partnering up with China, right? Is China benefiting from this war? A lot. China is providing Russia with a lot of equipment of double use. China is buying a lot of Russian oil, a lot of Russian energy. China is using experience accumulated by Russian forces for developing own military area. So that is why China, on one hand, is saying, okay, so they are for peace, but in practice, it's a very important source of resources, of energy, of knowledge, of technology. And especially since China understands and China wants to solve the so-called Taiwan issue sometime in future, for them, every bit, each bit of information coming from the Russian-Ukrainian war is extremely valuable. How are they using that information? Is it to train their military or is there any other components to that information? What we know for sure that they're developing technologies, new technologies, and the level of understanding, for example, of potential intervention in the Strait of Taiwan four and a half years ago is very different from the level of understanding they have right now because of this Russian-Ukrainian war. Even, let's say, four and a half years ago, some people might think that Taiwan would be a relatively easy target. Now they're coming to the conclusion, no, it would be much bloody, much longer, and much costlier. So that is why they need to prepare for such a development. And by the way, if you remember the military parade on September 1st last year in Beijing, back then we saw quite a new, qualitatively new Chinese army. It means they are preparing. Now we go to Pavel Luzhin, who studies specifically China's influence on this war. You have done a lot of research and study on China's impact on the war between Russia and Ukraine. Can you tell us what you found? I found that the sustainability of the Russian arms manufacturing relies on the ties with China, not only with Iran and North Korea, which also supply Russia with drones, with missiles, with artillery shells, with artillery systems. but also China. China is the main actor here because currently it's the official Chinese position. Their position is that we don't want Russia to lose the war. We don't want Russia to be defeated. This position was since 2022. The main goal of China is winning time as long as Russia takes the Western attention, takes the Western resources as long as China can continue its military preparations, its economic preparations and so on and so far. So China supports Russia. China supplies Russia with machine tools. China allows Russia to get access to the prohibited or sanctioned machine tools made in Germany or in Switzerland and so on and so far. And it looks like that China also supplies Russia with some raw materials necessary for manufacturing of explosives and gunpowders. So in a sense, is China helping Russia with items that Russia can't buy because of sanctions, or are they also coming in and helping them in manufacturing? What are you seeing out there? It's machine tools, the biggest part of Chinese assistance is China-made machine tools and it's Europe-made machine tools. For instance, I know the example when one Russian small factory, no, it's not too small, medium-sized factory, not related with arms manufacturing, but this factory lost the access to the German-made machine tools. because of the sanctions right because of the sanctions yeah and this factory contacted to their competitor in china competitor competitor factory in china and they asked for assistance and this factory purchased the machine tools in germany for themselves wow and they re-export this machine tools to russia to their competitor in russia and they even sold the machine tools without any additional cost, without any profit for instance they bought the machine tools in Germany for let's imagine 1 million euro and they sold this to the Russian factory for 1 million euro without any profit for themselves because it's a policy of Chinese government to support to support Russians as long as long as possible and what is china gaining from all of this china is gaining time because russia takes attention of the west takes resources of the west so europe and the united states nato together they need to supply Ukraine, they need to spend money resources to supply Ukraine so they pay attention to this and they pay less attention to China, they pay less attention to Pacific Ocean to Indo-Pacific region or even if they pay attention to Indo-Pacific region they pay attention mostly to the western part of the Indo-Pacific region, Middle East Iran Yemen, Houthis and so on and so forth we know we know what's going on and China has a room for maneuvering China has time uh for economic and military preparations for possible clash with uh with the United States are they getting involved in the war in in in from a technological perspective and military wise They are not involved in the same scale like Iran, which supplies drones, which told Russia how to use the drones, which sold the license for manufacturing. Or like North Korea, which supplies artillery shells, artillery systems, and which sent even troops to the war. Because since 2024, North Korean troops participated in the war against Ukrainian army. So, Chinese involvement is not the same, but China supplies, for instance, small jet engines for the Russian jet drones, and China supplies electronic components, China supplies even satellites for the Russian new project of satellite communication systems and satellite optical reconnaissance systems. China supplies all of this and also China tries to learn from Russia tries to learn the modern warfare and you know the Russian armed forces participate in a joint military trainings military exercises with Chinese forces so the Russian army gives information to Chinese army how to fight in the modern warfare. How do you think Russia is impacted by all of this? On the one hand, of course, Russia remains sustainable in terms of economy, in terms of arms manufacturing, and so on and so forth. But also Russia is losing its strategic autonomy because in previous decades, the post-Soviet Russia tries to be autonomous. russia tries to be independent from the west independent from china russia tried to manage the balance of powers for instance if the russian far eastern region the pacific part of of russia is less developed less populated and neighboring with big china so what russia did russia tried to establish economic ties with south korea with taiwan and with japan and what's now almost no ties with japan almost no ties with south korea just some trade no investments and no ties with taiwan currently russia is dependent on china and russia tried to balance ties with china through the ties with India but India is far away and now Russia of course sells some oil to India but all the common industrial projects with India they de facto they were cancelled How do you see this war when we talked to Andrei he told us that this war will last a long time how do you see where we go from here we cannot predict the wars because we only can say that it is a long-term war we know the point where this war will end the point is when russia will be unable to continue this war and will be unwilling to continue this war because the war is not only about material factors not only about the economy the war is about the will to fight like i don't know look at hamas in the in gaza three years of war and they are still fighting they don't have military industrial complex they don't have i don't know they they even control the small piece of territory but they still have a will to fight it's about ideology it's about psychology it's about philosophy and so and so far political culture it's not about material factors so uh russia still has resources to fight and the most important russia still has a will to fight an idea of of the war is still relevant to the not only to the russian government to the russian leadership but also to the russian society because the most unfortunately the most of the russian society supports the war even if the society is suffering from the war it still supports the war it still believes that ukraine must uh must take the russian conditions must sign the peace or ceasefire according to the russian conditions so if the russian society together with the russian leadership still wants to fight still wants the conditions so russia still has has the will to fight in terms of material resources is there a point that you think they could run out currently what we see Russia spent almost all the stockpiles of arms which it possessed since the collapse of the Soviet Union. Russia almost doesn't have main battle tanks, infantry fighting vehicles, artillery systems, and so and so forth. All the storage bases are empty. And now there are evidences that Russia started to refill these storage bases with some amount of newly made main battle tanks, infantry fighting vehicles, and so on and so far. because currently the Russian armed forces in Ukraine they are fighting without tanks and without infantry fighting vehicles and some of course Russian factories they produce some amount of main battle tanks and infantry fighting vehicles so if you don't use them on the battlefield so you put them on stockpile you put them on storage bases probably for the next round of the war either against Ukraine or against NATO for instance but Russia lost thousands of main battle tanks Russia lost all these stockpiles of conventional arms what else Russia is losing the human capital of its arms manufacturing because people on these factories they're becoming older even though these factories re-employed retired engineers, retired workers these workers and engineers have become even older than they were in 2022-2023 now we are about 2027 and sooner or later the demography will give results because the number of employees in the Russian arms manufacturing is decreasing. Russia achieved the extended production rates in conventional arms, extended comparing to 2020-2021, but Russia cannot go further. Currently, it's a kind of plateau, and we see that some factories, they cannot maintain this plateau, that some factories are facing the inevitable decrease of production rates. Now, what about the recent attacks? You know, there's been refineries that have been hit inside Russia by Ukraine. Do you think that's going to impact this war as it impacted Russia's capability in terms of fuel and the fuel side and also in the sentiment side inside people inside russia uh the these attacks they influence the logistics or fuel logistics inside of russia they damaged the export capabilities of russia because russia prohibited export of fuel of gas and diesel uh since since summer 2026 so it's october several months of cancellation of export so russia is losing money and also when you heat the refinery oil refinery plants you damage the toluene manufacturing and toluene manufacturing is a vital part of explosives manufacturing because if you want to produce explosives and gunpowders you need toluenes And currently we see that in a previous couple of months, the outcome of the toluene in Russia decreased on almost 50%. So we don't know how long it will take place, whether or not Russia will be able to restore the manufacturing of toluene. But currently, as for now, it's a decreasing of output of toluene. That means it's decreasing of output of explosives and gunpowders and solid rocket fuel. So it's important for Ukraine to do this, to continue targeting the oil refinery plants in Russia. Because it will increase the cost of the war for Russia. And at the end, it will influence Russia's will to fight because Russian society is suffering from these strikes because the cost of gas increased in Russia. The logistics is damaged. The cost of all the products is growing up. There's been also some attacks on data centers. What's the impact of that? I'm not an expert in, you know, internet economy and all this stuff, but what I know is that Russian internet infrastructure is highly centralized, because in previous years, the Russian government tried to control all the domestic internet communications in Russia. For comparison, in Ukraine, the network of data centers is spread across the country. It's decentralized, and that's why it's more sustainable. And also, Ukraine keeps ties with its partners, with Europe, and some of the data centers are located outside of Ukraine, like it was in Russia before 2014. now all the data centers they are inside of Russia and most of them are around Moscow so they are highly centralized so if you hit data centers you target not only the civil part of the Russian economy you also target the military part of the Russian economy because the arms manufacturing the military industrial complex of Russia It's also dependent on these data centers because the factories, they have sophisticated imported machine tools. These machine tools are connected with each other and they are connected through these data centers. If you target the data centers, you target the arms manufacturing as well. In terms of the funding, what about the Ukraine side in terms of the funding of this war? Are the Europeans, which now mostly Europeans are going to be funding this, right? Are they willing to fund it? It depends on domestic political situation in each European country. But what we see now, the closest Ukrainian allies, like Poland, like Baltic states, like Scandinavian states, they're still willing to support Ukraine. They are supporting Ukraine and they are going to continue this. Regardless of what's going on in France, regardless of what's going on in Slovakia, Hungary or even Germany, they continue to support Ukraine because it's a matter of their survival as well. Because Russia's purpose is not only in genocide of Ukraine. Russia officially declared its purpose that all the NATO members, which became the NATO members after May 1997, must be loyal to Russia. because what Russia said Russia said oh you have to withdraw all the NATO infrastructure from these countries what does that mean that means that Russian armed forces will be a de facto security guarantor to these countries because without the infrastructure how these countries can protect themselves only Russia will decide which day it will invade Lithuania or Poland or Latvia or Estonia or even Finland So that's it. They know that Russia poses an essential threat for them as well. So they support Ukraine and they will support Ukraine. Pavel Luzin, it was great to have you on. Please come and give us feedback. Give us your updates on this topic. Thank you for coming on Market Insider. Thank you for the invitation. Tell us what you think about these conversations today. What do you think about Russia-Ukraine war? And do you think it will end anytime soon? Make sure to tell us in the comments. I'm Siamak Khorrami. This is Market Insider. We'll see you next time