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This is THE INDICATOR FROM PLANET MONEY. I'm Stacey Vanek Smith.

And I'm Paddy Hirsch. Russia's economy is being hammered thanks to its decision to wage war in Ukraine. But war isn't necessarily bad for the economies of the nations fighting it. In fact, there can be economic upsides to fighting wars.

VANEK SMITH: Exactly. I mean, for example, the U.S., of course, did not get into World War II for economic reasons, but parts of the economy benefited greatly from that war. The shipbuilding, aerospace and auto sectors boomed when companies shifted to making military equipment. Pharmaceutical sales went up, as did department store sales. Also, employment soared. Now, it was not all positive, of course, and a lot of the economy really suffered, but in the end, the U.S. emerged from World War II as an industrial powerhouse.

HIRSCH: And on the face of it, it seems that parts of the Russian economy could benefit from the war with Ukraine. I mean, the countries talked about reconfiguring supply chains to bring more manufacturing capacity back into Russia and make it less reliant on the West. And that could, in theory, invigorate the economy.

VANEK SMITH: And then there are Russia's resources. It is the third largest producer of crude oil in the world, the second largest producer of natural gas, the third largest producer of wheat, and the third largest producer of nickel, also the fifth largest producer of iron ore. As the prices of these commodities rise, Russia's supply of these things, of course, gets more valuable.

HIRSCH: But today on THE INDICATOR, we look at why Russia will probably not gain economically from the war in Ukraine, and we blow the dust off an economic term that hasn't been used in Europe since the 1980s - autarky. That's coming up after the break.

VANEK SMITH: War, of course, can devastate an economy. That seems really obvious, especially when it comes to the country that loses the war. In both World Wars, for example, Germany's economy was all but destroyed and had to be built from the ground up. The same went for Japan and Italy in the Second World War.

HIRSCH: But just because you're the winner in a war doesn't mean your economy doesn't take a hit as well. Britain was on the winning side in World War II, and its economy was shattered by the cost of fighting the Nazis. Maximilian Hess is a fellow at the Foreign Policy Research Institute in London and a longtime Russia watcher. He says it's too early to tell how the war in Ukraine will turn out, of course, but Russia's economy is already struggling.

MAXIMILIAN HESS: I don't think Vladimir Putin expected the sanctions to be quite as wide-reaching, there would be as much unity on it as there was. Russia is essentially in a state of economic war with the West, but I would say that even if the war in Ukraine ends in the next week or two, I don't expect these sanctions to be lifted any time soon.

VANEK SMITH: Russia's greatest economic assets are the commodities that it mines and sells all over the world, like iron ore, oil, natural gas, nickel and wheat. The value of all these commodities is rising right now, and that should be good for Russia because half the world has not sanctioned it, which means it should be able to still find markets for these goods. And yet Russia has been struggling to find buyers.

HIRSCH: And that's because of a combination of official sanctions and also self-sanctioning by corporations and countries that are deciding not to deal with Russia. For example, most oil importers, even those that haven't sanctioned Russia, are sticking to Middle East and Latin American suppliers. Exports of Russian wheat are also way down because trading companies are refusing to make a market in it. The same thing is happening with steel and other metals in Europe, where companies are self-sanctioning and refusing to buy Russian.

VANEK SMITH: All of this means that Russian commodities producers are generally being shut out of any price increases for their products. For example, oil - the price has gone pretty bananas recently. It's been over $100 a barrel on the world market. But Russians have to price their oil at 25 to 30% below the market rate just to move it. And even with that discount, there are only a few countries that are buying.

HESS: We've already seen India make some moves to buy Russian oil on the cheap. We've seen that from China a little bit as well.

HIRSCH: This is a really big deal for Russia because the vast majority of those commodities trade in major currencies, like dollars and euros and Japanese yen. And Russia really needs those dollars and euros and yen. And the biggest thing it needs them for is to pay the interest on its debts. Right now it does so using the reserves it keeps in bank accounts around the world, but sanctions are restricting Russia's access to those accounts. And if those restrictions are tightened further, Russia really, really will need to be able to sell its commodities to raise that cash and keep itself from defaulting.

VANEK SMITH: It also needs that foreign currency to buy goods, whether it be retail goods, like clothes and handbags, things like that, or essential parts for manufacturing, things like microchips or tractor or refrigerator parts. And because it's getting hard for Russia to buy those goods, there's been some talk about making the country less dependent on outside suppliers, making more things at home. Maximilian says that means making some big changes to our old friend the supply chain.

HESS: I think they can do so in a way that helps sustain it slightly and mitigate some of the pain. I don't see it doing so in a way that provides a basis for future growth. And we've already seen real indications that the Kremlin's plan is essentially to have a state-run command economy to get through this.

HIRSCH: A state-run command economy, where the state controls everything. In Russia's case, Maximilian says, that control appears to be leading Russia down a path to becoming an autarky.

VANEK SMITH: Word of the day.

HIRSCH: Word of the day.

HESS: An autarky is essentially a economy and a political system that attempts to be self-sustaining and run itself. The best-known example is North Korea's philosophy of building an economy that isn't reliant on global supply chains and that is meant to sustain itself and provide a basis for economic growth and development for the people.

HIRSCH: Maximilian says the Kremlin's recent decrees on foreign currency, on the stock market, on the government debt markets and industrial operations all indicate that it will be dictating the terms of high businesses done in Russia. That includes the way in which supply chains are adjusted to replace goods that were imported in the past but will now be made in Russia.

VANEK SMITH: And we're talking about all kinds of things, from big, complicated machinery to, like, small things that you might never think about. Take ball bearings.

VANEK SMITH: Probably don't think about ball bearings very often, but, in fact, they are essential components in a huge range of products, from writing implements to car axles to satellites. Ball bearings are everywhere. You need them for all kinds of things. And Russia does not make ball bearings right now. But Maximilian says that if it does start making ball bearings, which it may have to, the contract to make them probably is not going to be allocated on any kind of a free market basis. Instead, it'll probably be doled out as, like, an award or patronage to Vladimir Putin's inner circle.

HESS: And we'll probably see this get handed to the son of an FSB general or other senior official rather than an actual market competitive system for who can build the best ones.

HIRSCH: Russians are already feeling the effects of this transition to an autarky - lines outside banks, shortages in shops, businesses closing. Many Russians who can afford to are leaving. A report from the Russian Association of Electronic Communications estimates that 70,000 IT specialists have already left the country, with another 70,000 expected to leave next month.

VANEK SMITH: Maximilian says it's unlikely that Russia will go all the way back to being the kind of autarky that was the USSR. What's more probable is that the country will end up looking like it did in the 1990s after the wave of privatization that followed the collapse of the Soviet Union. But those were also really bad times for the Russian people.

HESS: Russia really experienced a wave of continuous collapses throughout the 1990s, which saw many Russians employed by the state go unpaid for months, huge arguments between the regional governments and gangsterism on the streets, so to put it, with the use of strong-arm tactics to take over both big businesses such as oil fields or aluminum companies, but also small businesses down to taxi rank firms.

HIRSCH: Every one of Russia's potential economic advantages in the war with Ukraine has either been blunted by sanctions or squandered by the state as it slides towards autarky. It's anyone's guess how the war in Ukraine will end and how it might end for Russia, Ukraine or the rest of the world. But in many ways, Russia's already emerged as a loser - economically, at least.

VANEK SMITH: This episode of THE INDICATOR was produced by the wonderful Jamila Huxtable, with help from Josh Newell. It was fact-checked by Corey Bridges. Viet Le is our senior producer. Kate Concannon edits the show. And THE INDICATOR is a production of NPR.

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