Putin rattled Russia’s nuclear sabre and tried to rally the people to his flag in a time of war in his annual State of the Nation Address to both houses of the Federal Assembly, the Russian parliament, on February 29.

“They are preparing to strike our territory and using the best possible forces, the most effective forces, to do so. But we remember the fate of those who tried to invade our territory and of course their fate will be much more tragic than anything that we could face. They have to understand that we also have weapons. Weapons that can defeat them on their own territory and of course all this is very dangerous, because it could actually trigger the use of nuclear weapons. Do they not understand that? These people are people who have not been through arduous experiences. They’ve forgotten about it, but we did through the Caucasian war, for example, and now in the conflict in Ukraine,” Putin said.

Russia has lowered the bar for the use of nuclear weapons in the Ukraine conflict, the Financial Times reported on February 28, citing leaked military documents.

Putin approved a new nuclear deterrence policy in 2020 that permits the use of nuclear first strikes in several scenarios if “Russia's existence as a state is threatened.” However, the Kremlin is also authorised to use them in cases where it is attacked by conventional weapons, has sustained certain levels damage, if an enemy lands on Russian territory and if units responsible for defending border areas are defeated.

Specifically, the Kremlin can fire nuclear weapons if three airfields, three or more cruisers, two coastal command centres, 20% of Russia’s strategic ballistic missile submarines or 30% of nuclear-powered attack submarines are destroyed.

Analysts said this is a low bar.

Putin went on to accuse the West of trying to weaken Russia but said that Russia would meet the challenge.

"They essentially would like to do to Russia exactly what they did to many other regions of the world, including Ukraine: bring discord to our home and weaken us from within. But they miscalculated," the president said. "It is absolutely obvious today."

“The West faced the firm position and determination of our multinational people. Our soldiers and officers, Christians and Muslims, Buddhists and followers of Judaism, representatives of different ethnicities, cultures and regions, have proved in practice, better than through a thousand words, that the centuries-old cohesion and unity of the people of Russia is an immense, all-conquering force. Standing together, shoulder to shoulder, they are fighting for their common, shared Motherland," Putin went on to say.

The number of citizens who consider Russia to be a great power has grown by five-fold since 2013, with 50% of respondents now holding this opinion, according to a poll conducted by state-owned Russian Public Opinion Research Centre (VTsIOM) released the same day.

However, these polls have to be taken with a pinch of salt. As bne IntelliNews recently reported on the so-called Kremlin leaks, documents from Sergey Kiriyenko’s office, the first deputy head of the presidential administration, detail how the Kremlin is spending over $1bn on creating a media space designed to bolster Putin’s image and boost patriotic nationalism and pride to improve his re-election chances.

Putin also slammed the recent speculation that Russia plans to deploy nuclear weapons in space.

"There has recently been an increasing number of unfounded accusations against Russia, alleging that we plan to deploy nuclear weapons in space. Such bogus stories – and they are nothing but bogus stories – are a ploy to drag us into talks on their terms, which only benefit the US," the president noted.

 

Peace talks

However, Putin went on to say that the Kremlin was open to dialogue with all interested parties to create “a new pattern of equal and indivisible security in Eurasia” in a statement that seems more aimed at Russia’s partners in the Global South than at Washington or Brussels.

"We seek to unify the efforts by the global majority to address global challenges, among them rapid transformations of the world economy, trade, finances and technological markets when many former monopolies and related stereotypes are crumbling," the Russian leader said.

"In particular, BRICS countries will generate about 37% of global GDP already in 2028, taking into account the states that have become the association’s members recently, whereas the G7 figure will drop below 28%. These figures are very convincing, considering that the situation was quite different some 10-15 years ago. I spoke about that publicly. But these are the trends, do you understand?" Putin said.

A peace deal was thrashed out in Istanbul in March 2022, but ultimately rejected by Kyiv in controversial circumstances.

“It’s they who have started the war. And we are using force to end it,” Putin said before an audience of Russia's elite. “We don’t fight with the Ukrainian people. They became hostages of the Kyiv regime that occupied Ukraine both economically and politically. Over years, they were doing everything to bring this degradation … They are using their people, it’s sad but true.”

Putin has said that since the Kremlin had already agreed to one peace deal that was rejected, it has no interest in revisiting those talks with the West.

"Our position is clear. If you want to discuss crucial issues of security and stability, important for the globe, Russia is ready for a dialogue with the US. You should do it only in one package. Naturally, including all those aspects that concern our national interests and directly affect the security of Russia," Putin said, alluding to Russia’s two-year-old demands that talks can only be held if Kyiv abandons its desire to join Nato and acknowledges Russia’s sovereignty over the four regions it annexed last year and Crimea.

Putin dismissed US officials’ purported interest in negotiations on strategic stability as disingenuous in his annual State of the Nation Address.

"We have every reason to believe that the words of the current US authorities about their alleged interest in engaging with us in negotiations on strategic stability are merely cheap rhetoric ahead of the US presidential election," Putin told the assembled lawmakers. "They are simply seeking to show to their own citizens, and everyone else, that they still rule the world.”

Defence sector

Putin was fast to put Russia’s economy on a war footing after the start of hostilities, whereas the West has yet to make significant investments into boosting its production of arms.

Russia needs to achieve a qualitatively new level of equipping the armed forces but with the reasonable allocation of resources, Putin said.

"It is important to increase the pace in solving social, demographic, infrastructural and other tasks and at the same time achieve the qualitatively new level of equipping the army and the navy," Putin said. "Our task is to develop the defence industry sector in a way to scale up the scientific, technological and industrial potential of the country.”

As bne IntelliNews has reported, a military Keynesianism effect has boosted economic growth as civilian manufacturing is increasingly transformed into military production and factories are working around the clock. Russia has already increased its output of the key 155mn artillery shells from the pre-war 1.7mn a year to 2mn last year and plans to increase this further to just under 3mn this year; at the same time Ukraine is running out of shells.

“All previous plans to boost Russia’s defence industry have now been implemented,” Putin said. "The plans we made in the field of armaments, which I mentioned in the 2018 address, either have been implemented or are nearing completion.”

Hypersonic missiles

Putin also rattled his missile sabre, announcing Russia would suspend its participation in the New START Treaty that he renewed with US President Joe Biden in the latter’s first week in office, but which has already been put into limbo in December 2022.

Putin showcased Russia’s new hypersonic missiles in his 2018 State of the Nation speech with dramatic computer simulations that showed a Russian missile flying half way round the world to hit a target in the US. He claimed that these missiles could beat any existing US missile defence system. The US dismissed the threat, saying the missiles were not as advanced as Putin claimed, a claim borne out by the fact that the Tsirkon (Zircon) hypersonic missiles have been fired in Ukraine and some were successfully brought down by Ukraine’s air defence systems.

Putin revived those threats for this year’s speech, reminding the audience that Russia has “weapons capable of hitting targets on their territory.”

"The Tsirkon sea-launched hypersonic strike system has already been used in combat. It was not mentioned in the 2018 message. But this system, too, is already in service," he noted.

Putin returned to hypersonic missiles in this year’s speech, saying the Avangard missiles and Peresvet laser systems are on combat duty in Ukraine.

"Hypersonic warheads of intercontinental range Avangard and laser systems Peresvet are on combat duty," he stated.

Avangard is an ICBM equipped with a gliding winged warhead capable of flying at low altitudes at hypersonic speeds of up to Mach 27 (about 32,000 km/h), while changing course and altitude to dodge any missile defences. The Peresvet laser system is Russia’s first combat laser system based on new physical principles.

Trials of the more advanced Burevestnik cruise missile and the Poseidon system are in their final stages, Putin said.

Alluding to the US unilaterally withdrawing from the ABS missile treaty in 2002, Putin said the actions of the US has actually led to the “dismantling of the European security system” and that “creates risks for everyone."

"Don't they realise that or what? These are people, you know, who have not gone through hard trials. They have already forgotten what war is. Here we are, even our current generation, went through such hard trials during the fight against international terrorism in the Caucasus. Now the same thing is happening in the conflict in Ukraine. They think it's all some kind of cartoon for them," he said. "In fact, Russophobia, like other ideologies of racism, national superiority and exclusivity, blinds, deprives us of reason.”

Agriculture

Boosting grain output has been another successful Kremlin policy, with yields improving to the point where Russia has been bringing in all-time record large harvests in excess of 130mn tonnes of grain for several years running. Russia brought in an all-time high record harvest of 153mn-155mn tonnes of grain in 2022.

Putin promised that Russia’s agriculture sector will add another quarter to the volumes by 2030, while exports should increase by half.

"By 2030 the production of Russia’s agriculture sector is to add at least one quarter compared with 2021, while exports should rise by half," he said.

In parallel to Putin’s speech, Agriculture Minister Dmitry Patrushev said on the sidelines that Russia has no interest in reviving the Black Sea Grain Initiative that was suspended on July 17.

"We are not very much interested in this grain deal, we have our own possibilities to export our grain, which will by no means depend on the grain deal. This is to a greater extent a political issue, we are a technical realiser," he said in an interview aired by Channel One television just before Putin’s speech started.

Northern route

Russia continues to proactively develop the Northern Sea Route for tankers that sail in the ice-clogged waters inside the Arctic Circle, as Russia remakes its energy export business, flipping from the West to the East.

"Further development of the Northern Sea Route is in the focus. We invite foreign logistical companies, countries to actively use the capabilities of this global transport corridor. 36mn tonnes of goods passed along it last year," the Russian leader said. "This is five times more than the record figure in times of the Soviet Union," Putin noted.

The freight traffic over the NSR can reach 400mn tonnes in total over the decade, VTB Bank said in a report released the same day. The freight traffic of Russian companies alone will provide for 200mn tonnes, while 200mn tonnes are for transit carriage of goods, VTB experts estimated. New Russian plants forming along the route will provide the Russian budget with more than RUB20 trillion ($220.4bn) by 2035, VTB said.

Unable to ship its oil to Europe any more since the imposition of twin oil embargoes on December 5, 2022 and February 5 last year, the NSR has become even more important as it cuts the transit time for Russian shipping travelling from Europe to Asia by several weeks and avoids Suez canal that has been blocked by Houthi rebels.

Demographics

Russia is suffering from a demographic decline as the crash in life expectation in the 1990s hits the demographic curve. Maternity and boosting birth-rates to mitigate the problem has been one of Putin’s clearest policy successes and topped his agenda from his first pay in office, as bne IntelliNews reported in Putin’s babies.

Putin did not manage to stop the fall in the population size, but the decline has been less than even the most optimistic forecasts from the 90s. He returned to the theme in his speech, calling for birth rates to be stabilised within the next six years.

"Within the timeframe of the next six years, we must achieve a sustainable rise in births. For this purpose we will make additional decisions in the system of education, regional and economic development," he said.

The war in Ukraine has exacerbated the problem again. The Federal State Statistics Service reports the birth rate in 2023 decreased by 3.2% from 2022. In 2023, 1.265mn children were born in Russia, the lowest figure in the past 23 years.

Banking

The first two sanctions imposed on Russia in the first week of the war were both financial: some $300bn of Central Bank of Russia (CBR)’s reserves were frozen in Western banks and Russia was cut off from the SWIFT international messaging service, needed to transfer money, effectively putting the dollar off limits.

Putin dismissed the sanctions, saying they have not “achieved anything and will not achieve anything.” Putin promised that Russia would rebuild an alternative financial system with friendly countries “free of politics.”

"We together with friendly countries will continue creating efficient and safe supply corridors, and construct new global financial architecture on the cutting-edge technological basis free of political interference. All the more so as the West brings discredit on its own currencies and banking system," he said.

That won’t be straightforward, as since the end of last year the US has tightened the banking sanctions regime in what is becoming one of the most effective sanctions imposed on Russia.

National projects

While most of Putin’s speech was dedicated to the war and defence, he also mentioned that the 12 National Projects that were launched in 2019 were still going on in the background and were making progress. These form an economic programme spearheaded by former finance minister Alexey Kudrin that is designed to improve the average Russian’s life.

A big part of the projects is to vastly increase the amount of affordable housing, and the government has also been subsidising mortgages as a way of both boosting economic growth, and also to placate the population. Putin boasted that last year new residential construction beat Soviet records by 1.5-fold.

"Last year, over 110mn square metres of housing were built in Russia. This is one and a half times more than the highest Soviet figure, which was achieved in 1987. Then 72.8mn square metres were built," he said, adding that over the past six years, millions of Russian families have improved their living conditions, including more than 900,000 with the help of the family mortgage programme.

Another aspect of the projects is poverty reduction, which Putin admitted was still running at 9% of the population, although that is still well below European levels as bne IntelliNews followed with its despair index.

"I would like to reiterate: the poverty problem is still severe. It directly covers at present more than 9% of the national population and among families with many children, according to estimates given by experts, the poverty level is about 30%," the president said. "Therefore, I say again, it is important that all the measures we take in this sphere, all the tools we use are effective and efficient, and provide tangible actual result for people, for our families."