(Bloomberg) -- President Vladimir Putin’s surprise late-night shuffle of his defense and security team signals his determination to mobilize Russia’s war economy for a long and intensified conflict in Ukraine against the West.

Putin named his former economy aide and First Deputy Prime Minister Andrey Belousov, 65, to be Russia’s new defense minister. Belousov replaces Sergei Shoigu, 68, who’d been defense minister since 2012 and is being transferred to a new role as secretary of Russia’s security council. Nikolai Patrushev, a longtime ally of Putin who had held that post, was dismissed and is due to take another, unspecified job. 

The appointment of Belousov, who has long advocated greater state control of the economy, “isn’t about military leadership,” Tatyana Stanovaya, founder of the political consultancy R.Politik, said on Telegram. “This is about ‘Gosplan’ in the military-industrial complex,” she said, a reference to the Soviet-era state-planning system.

Putin came to his decision to appoint Belousov in part because he’s a student of history and had in mind the example of former US Defense Secretary Robert McNamara, according to a person familiar with the government deliberations, asking not to be identified discussing an internal matter.

As defense secretary under Presidents John F. Kennedy and Lyndon B. Johnson in the 1960s during the Vietnam War, McNamara overhauled military procurement to improve efficiency. 

Putin’s ouster of Shoigu, one of his closest allies, may reflect frustration at the failure to defeat Ukraine in a war that was meant to last for days and is now in its third year with hundreds of thousands of Russian troops killed or wounded. The defense minister was the target of last year’s aborted mutiny by Wagner mercenary leader Yevgeny Prighozin, who accused him of repeated failures on the battlefield.

Russian troops are advancing in Ukraine’s northeastern Kharkiv region, in a new offensive. Ukrainian President Volodymyr Zelenskiy said late Sunday that defense forces were holding their positions in fierce battles, calling the situation “extremely difficult.”

Putin’s determined to achieve a minimum war goal of seizing full control of eastern Ukraine’s Donbas region, following the years-long conflict stoked by Moscow that provided his justification for the February 2022 invasion, said two people familiar with Russia’s strategy.

The defense overhaul takes place as Putin prepares to travel to China this week for talks with President Xi Jinping. The visit underscores the importance for the Kremlin leader of the “no limits” friendship with Beijing that has enabled Moscow to weather unprecedented sanctions imposed by the US and its allies to try to wreck Russia’s economy.

Like Shoigu, Belousov arrives at the Defense Ministry with no military background. With Ukraine starting to receive tens of billions of dollars in new military aid from its US and European allies, Russia faces the challenge of maximizing the impact of its own defense spending, which is surging to historically high levels.

State spending on the Defense Ministry and Russia’s security sector is approaching 6.7% of gross domestic product, nearing levels reached by the Soviet Union at the height of the Cold War in the 1980s, Kremlin spokesman Dmitry Peskov said Monday, according to the Interfax news service. 

While spending levels aren’t yet “critical,” Putin chose Belousov because of the need for “economic competitiveness” at the Defense Ministry, Peskov said, Interfax reported. 

“Belousov’s appointment is a sign that the Russian economy is being transformed into a war economy,” said Andrei Kolesnikov, a senior fellow at the Carnegie Endowment for International Peace in Moscow.

Belousov’s appointment aims to improve coordination between Russia’s military and civilian sectors to “make the army much stronger in the war,” said Nikolay Petrov, a visiting fellow at the Berlin-based SWP think tank. “It is clearly the priority for Putin now.”

The shuffle is the most far-reaching shakeup since 2020, when Putin named Mikhail Mishustin to replace Dmitry Medvedev as prime minister. Months later, Putin overhauled the Constitution to allow him two more mandates, which means he could rule to 2036, when he’ll be 83.

Mishustin was reappointed last week to continue as prime minister. Medvedev has been deputy head of the security council since 2020.

Kremlin watchers will be keenly monitoring the fate of Patrushev, 72, who’d been the hawkish head of the security council since 2008 and played a key role in the invasion of Ukraine. The former KGB agent succeeded Putin as Federal Security Service chief when the latter was named Russia’s prime minister in 1999 and Patrushev continued in that post to 2008. 

His son, Dmitry Patrushev, was promoted to deputy prime minister overseeing Russia’s agriculture industry in the government shuffle that has followed Putin’s inauguration last week for a fifth term as president.

Other promoted officials with links to Putin’s elite include Boris Kovalchuk, whose father Yury is a sanctioned financier described by the US Treasury as the president’s “personal banker.” Putin on Monday nominated Kovalchuk to head the Audit Chamber, monitoring state spending.

The lower house of Russia’s parliament, the State Duma, on Monday approved the appointment of Mishustin’s 10 deputy prime ministers, including Alexander Novak, who oversees Russia’s relations with the OPEC+ group of oil-exporting nations. 

Putin named Sergei Lavrov, 74, to continue as foreign minister, extending his tenure in the post that he’s held for 20 years. 

The president also proposed retaining Alexander Bortnikov as head of the FSB security service and Sergei Naryshkin as director of Russia’s foreign intelligence service. Viktor Zolotov would also continue as head of Russia’s national guard in the list of appointments sent to the Federation Council, Russia’s upper house of parliament, for confirmation.

(Updates with analyst comment in the 14th paragraph, more government appointments from the 19th.)

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