Is Russia’s economy recovering from Western sanctions?

Russia’s economy has so far staved off the collapse and could even survive an EU-wide embargo on oil imports, experts warn.

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Backed “by capital controls and high interest rates,” The Economist said, “the ruble is as valuable today as it was before the Russian invasion of Ukraine.” And despite forecasts of an economic meltdown, Moscow is “keeping pace with payments on its foreign currency bonds.”

As Vladimir Putin massed troops on the border with Ukraine, there was much debate as to whether Russia’s “fortress” economy would be able to withstand Western sanctions. So can Moscow survive the sanctions storm?

crisis averted?

Despite “doom and gloom” predictions for the Russian economy, Foreign Policy said oil exports to countries like India and Turkey have “actually increased” since Putin gave the order for the invasion. Meanwhile, its financial sector is “avoiding a serious liquidity crisis so far.”

The “real economy” is showing signs of being “surprisingly resilient,” according to The Economist. Most “measures of Russian economic activity are largely holding up”, with Russian citizens apparently still “spending fairly generously on cafes, bars and restaurants”.

In mid-April, the country’s central bank cut “its key interest rate from 17% to 14%,” a signal that “a financial panic that began in February has eased somewhat.” Russia’s economy is “undoubtedly” shrinking, the newspaper said.

But early “forecasts of a GDP contraction of up to 15% this year are beginning to look bearish.”

fuel in the tank

The sanctions against Moscow “might work in the long term,” Foreign Policy reported. But “for now, many of the same countries sanctioning Russia are still seriously undermining their efforts by buying energy from Moscow.”

“Putin continues to make at least $1 billion a day selling oil and gas, and the lion’s share comes from Europe,” Edward Fishman, a former Europe specialist at the US State Department, told the magazine.

“Individual European countries are sending military aid to Ukraine, but it is dwarfed by the payments they make to Russia for oil and gas.”

This could change if the EU delivers on its promise to ban imports of Russian oil.

But Sergey Aleksashenko, the former deputy governor of Russia’s central bank, told the Financial Times (FT) that the ban is “not very strong” in reality, as a sharp rise in oil prices will offset the cost of losing the European market.

Russia’s state budget “is heavily dependent on oil export revenues,” the FT said, “which accounted for 45% of total revenues in 2021.” But the government will continue to “break even if Russian producers can sell their oil at $44 a barrel or more.”

For now, it appears that sanctions “have made that possibility more likely,” the newspaper added, with Russia’s “main crude oil blend, Urals, trading at $70 a barrel.”

long-term damage

Moscow’s economy “appears to be doing better than originally expected,” said Peter Rutland, a professor of government at Wesleyan University in Connecticut. Amid “unprecedented sanctions and an exodus of Western companies,” the ruble has “recovered all of its previous losses” and “billions of dollars” are flowing to Moscow through energy sales.

But Rutland wrote in The Conversation that “Russia’s apparently resilient financial situation is something of a chimera,” one that “masks the real pain Russians are experiencing and the strain on the economy.”

Russian individuals and companies are “faced with shortages of a wide range of commodities,” he said, including “pharmaceutical consumables such as asthma inhalers and medicines for Parkinson’s disease.” And the picture is “particularly serious in the field of information technology”, which “depends on imported hardware and software”.

While the economy holds steady, “the future looks bleak for Russian citizens,” he added, “who will continue to bear the brunt of the sanctions.”

It is also not a matter of course that Russia’s economy will not collapse completely. It’s already “on the verge of default,” The Telegraph said, and worrying for the Kremlin, which “has averted disaster for now,” is increasingly “at the mercy of US officials.”

Moscow “has not yet buckled under the West’s financial firestorm,” the newspaper added. “But the long-lasting blow of a default could be coming soon.”

Putin could find a way to turn Russia into a “permanent state-sanctioned economy” like Iran or North Korea, Vox said. But the longer Western sanctions stay in place, the worse life in Russia will be, the news site added – and citizens with “the least power could be punished the most.” Is Russia’s economy recovering from Western sanctions?

Fry Electronics Team

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