Putin it could go further, causing a deep economic crisis in Russia.
The Kremlin’s invasion of Ukraine in February 2022 sparked a wave of international indignation, which was immediately followed by the impositions of several sanctions designed to weaken Putin’s ability to declare war on Kiev.
Russia’s assets abroad were frozen, its economy was cut off from the global financial system and its exports were boycotted.
At the time we all (or almost all) described those sanctions as “paralyzing”, “debilitating” And “Without precedents”. The Russian economy was put under pressure, it was impossible for it to resist such pressures. And faced with the prospect of economic collapse, the Kremlin would be forced to back down and withdraw its troops.
And here we are, 26 months later. The war continues. AND the Russian economy, far from being paralyzed, is even growing.
According to the IMF, Russia’s GDP will rise by 3.2% in 2024, higher than that of any other advanced economy in the world.
The sanctions “debilitating” have not caused shortages of products and consumers in stores. The shelves of Russian supermarkets are full. Yes, prices have increased and not everything that was once on sale still is, in light of a number of Western entities exiting the Russian market to protest the invasion of Ukraine.
But many of their products still make it to Russia, somehow.
Instead of buckling under the weight of Western sanctions, the Russian economy has worked on development of new markets in the East and South of the world. It is understandable then that Russian officials boast that attempts to isolate Russia, politically and economically, have been unsuccessful.
And so we all learned what sanctions can and cannot do.
They can temporarily throw off a country’s balance until it finds a way around the problem, until it finds alternative ways to receive shipments or sell its oil. And Putin found all the alternatives that he needed.
Moscow redirected its oil exports from Europe to China and India. In December 2022, G7 and EU leaders introduced a price cap aimed at limiting the revenue Russia earns from its oil exports, trying to keep the price below $60 a barrel. But Russia managed to get around this obstacle quite easily. Since Russia is a major player on the global energy market, the West has sought to keep the flow of Russian oil alive to avoid rising energy prices. The result is that Moscow continues to make money.
And so Russia has become China’s largest oil supplier. But Beijing’s importance for Moscow goes far beyond exports of energy products.
China has become a lifeline for the Russian economy. Last year, trade between the two countries reached a record $240 billion. Electronics stores in Russia are full of Chinese tablets, gadgets and mobile phones. Chinese dealers now dominate the local car market.
Since Russia launched what the Kremlin still calls its “special military operation” in Ukraine, armaments factories worked around the clock and more and more Russians were employed in defense sector.
This caused wages in the military-industrial complex to rise.
But if you spend a lot on the military, you have less money to spend on everything else.
In the long term, this imbalance could destroy the Russian economy, mainly due to the lack of investment in developmentessential for building the future.
In 2020, Russia estimated it would spend $400 billion to improve the country’s infrastructure, transportation and communications. But nearly all of that money has been directed toward financing the military industry and sustaining the stability of the economy.
After more than two years of war, the Russian economy has adapted to the pressures of war and sanctions. But the United States is considering imposing more sanctions on foreign banks that assist transactions with Moscowwhich would create a whole new set of problems for Putin.
The arrival of products in Russia is objectively poorer, although still sustainable. But replacement parts are harder to find. Every day there are banks in China, Turkey and the United Arab Emirates that refuse to handle Russian transactions, whether of money from Russia to purchase goods or of money to Russia as revenues from oil or other imports. If this situation is not resolved, Russia could enter a financial crisis by autumn.
