Russia’s economic relations with the outside world have changed dramatically in the past six months due to sanctions. Three decades after the fall of the Soviet Union, Russia stood in the shadow of global capitalism. Even though the political relations of western countries with Moscow are often strained, the economic relations are getting stronger day by day. Middle-class Russians could easily hop on a flight to Europe or buy trendy Western-made consumer goods, from smartphones to jeans. Apart from this, he was completing simple economic activities like money exchange very easily.
But now that time seems to be over. The United States and its allies in Europe and Asia have imposed a series of unprecedented sanctions on Moscow to protest the Kremlin’s decision to send troops to Ukraine. They imposed this ban to cripple and isolate Russia’s economy.
Russia is unable to withdraw nearly half of its foreign exchange reserves due to Western sanctions. Russian banks have been expelled from the global financial transaction system SWIFT. Apart from this, Russian planes and ships are not able to enter the airspace and ports of the banned countries. Some of Russia’s high-tech sectors have also been banned. So Moscow is not able to export these products. Their oil and coal are also under embargo.
At the same time, after the start of the Ukraine war, more than 1,200 foreign companies either closed their operations from Russia or reduced the scope of their operations. This information is available from Yale University’s Chief Executive Leadership Institute. These companies include Apple, MasterCard, Visa, Ikea and McDonald’s. Apart from this, efforts are being made to isolate Russia’s economy by imposing various sanctions and actions under the leadership of the United States.
But so far the new sanctions have had mixed results for Russia’s economy. On the one hand, Russia’s gross domestic product (GDP) shrank by 4 percent this year compared to the second quarter of last fiscal year. In the third quarter of the year, it can reach 7 percent, analysts have predicted. These new restrictions have not only pushed the country’s inflation to double digits, but also reduced the country’s production due to the ban on importing goods for manufacturing. Those products are also very important in the production of the country’s products. For example, Russia’s car production fell by 61.8 percent.
Most of Russia’s banks have been excluded from SWIFT, the global trading system, because of the war in Ukraine. After that, Russia took steps to pay the price of other export products, including fuel, in its own currency, rubles. This caused the Russian currency to rise instead of falling
|Most of Russia’s banks have been excluded from SWIFT, the global trading system, because of the war in Ukraine. After that, Russia took steps to pay the price of other export products, including fuel, in its own currency, rubles. This caused the Russian currency to rise instead of falling.|
Many Russian officials have acknowledged that it has become difficult for them to find alternative sources, especially for some high-end technology products, such as microchips. Still, the development of microchips is mainly done using the technology of western countries.
However, when the West started imposing sanctions, as many feared, the Russian economy would collapse, but that did not happen. Instead, the country has surprised the country with various measures as an alternative to the ban. After Russia attacked Ukraine in February, the Russian currency, the ruble, fell by more than 30 percent at the end of that month. But since then the ruble has turned around. Not only that, the ruble is the top performing currency in the world this year. Inflation in Russia has also started to slowly decline in recent months. Inflation stood at 17.8 percent in April, while it was 14.9 percent in August. In addition, Russia has record cash reserves. 167 billion from January to July, three times the previous year.
The ban has so far, at least, not had that much of a negative impact on people’s lives in Moscow. Roads in Russia’s capital city are renovated every year. This year too, construction workers have seen action on all roads of the city. Restaurants, bars and cafes were seen bustling with excited people. The market is also crowded; However, many western-owned stores are now closed. Shoppers are also flocking to the grocery store to buy products.
Alexander, a museum worker in Moscow, said: ‘People are tired of constantly feeling anxious, so they are trying their best to return to a more normal life. When it comes to cutting back on eating at restaurants, I see very few people cutting back. Although less than before, they still have a lot of money.’
Last month, the International Monetary Fund (IMF) revised its forecast for Russia’s economy to 2022, saying GDP could contract by 6 percent. Earlier forecasts had said GDP could contract by 8.5 percent. Although the rate has been reduced from previous forecasts, it is still very high. But the rate is much lower than the disaster that many initially predicted.
Anton Tabakh, chief economist of the Moscow-based firm Expert RA, explains why Russia’s economy is stable despite the sanctions. He said two things worked to keep Russia’s economy afloat in the first six months of the new sanctions. The first is that the export of consumer goods has greatly increased; Especially fuel. Reuters has seen a Russian government document. It is known that Russia expects to earn 337 billion dollars this year from the sale of fuel oil, which is 38 percent more than last year. The second reason is the increase in Russian government spending after the start of the Ukraine war.
Anton Tabakh said Russian export growth had likely peaked as global inflation dampened demand for consumer goods and new sanctions. At the same time, he said, at the beginning of this year, Russia’s imports suddenly decreased a lot. However, it is gradually increasing now. The stability of the ruble and rich logistics have been the main driving force behind the economic recovery.
Tabakh said, ‘The biggest question now is how the Russian economy will deal with the structural reforms that the Central Bank of Russia is talking about. We are now discussing consumer shifts towards new products, new supply systems, new methods of financial transactions and new measures companies are taking to deal with sanctions. I and the central bank believe that we are now at the most difficult stage of this process. It could be another 9 months to a year longer.’
For some entrepreneurs in Russia, the ban has presented unprecedented opportunities. Nikolai Dunaev, vice president of a national association of owners of small and medium-sized industries called “Apora Russia”, said that due to the fact that multinational companies are closing down their operations from Russia one by one, many domestic companies have an opportunity to capture the market, especially in food products, cosmetics, clothing, tourism and This opportunity has been created more in the construction sector.
Six months have passed since the war in Ukraine. Western countries, including the United States, imposed sanctions on Moscow due to the attack on the country. The Russian economy has tried to turn around through ups and downs during these adverse times. The country has been very successful in this
|Six months have passed since the war in Ukraine. Western countries, including the United States, imposed sanctions on Moscow due to the attack on the country. The Russian economy has tried to turn around through ups and downs during these adverse times. The country has been very successful in this.|
Nikolai Dunaev said, ‘On the whole, demand among consumers has decreased. But in Russia it is not felt so much. Because, most of these needs have been met by domestic product manufacturing companies. Non-Western countries have played an important role in Russia’s strategy to counter the sanctions. For example, the way production in Asia and the Middle East has increased over the past few decades, the products of these countries have made Russia’s job easier as an alternative to most Western products.
At the same time, Moscow has started to fill the gap in the economy with alternative import methods. Russian companies are importing smartphones, cars and clothes made by Western companies through third countries. After that, these products are sold in the Russian market with the permission of the company that has trademarked them.
Tabakh said, ‘Such methods are almost always more expensive and less beneficial for users. But in the end, these methods have been quite helpful for the Russian economy in dealing with the sanctions. In fact, this is what is seen through this, the market where the West had sole dominance even three decades ago, is no longer there. Now the previous situation has changed a lot. We now have all the new ways.’
However, the biggest question that has arisen is how sustainable the Russian economy can be in the long term through these structural reforms. How successfully can the Russian economy stand on a new infrastructure, or will the economic and technological collapse lead to an even bigger collapse?
According to Chris Devonshire-Ellis, founder of Dejan Shira & Associates, a consulting firm, there are two key factors that could work in Russia’s favor. The first is that Russia has many natural resources, which are very important for the growth of the world economy. “You look at Russia, it’s the first, second or third place in almost everything that the world has in terms of natural resources,” he said. From fuel to diamonds, from freshwater to rare and other minerals of the world, they have reserves. Russia is a very rich country in terms of natural resources.
Chris Devonshire said, ‘Despite ongoing tensions with the West, Russia is still far from being geopolitically isolated. Russia has some powerful allies, such as China, India and Iran. In addition, Russia has friendly relations with some of the countries that are growing in power, such as Saudi Arabia, Turkey, Brazil and most of the countries in Africa. Considering all these things, I think that Russia will not fall behind, but will go further.’