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According to the new estimates of the International Monetary Fund, Russia’s Gross Domestic Product (GDP) could grow by 0.3 percent in 2023, against the October forecasts which saw it fall by 2.3 percent due to the consequences of the heavy economic sanctions that the The West has imposed them. According to the IMF, Russia’s economy is buoyed by oil exports, which continue to bring it substantial gains, and by the fact that it is circumventing trade sanctions.
Many investigations have actually shown that Russia has managed to circumvent the sanctions over time, also thanks to the complicity of some countries, such as China, India and Turkey. This does not mean that the sanctions are useless: in 2022, however, Russia’s GDP contracted by 2.2 percent. Not as much as expected, but the sanctions take time to produce effects, especially the more effective ones, such as the ban on the export of strategic technology.
The sanctions that the West has imposed on Russia are many – only the European Union has approved them nine packets – and are roughly attributable to four types.
The first concerns individual sanctions against members of the Russian elite and the government, and against the so-called oligarchs: they consist of travel bans in the territories from which the sanctions come and the freezing of assets present in those territories and belonging to the affected people, such as current accounts, real estate and yachts. The aim is to compromise the lifestyle of these people, but also to inflict serious economic damage on them.
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A second type of sanctions includes those measures that have reduced the movement of people and goods to and from Russia, such as banning all Russian aircraft overflights over the US and EU, and closing ports to the entire merchant fleet. Russian.
Then there are the sanctions that affect the financial system. The European Union, the United States and other countries have taken specific measures to limit the access of some Russian banks to Western financial markets and to completely block the transactions of the Central Bank of Russia, including freezing all the money reserves it held at the abroad at other central banks or institutions.
Finally, there are trade sanctions. They concern the export ban to Russia of various technologies, such as microprocessors, software and various military technologies that will make it difficult for the Russian military to upgrade and upgrade its capabilities. The export of technologies related to the refining and supply of oil has also been prohibited. These sanctions have significant potential and could harm various sectors of the Russian economy, but they take time to really make their effect felt.
Then there is the ban on the import of Russian oil, which the United States has adopted for some time. In the European Union it has been in force since the beginning of December for crude oil, while for refined oil it will be in force from 5 February. Since early December, what little Russian oil is still being bought by the West has been subject to a price cap of $60 a barrel agreed by the G7 countries, the European Union and Australia. This figure is rather lower than the market price (around 80 dollars a barrel), so Russia is forced to sell it, significantly reducing earnings.
However, it is now known that Russia has found a way to adapt to these sanctions, first of all by partially bypassing the commercial ones, thanks to the complicity of other countries.
An investigation of New York Times For example, he says that a disproportionate volume of mobile phones arrived in Armenia last summer, about 10 times the amount imported in previous months. Those were far too many cell phones for such a small country, but it turned out that they were also exported to Russia, to which Westerners refuse to sell technology that could be applied to the development of military techniques.
The same thing happened with products such as washing machines and computer chips, which arrived in Russia via other countries. Data on international trade flows clearly show that some countries are helping Russia to get supplies: Turkey, China, Belarus, Kazakhstan and Kyrgyzstan are passing goods through their territory and then to Russia. These practices can also be seen in the decisions of some Russian transport companies which are enhancing alternative routes: for example Fesco, the Russian transport company, has added several ships on the route between Istanbul and Novorossiysk.
Russia stopped publishing data on international trade some time ago, but analysts and economists still manage to reconstruct them using the data published by other countries on their exports to Russia: it is not clear how much of this trade violates the sanctions imposed from the West, but a good portion of it looks suspicious. An analysis by the US research center Silverado Policy Accelerator estimates that Russia’s imports from the rest of the world (excluding the US and the European Union) are significantly higher than pre-war flows.
The trade has particularly intensified with the Chinese: according to a relationship Of Free Russia Foundation trade between Russia and China increased by about $27 billion between March and September last year, compared to the same period in 2021, to reach $99 billion. Not only has Russia increased imports of semiconductors and microchips from China, but it has also diverted large quantities of gas and oil there, which partially offset the decline in exports to the West.
The main reason why the Russian economy is still standing is related to the fact that Russia has still managed to export its greatest source of wealth, which is energy. The European Union has only gradually been able to free itself from Russian gas, on which it was particularly dependent before the war. Over the past year it has continued to buy it, albeit to a lesser extent, thus contributing to further earnings for Russia.
It is also unclear how effective the Western-imposed price caps and Russian oil embargo in general really are. The oil price cap is essentially a waiver of the general embargo and allows Russian oil to be shipped globally using G7 and EU tankers, but only if the oil is purchased at a price within the set $60 from the roof. This exception was designed to keep oil flowing to global markets, thus avoiding a shortage and excessive price increases, while limiting Russian government revenues.
However, many think that Russia is finding a way around these rules by using other ships. This is despite the fact that the Russian government has expressly declared that it no longer intends to sell its oil at such a low price.
For months, some shipping operators have been reporting a large number of suspicious cases in which it seemed that the shippers were circumventing the sanctions. Like those told at New York Times by Ami Daniel, the managing director of the Windward Maritime transport company: he noted several times transfers of Russian oil between ships on the high seas, which took place in international waters and therefore outside the jurisdiction of a specific country, and attempts by part of the ships to operate in the shadows by disabling satellite trackers or transmitting false coordinates.
These practices allow the Russian economy to survive, but certainly not to grow and prosper: the industries are greatly affected by all the components that they can no longer receive from other countries and at the same time they can no longer sell their goods to them, a condition that led to a decline in industrial production.
Although the data on the Russian economy is not abundant, some anecdotes can be reported to help understand how things are going.
The Russian airline Aeroflot has begun disassembling its aircraft which covered extra-national routes to find spare parts. Due to the lack of Western cars Yandex, the most popular taxi service, had to stock up on Lada cars, produced in Russia and considered less comfortable and safe, asking for an increase in supplies. But production has now stopped and at least ten major auto companies went into lockdowna bad sign given that this sector is one of the most reliable indicators of how the economy is doing.
However, it is undeniable that Russia is reacting better than expected at the beginning of the war.
According to many, its resilience is linked to the history and characteristics of the Russian economy. This is the fifth economic crisis that Russia has to face within 25 years, after those of 1998, 2008, 2014 and 2020. The Russian population is therefore somewhat accustomed to economic difficulties and knows how to adapt with relative ease.
Furthermore, the Russian economy is much more isolated than Western countries, which are strongly interconnected. In 2019, foreign direct investment was worth about 30 percent of GDP, against a global average of 49 percent. Only 0.3 percent of Russian workers worked in a US multinational corporation, compared with an average of 2 percent in other advanced countries. Being further isolated from the international community therefore did not have a disruptive effect, because in fact Russia was already a more isolated country compared to the others. And also in terms of raw materials, energy and otherwise, it is quite autonomous.
Furthermore, to say whether the sanctions are effective or not, it is necessary to clarify what their objective is.
The short-term one, at least initially, was to create a liquidity crisis in Russia, which would make it difficult for it to finance the war in Ukraine and the support the government would have to provide to the economy to avoid a recession. In the long term, the goal is to compromise Russia’s productive and technological capacity, so as to reduce the resources that Vladimir Putin could use in the future to continue and extend the war, perhaps to other countries. Furthermore, sanctions, if effective, also act as a general deterrent to all those countries that might have plans to start a war.
According to theEconomist the most effective sanctions are the bans on the export of technology to Russia, which are the least discussed, also because they take a long time to produce effects.