The Russian Economy and Industry in the Face of Western Sanctions: An Update After Two Years of War in Ukraine.
Behind the smokescreen of the oil and gas bonanza, the future looks increasingly difficult for the Russian people.
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In one month, it will be two years since Vladimir Putin launched his special military operation on Ukraine. From a special military operation, it was in fact a full-scale war to take control of Ukraine.
Since the start of this war, everyone has been wondering about the real impact of the war in Ukraine and the ensuing Western sanctions on the Russian economy.
On the one hand, you have Westerners boasting that the Russian economy and industry are inescapably falling, and on the other, you have Vladimir Putin repeating on Russian national television that all is well in Russia.
In the end, the answer is not obvious. Sorting out the true from the false here is complex for one simple reason.
Russia continues to sell its oil and gas despite Western sanctions, and therefore continues to bring in foreign currency to fuel its economy. But behind this smokescreen, the situation in Russia is more complex.
In recent days, Vladimir Putin has publicly apologized. That's something rare enough to note!
Of course, Putin didn't apologize for invading a neighboring country, violating all rules of territorial sovereignty and reneging on his own and Russia's word.
No, Putin apologized for the explosion in egg prices in Russia: a 60% rise in one year!
This spectacular rise in the price of eggs in Russia is a symptom of the country's economic situation.
While this anecdote may make you smile, there's one person who didn't have to laugh for long. It's about the main person concerned by Putin's criticism on the subject: “The Egg King”.
The Wall Street Journal reported this story about the boss of Russia's largest poultry farm. “The Egg King” was the victim of an assassination attempt after the Russian government decided to launch an investigation into the rising price of eggs in Russia.
The Russian economy is hanging by a thread...
If Russia is still holding out, it's obviously thanks to its oil and gas. Russia can continue to sell its production thanks to the complicity of the Gulf States, Turkey, India and China.
To this, I must add the hypocrisy of Western countries who pretend not to recognize the origin of their energy imports, even if the origin label has been crudely changed.
Despite all this, demand is weak due to the slowdown in the global economy, and sales prices for Russia are falling due to the discount they have to give to countries through which oil transits, such as India.
... while facing real challenges
Meanwhile, the Russian economy is facing real challenges, and Putin is showing his incompetence more and more each day.
There is, of course, the financing of the war, which is sucking up all the resources of the Russian state. In 2024, military spending is set to increase by a further 70%! All this at the expense of social, education and healthcare spending.
Russia's massive mobilization of soldiers is creating a glaring labor shortage.
Western sanctions are having an effect on import channels, despite Russia's best efforts to circumvent them. Last but not least, the massive departure of foreign companies is also severely penalizing the Russian economy, despite what Putin would have the Russian people believe.
The Russian Central Bank is struggling to curb soaring inflation
Inflation is soaring in Russia. This has forced the Russian Central Bank to raise interest rates sharply in recent months. They now stand at 16%, a doubling in 6 months!
Surprisingly, Russian growth remains positive, but is expected to fall to 1.4% from 3% in 2023. The rouble is under pressure, raising the cost of imports but making it more competitive for exports to countries that Putin and Lavrov describe as Russia's friends.
An increasingly difficult future for Russia and the Russian people
The conclusion that emerges here is that, while on the surface the Russian economy is reacting better than Western analysts expected and continues to show positive growth, the medium-term outlook, whatever the outcome of the conflict, is extremely poor.
As you've probably correctly described, despite this, Vladimir Putin has nothing to fear from Russia's upcoming presidential elections in March 2024. He has already taken care to eliminate all political opponents and choose the few candidates who will be allowed to face him.
However, Putin will have to rebuild a massively weakened economy and industry during his new term, which should take Russia through to 2030.
The big question on everyone's lips: will Vladimir Putin be able to deliver a better tomorrow for the Russian people?
The most cynical, including myself, would add: Does Putin really care about the fate of the Russian people?
Let me know your opinion in the comments.
The Russian economy hasn't collapsed since the outbreak of the Ukrainian war but it does have its issues. Basically, those you mentioned here - inflation, the overblown military budget, and overdependence on other nations. There're people who live very comfortably there, though. But overall, the standard of living has gone down. Thumbs up for the article from a Russian.