The Russian Federation was able to avoid an economic collapse, but the recession still began.
In six months, after a full-scale Russian invasion of Ukraine, seven packages of sanctions were implemented against the aggressor countryand many personal limitations. Currently, Russia is leading the list of world sanctions, and has long “left behind” Iran, Syria, North Korea and Venezuela. But despite the expectations and the temporary drop of the dollar, the economic situation in the country is still under control, CNN reports. And if, due to gas blackmail, blue fuel does not enter the European market so rapidly, friendly China and India willingly buy cheap oil from the Russian Federation.
Even in the first months of the war, many companies and world-famous brands “left” Russia. In particular, McDonalds and Starbucks restaurants closed, Apple, Lenovo, Renault, Volvo, Volkswagen, Audi, Jaguar and many others completely left the Russian market. (The full list of “first” companies that left the Russian Federation can be found in the material.)
Despite this, the Russian economy withstood the “first wave” of sanctions. Through the efforts of the state bank of the Russian Federation, it was able to keep the national currency from devaluation and, with certain nuances, to strengthen the dollar. In March of this year, when the US froze Russia's foreign exchange reserves, the ruble really fell to a record low. However, after only a few months, the Russian currency strengthened, and recovered to the strongest level against the US dollar since 2018.
Read also: Ruble vs. dollar: Russian currency does not respond to Putin and the Central Bank, exports at cost price
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This was achieved through strict control of capital movements and interest rate hikes in the spring of 2022, which have now mostly been canceled. The Central Bank of the Russian Federation declares that it has managed to reduce inflation, and instead of a record 18% in April, the overall increase in prices is slowing down and will be between 12% and 15% during the year. The forecast for the GDP of the aggressor country has also improved, a reduction of 4-6% is expected, instead of the previously forecasted 8-10%.
The suspension of Mastercard and Visa card services for the domestic market of Russia also did not have a devastating effect, because as early as 2017, the country created its own payment system and Mir credit cards. And after Putin's meeting with Erdogan, Turkey announced its intention to launch a Russian payment system that would allow citizens of the Russian Federation to use cards in this country.
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The first shock from the closure of the beloved McDonalds and Starbucks has passed, because these establishments have essentially only changed their signs. After the illegal annexation of Crimea in 2014, a significant number of Western brands in Russia, under pressure from the government, localized some or all of their supply chains. Therefore, when these brands left, the Russians were able to relatively easily buy them and continue to manage them, simply changing the name and packaging.
However, the timely and well-thought-out steps of the Russian authorities do not yet guarantee the growth and prosperity of the country's economy. The long-term stability of the Russian Federation depends on its energy sector, which is still the largest source of state income.
In many respects, the winter period will be indicative.
Read also: Better than sanctions: Germany secretly plans to nationalize Gazprom's “daughter” Russia's oil and gas sales to the EU doubled between March and July 2022 compared to the average in recent years.
The situation is slightly different in the oil market. Despite experts' forecasts regarding the probable reduction of the export of “black gold” by three million barrels per day, the Russian Federation managed to remain at the previous level. This became possible thanks to the new sales markets found in Asia.
Read also: Russia offers long-term oil discounts to Asian countries to reduce sanctions pressure – Bloomberg
According to the Kpler commodity consulting company, as of February 24, the majority of Russian oil went to Asian countries by sea. In July, the share of these exports was 56% compared to 37% in July 2021. For example, India's seaborne imports from Russia have increased by more than 1,700%.
Also read: Bloomberg reported how much China and India paid Russia for energy resources during the war
It will be crucial how events unfold in December 2022, when the European embargo on 90% of Russian oil comes into effect. According to preliminary estimates, two million barrels of Russian oil per day will be suspended. It is likely that some will go again to Asia, but experts doubt that demand will be strong enough to absorb it all. China can't buy much more Russian oil than it already has because of slowing domestic demand and because it simply doesn't need more of the kind of oil that Russia exports.
Also read: Sanctions in effect: Putin called on Russian energy companies to prepare for the embargo
The price of Russian oil will play not the least role. Will Russia be able to afford discounts to win new markets?
“A 30% discount from $120 per barrel is one thing,” noted Andriy Nechayev, the Minister of Economy of the Russian Federation in the 1990s: “A discount from $70 is another matter.”
And although global inflation contributes to energy sector of Russia, the citizens of the country still feel its influence on themselves. The “cost of living” in the Russian Federation is increasing as well as in Europe.
Read also: Inflation in Russia: new signs of the decline of the economy of the aggressor country
“From the point of view of the standard of living, if to measure it by real incomes, Russia is about 10 years behind,” said Nechayev.
However, technological sanctions are likely to have the greatest impact, in particular those applied against the aviation industry and semiconductor exports to the Russian Federation, which have decreased by as much as 90% It hurts manufacturing as a whole, from cars to computers. Because of this, the country is expected to be significantly behind in the global technological plan.
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Therefore, according to experts, the impact of sanctions will be rather slow, and Russia will face a long period of stagnation. The economic recession in the country has already begun.
