How is the Russian economy doing after six months of war in Ukraine?
Since Russian forces invaded Ukraine in February, Western powers have tried to form an international coalition to put pressure on the Russian economy. Countless layers of economic sanctions have been levied against the Kremlin and senior Russian officials to try to force President Vladimir Putin to give in.
But did these measures work? The sanctions imposed on Russia have served to deplete vital resources such as oil, natural gas and grain, driving up prices for consumers around the world.
In April, a senior US Treasury official claimed that the Russian economy would struggle to function normally without being able to trade with the West. President Biden has imposed a general ban on all Russian-made energy productswhich is the most important part of the Russian economy.
“The economic consequences facing Russia are severe: high inflation that will only get worse and a deep recession that will only get worse,” the official said. told reporters.
In the short term, the oil economy has found other outlets in the world and has increased trade with China and India, who both jumped at the chance to buy cheap Russian oil. In the first half of 2022, for example, India has increased its maritime imports of Russian oil by more than 1,700%.
It’s not the instant collapse that Biden and his allies would have hoped for, but the Russian economy is certainly suffering from the sanctions imposed on it. Earlier this year, the ruble collapsed to a record low against the US dollar, a direct consequence of the decision to freeze half of Russia’s $600 billion in foreign currency reserves.
In December one European embargo on 90% of Russian oil will come into force, knocking down demand by about 2 million barrels a day. Unless Russia finds new buyers, it will have no choice but to offer further reductions.
Russian industry adapts to loss of Western channels
In addition to government-imposed bans on Russian products, countless major retailers and brands decided to exit the Russian market on their own terms. McDonald’s, Starbucks and MasterCard were among the biggest names to leave the country earlier this year.
However, the Kremlin had prepared for such a step and taken precautions to ensure that the country could be as self-sufficient as possible.
The storefronts that once housed McDonalds restaurants are now filled with Russian-owned burgers “Vkusno i tochka”, which translates to “Tasty, and that’s it”. Starbucks was replaced by the thinly disguised “Stars Coffee”.
The Russian government had spent years encouraging these Western brands to localize their supply chains, using Russian-made products whenever possible. This means that, although the brand itself is no longer present in Russia, there are local suppliers and manufacturers that can be reused by Russian companiesrequiring little more than a change of packaging to keep the products selling.
Perhaps most importantly, Russia has implemented its own transaction processing system and Mir credit card, to reduce its reliance on foreign-based financial products.
Andrey Nechaev, former Russian economy minister, explained: “The exit of Mastercard, Visa, it barely had an impact on domestic payments because the central bank had its own alternative payment system.