How Russian economy Sustained well despite Stringent Economic Sanctions.
The key figure who has been the architect of Russia’s wartime economic strategy and allowed it to withstand the tremendous adversity of Western sanctions is Maxim Oreshkin.:
- Oreshkin is a Kremlin aide who has been the author of key ideas that have helped Russia’s economy adapt to the sanctions, such as the “gas-for-rubles” scheme.
- Oreshkin was once seen as a “westernizer” but is now leading the defenses of Russia’s economy against the Western sanctions. 2
- When the sanctions made Russia’s “Fortress Russia” seem less impregnable, Oreshkin came up with the “gas-for-rubles” gambit to try and break the economic siege.
- Oreshkin has played a central role in shaping Russia’s wartime economic policies and strategies that have allowed the country’s economy to prove more resilient than many expected. 2
Maxim Oreshkin, as a key Kremlin economic advisor, has been the primary architect behind Russia’s efforts to adapt its economy and find ways to mitigate the impact of Western sanctions. His ideas and policies have been instrumental in enabling Russia to withstand the tremendous economic pressure it has faced since the invasion of Ukraine.
Also, key reasons why the global community has not mounted a more concerted effort to help Ukraine:
- Reluctance of non-Western countries to oppose Russia: “while much has been made of Western unity in support of Ukraine, the rest of the world has been largely unwilling to oppose or even condemn Russia in any meaningful way.”1Many countries in the Global South have been hesitant to join Western sanctions, providing Russia with financial and material support to continue the war.1
- Lack of Ukraine’s engagement with non-Western audiences: “in the three decades since the country regained independence, Ukrainian politicians, activists, and journalists have spent comparatively little time communicating with people in Latin America, Africa, and Asia, where awareness of Ukraine is still often minimal.” Ukraine has not developed an effective strategy to rally support from the non-Western world.1
- Russia’s exploitation of post-colonial narratives: The search results indicate that “Russia has skillfully exploited this post-colonial perspective by framing the invasion of Ukraine as a reaction to what it portrays as Western imperialism and domination.” This messaging has resonated in parts of the Global South.
- Prioritization of national interests over moral considerations: “moral and ethical considerations rarely figure in a President’s calculations, especially when the public is not all that concerned and the issue on the table is military intervention.” Countries may be reluctant to get involved if it does not align with their perceived national interests.
- Lack of effective military intervention: sanctions, tough rhetoric or political isolation will not work to stop mass atrocities, and the only conceivable way will be to do everything possible – politically and economically – to help Ukraine resist Russia.” The global community has so far been unwilling to provide the necessary military support.
In summary, the lack of a more concerted global effort to help Ukraine appears to stem from a combination of geopolitical, strategic, and moral factors that have limited the willingness of many countries to take decisive action.
Where is Russia getting the money to sustain the war despite tough sanctions?
There are a few key points about how Russia is funding its war in Ukraine despite tough sanctions:
- Russia’s oil and gas exports are a major source of funding for the war effort:
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- Oil, oil products, and natural gas account for around 45% of Russia’s total exports.
- Almost half of Russia’s oil and gas exports go to European countries, providing a significant revenue stream.
- Around 40% of Russia’s government revenue comes directly or indirectly from the oil and gas sector.
- Russia is able to fund the war through its regular military budget and other domestic sources:
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- Russia’s military spending has tripled compared to pre-war levels, reaching around $160 billion in 2023, or 40% of the federal budget.4
- In addition to the federal budget, regional governments, private companies, and the population are also contributing funds for the war effort.4
- Russia has been able to cover the costs of the war so far, as much of the military equipment and ammunition was already funded from the regular budget in previous years.2
- Russia has been able to mitigate the impact of Western sanctions:
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- While sanctions have hurt the Russian economy, the country has found ways to adapt, such as by redirecting oil and gas exports to other markets like Asia.2
- Russia has also been able to maintain military production and operations by relying more on domestic suppliers and reducing its reliance on Western technology and components.3
In summary, Russia’s ability to sustain the war in Ukraine despite tough sanctions is primarily due to its substantial oil and gas exports, its ability to fund the war effort through its regular military budget and other domestic sources, and its efforts to mitigate the impact of Western sanctions. Russia has been able to mobilize significant resources to support its military campaign in Ukraine.
There are several key reasons why the sanctions against Russia have failed:
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- Russia has been able to circumvent the sanctions by redirecting its oil and gas exports to other markets, particularly in Asia. The search results indicate that “Russia has found ways to adapt, such as by redirecting oil and gas exports to other markets like Asia.”
- Russia has been able to maintain military production and operations by relying more on domestic suppliers and reducing its reliance on Western technology and components. The search results note that “Russia has also been able to maintain military production and operations by relying more on domestic suppliers and reducing its reliance on Western technology and components.”
- The sanctions have not crippled the Russian economy as expected. The Russian economy was not crippled in the first year of the assault on Ukraine, mainly because the Russian government found ways to continue to secure very large amounts of cash from selling oil.
- The sanctions have failed to target the Russian oligarchs and their assets effectively. The search results indicate that “the oligarchs, thanks to their skilled enablers, have evidently outsmarted the KleptoCapture agents and other officials hunting for the stolen cash. At most, the sanctions have proven to be an inconvenience.”3
- The lack of universal global participation in the sanctions has allowed Russia to find ways to circumvent them through third-party countries. The search results note that “unless there is near-universal global participation, traders can easily redirect sanctioned goods through third-party countries.”2
In summary, the sanctions have failed primarily because Russia has been able to adapt and find ways to mitigate their impact, while the lack of a truly global effort has allowed Russia to circumvent the sanctions through various means.
Here is a summary of the key impacts of the Ukraine war on food prices, the Russian economy, and inflation:Impact on Food Prices:
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- The war has severely disrupted global markets for food, fuel, and fertilizers, leading to a surge in prices for these commodities. 4
- Ukraine is a major global exporter of agricultural commodities like wheat, corn, and sunflower oil, and the disruption of its exports has caused shortages and price increases worldwide.
- Many developing countries that rely heavily on imports of Ukrainian and Russian wheat and other grains have been hit the hardest by the food price increases.
- Global food and grain prices remain 12-13% above pre-conflict levels as of late 2023, despite some recent declines from peak levels.
- The food price inflation has been particularly severe in developing economies, with some seeing over 70% increases in domestic food prices.
Impact on the Russian Economy:
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- Russia has been able to maintain military spending and operations by relying more on domestic suppliers and reducing reliance on Western technology.
- Russia’s oil and gas exports, which account for around 45% of its total exports, have provided a major source of funding for the war effort despite sanctions.
- However, the sanctions have hurt the Russian economy, and the country has had to find ways to adapt, such as redirecting oil and gas exports to Asia.
- The war has also led to a decline in foreign direct investment flowing into Russia. 3
Impact on Inflation:
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- The surge in food, fuel, and fertilizer prices driven by the war has contributed to high inflation globally, with developing economies hit the hardest.
- In Turkey, for example, the war-induced price shocks have resulted in an estimated income loss of 0.2-0.8% of real GDP and significant welfare losses.
- The inflationary pressures stemming from the war have proven persistent, with food and grain prices still well above pre-conflict levels as of late 2023.
