2024-07-23 09:35:10
The Russian economy appears surprisingly stable despite the enormous costs of the war. In fact, according to forecasts, it is even expected to continue to grow. So how long can Putin continue to finance his war against Ukraine?
At first glance, the Russian economy appears stable – surprisingly stable. After all, the country has been at war since its attack on Ukraine more than two years ago.
But the production of weapons is boosting industry, raw materials are being sold to India and China instead of to the EU, and there is no shortage of Russian shops despite sanctions: So will Russia emerge from the war as a winner, at least economically?
It’s not quite that simple. Appearances can be deceptive.
First, let’s look at the numbers: the Russian economy is growing and will continue to do so for the time being. In its summer update, the International Monetary Fund (IMF) expects an increase of 1.5 percent for the coming year.
- You can read the latest developments on the war in Ukraine in the news blog.
However, this means that growth is slowing down considerably. The organization had previously expected 1.8 percent. For the current year, it is even 3.2 percent. By comparison, the IMF is expecting growth of 1.3 percent for Germany next year.
However, experts expect that this growth is not sustainable, as it is primarily the industry that is growing through weapons production. The products manufactured here often have only a short lifespan in war and therefore do not generate any equivalent value. In addition, the Russian economy is heavily dependent on income from commodity trading. Melinda Fremerey, economist at the German Economic Institute in Cologne (IW), speaks of the “raw materials curse”.
Russian commodity trading has been adjusted
In recent years, the oil and gas business has accounted for more than 40 percent of the total revenue of the Russian state budget, says Fremerey. “Of the world’s five largest exporters of these fuels, Russia had the second greatest dependence on buyer countries before the war – more than half went to the EU, despite all the local plans to focus on more green energy,” she says in an interview with t-online. You can read the entire interview here.
After the war began, Russia imposed a halt on gas supplies to Germany. A few months later, the EU decided on an oil embargo.
But Russia has – at least in part – found new major buyers in China and India. According to the Russian news agency Interfax, Russia exported 90 million tons of oil to India last year, twice as much as in 2022. This gave India a share of around 40 percent of Russian oil sales, with China accounting for another 45 to 50 percent.
The situation is different with gas, however. Here too, Russia had hoped to be able to quickly switch to other customers, but this requires appropriate delivery routes. And while there are several large pipelines to Europe, the planned “Power of Siberia 2” route via Mongolia to China is still under construction. Accordingly, the export volume has fallen significantly. In 2021, Russia delivered a good 240 billion cubic meters of gas, but in 2023 this figure was only around 138 million cubic meters.
All of this does not mean, by the way, that no more Russian energy sources are coming to Germany. Some European countries continue to trade with Russia, such as Switzerland and Hungary. In addition, Germany imports smaller quantities of oil from India, which most likely comes from Russia and has simply been further processed. Overall, Russia has lost far less revenue than many politicians in the EU had initially expected in view of the sanctions.
However, the revenue and growth forecasts are offset by the high costs of the war. One thing is certain: Russia’s war of aggression in Ukraine is expensive for Russia. The Kremlin does not publish the exact figures, but there are estimates. In February 2024, the US government estimated Russian spending to date at up to 211 billion US dollars. The sum includes direct financial expenditure for equipping, deploying and maintaining Russian military operations in Ukraine, said a senior official in the US Department of Defense.