2024-02-18 22:14:55
In March 2022, the Russian ruble collapsed, the value of Gazprom and Sberbank shares fell 97 percent on the London Stock Exchange, and queues formed outside ATMs in Moscow. The oligarchs’ yachts, their football clubs, palaces and even credit cards were seized. Russia has entered a severe recession. Such were the first consequences of the measures taken by the West after the Russian invasion of Ukraine.
The basis was the confiscation of the foreign exchange reserves of the Russian state, in particular the unprecedented freezing of the reserves of the Russian central bank in the amount of 300 billion dollars, wrote the economic commentator of the BBC Faisal Islam.
Western states carefully avoided expressions like “economic war”, but in practice it looked like opening a financial front against the Kremlin. This is better than a direct confrontation between nuclear powers. Almost two years have passed and the economic background of events has changed significantly.
In an interview with Tucker Carlson last week during his monologues, Russian President Vladimir Putin solemnly declared that the Russian economy is now the fastest growing in Europe. The International Monetary Fund last week acknowledged the resilience of the Russian economy when it raised its growth forecast this year from 1.1 to 2.6 percent. And according to IMF data, the Russian economy grew faster than the economies of the G7 countries last year and will grow faster this year as well.
It’s not just numbers. Russia was able to mobilize its economy, put it at the service of war, especially when building defense lines in the east and south of Ukraine. The result is the stagnation of the movement of the queue and the expectation that the stalemate will continue this year as well. Western leaders explain that such an economic model is completely unviable in the medium term. But the question is how long it can last.
Russia switched to a mobilized wartime economy. The state is spending record amounts on war for the entire period since the collapse of the Soviet Union. Spending on the military and secret services consumes 40 percent of the Russian budget. Social spending has been cut to free up money for the production of tanks, missiles and the construction of fortifications in the occupied parts of Ukraine.
Regardless of Western sanctions against Russia’s oil and gas industry, revenue from the sale of these raw materials continues to flow into the state coffers. Tankers now sail mainly to India and China, and their cargoes are paid more often in yuan than in dollars. Oil production in Russia is holding at 9.5 million barrels per day, which is only slightly less than before the war. Russia found a way around the sanctions by buying a secret fleet of hundreds of tankers.
Last week, Russia’s Finance Ministry announced that revenues from the sale of hydrocarbon fuels this January surpassed those from pre-war January 2022. The inflow of foreign exchange from the sale of oil, gas and diamonds also helped reduce pressure on the ruble.
The leaders of the world powers claim that the economy cannot function like this in the long term, but they admit the short-term effect. “2024 will be much more positive for Putin than we expected. He was able to reorganize the industry more effectively than we expected,” one of them said.
But this model of economic growth has greatly increased Moscow’s dependence on oil revenue, China, and unproductive war spending. The growth of the gross domestic product, reflected in the statistics, is ensured by the production of tanks and cartridges, which are subsequently destroyed in Donbas, and this can hardly be considered a productive expenditure of funds. At the same time, Russia is experiencing a brain drain – the most talented citizens are fleeing the country.
The strategy of the West was not to put the Russian economy in a state of encirclement, but to use a cat-and-mouse game to limit access to technology, increase costs, reduce income, and thus make the conflict an unbearable burden in the long term.
“Let Russia spend money on tankers rather than tanks,” one American official told me. In the oil market, the West’s goal was to limit Russia’s export earnings, subsequently spent on war, and not, for example, to try to prevent India from buying Russian oil.
But for at least the whole of this year, the Russian economy can endure – and prolong the stagnation on the fronts. At the same time, the Kremlin apparently based its strategy on the hope that it will be able to hold out and wait for the replacement of the US president and the reduction of Western aid to Ukraine. That is why attention is now focused again on the hundreds of billions of Russian assets frozen at the beginning of the war.
“If the world has 300 billion dollars at its disposal, why not put it to work,” Ukrainian President Volodymyr Zelenskyy told me in January. He is convinced that this money should be devoted to the reconstruction of Ukraine.
British Chancellor of the Exchequer and Foreign Secretary Jeremy Hunt and David Cameron support the idea. “Using this money now will be like paying Russian reparations up front,” Cameron said. “We will help Ukraine and save taxpayers’ money in the West at the same time,” he added.
G7 leaders asked their central banks to evaluate the technical and legal issues. Central banks seem to have doubts. They have become accustomed to being independent from governments and being protected from participating in such events. However, even so, the West is drawing up a plan to hand Ukraine tens of billions of Russian assets, or interest from them, should they be invested.
But it’s too delicate a question. If Russian assets are withdrawn in such a way, what will other countries, such as the states of the Persian Gulf, Africa or Central Asia, think about the safety of their reserves in Western central banks? These connections are part of the main arteries of global finance, through which hundreds of billions of dollars paid for energy commodities flow daily.
Putin certainly wants to show that China is becoming an alternative, if not for the Western world, then at least for developing economies. In addition, the Russians promise to prosecute any asset seizures and seize the assets of Western companies frozen in Russian banks. Overall, the picture of this battle for the Russian economy is important for understanding where the war and the world economy are headed.
The Russian economy, reset to war tracks, will not last long, but it has already allowed the Kremlin to buy some time. After Russia showed this unexpected resilience, the West is about to raise the stakes. The consequences that will go far beyond the borders of Russia and Ukraine depend on the form of this financial escalation.
Video: The last footage of imprisoned oppositionist Alexei Navalny (February 16, 2024)
Navalny’s last footage from the court a few days ago | Video: Telegram/sotavisionmedia