Two years after the war in Ukraine, Russia, the giant with feet of clay, is still standing. There was no expected economic collapse and Vladimir Putin has been able to capitalize even electorally on this strength as his umpteenth success against the West. “We are growing, they are in decline”, said the president.
do you remember After the invasion, the IMF predicted a 10% drop in the Russian economy within two years. Depending on which international institutions are considered, the projected drop for 2022 alone ranged from 11% to 16% of GDP. Well, Russia only contracted by 2.2% in 2022, then grew again. Official Russian statistics – another thing is that they are reliable – offer an encouraging outlook for 2023 (a growth of 4.8%), while this year should also close with positive data.
In addition, unemployment remains at historic lows (2.9%) and wages are growing by almost 20%, due to the lack of available personnel (between emigration, with one million people who have left the country, and great effort lic, there is a lack of manpower).
Oleg Deripaska, aluminum oligarch, declared himself “surprised by the endurance of the private sector”, largely thanks to trade with the so-called South of the globe.
Nona Mikhelidze, an analyst at the IAI think tank, points out that statistically the numbers come out because they reflect a war economy. “There is a large military expenditure, at the expense of the welfare state. But the Russian people are capable of unimaginable sacrifices thanks to their proud and nationalistic character”, he explained.
And that the West, especially Europe, brought out the heavy artillery (for the time being, metaphorically) in terms of sanctions. Russia’s foreign reserves (about 320 billion euros) were frozen, as well as the assets of 70% of Russian banking entities, and they were excluded from the Swift international payment system.
Likewise, a maximum price of 60 dollars per barrel was imposed on Russian crude oil and trade with gas pipelines and exports of technological material were formally cut off. Europe recently released its thirteenth pack, but the reality is that the previous twelve have been disappointing. There are several reasons.
To begin with, according to sources from the Commission itself, of the 16,000 targets identified, nearly two-thirds of the restrictions apply to individuals (oligarchs) and a third to companies. The impact, therefore, only affects the large companies to a lesser extent.
However, the biggest source of sanctions comes from trade with the satellite countries, former members of the late USSR.
Recent research from the Ieseg business school in Paris, led by Eric Dor, has shown that Europeans may be funding Russian coffers in other ways, through sales to ex-Soviet states near Russia’s borders . An anomalous increase in European trade flows with Turkey and the Arab Emirates has also been detected, with products that could end up on the Russian market.
“We noticed that the value of European exports to these countries was increasing in an exaggerated way, much higher than inflation. And that it affected goods of a certain complexity whose demand was not justified by the size of the market. When you see atypical increases in exports of dishwashers to countries like Kyrgyzstan of 12,000%, there is at least the suspicion that the Russians want to take advantage of some of the integrated circuits of these appliances”, reasons Dor.
In fact, these abnormal increases in sales from Europe to the states bordering Russia affect washing machines, electrical machinery or telecommunications equipment. Not only that, but these increases are taking place just as exports to Russia are plummeting, suggesting a substitution effect (or parallel imports).
According to reports from King’s College (which carried out similar research last summer), the Russian conglomerate Rostec has gone so far as to use spare parts from toys and steam engines to assemble munitions, and in some cases they have been extracted semiconductors in household appliances such as refrigerators for military purposes.
“We are not talking about organized crime. They are formally legal businesses in which a third party is involved. Or via commercial intermediaries, who may also be Russians who have emigrated to these satellite countries (Georgia, Kazakhstan) or even Western firms that have left the country but want to continue trading with Russia. Or through sudden changes in the countries of origin and recipients in the shipment, to disguise the provenance of the goods”, they explained at King’s College.
From these satellite countries (mainly Kyrgyzstan, Kazakhstan, Georgia or Armenia), sanctioned goods are then re-exported to Russia, others that are not but that may have military use, and also financial services. To close the circle and make one more turn, products manufactured on Russian territory are sold to Europeans.
“I want to think that many European companies carry out these commercial operations, which are legal for all intents and purposes, with good intentions, without being aware that their goods may end up violating an embargo. The EU has a hard time controlling these movements. The only thing that comes to mind is that a surveillance system similar to the one used by banks should be established to prevent money laundering”, says Dor.
Spain’s exports to these countries of the former USSR have grown since the beginning of the war at a rate of three digits: sales in Kazakhstan have soared by more than 200%, and in Uzbekistan, by 126 % with respect to trade flows before the invasion.
Not only does trade in goods remain strong, but so does that in raw materials. The reality of the figures indicates that Russia is still exporting, according to the IEA (International Energy Agency), about 8.3 million barrels of oil per day, especially to India and China and with significant discounts.
In two years, Russia’s oil revenues have already exceeded $500 billion: a good support to fuel the Russian war machine.
All this has also been possible thanks to the logistical support of around 1,000 ghost ships (or rather in the shadow, as it is said in nautical terminology), according to calculations by the Atlantic Council, which transit without proper papers and without insurance through the waters of the Baltic, bringing to Europe Russian oil refined in other countries (such as India).
China has become a fundamental partner, also indirectly, using the same system as the Europeans. For example, exports to Kyrgyzstan have increased by 600% since the invasion of Ukraine, to Belarus by 200%, and to Uzbekistan by 140%.
As for industrial goods, “China sells chips and other components that the Russians need to keep military production going, said Maria Snegovaya of the Center for Strategic and International Studies.
But have the sanctions really been of no use? It may be that a crack is indeed opening in the Russian fortress. The US Treasury says that thanks to the sanctions, the growth of the Russian economy has been cut by up to 5% in two years.
Howard Shatz, an analyst at the US consulting firm Rand Corporation, stated in a recent study that “Russia is taking a huge risk to finance the war, with a deficit in 2023 that is the third largest in its history. In addition, the sanctions have made Russia more dependent on China for goods, money and international support. In fact, half of Russia’s imported goods come from China. Today, Chinese cars (even high-end ones) are the majority of those that fill the windows of Russian dealerships.
What is the real state of the Russian economy? How much will Russia be able to resist under these conditions? How long will you be able to count on the support of your friends? The words of Winston Churchill, uttered by the British Prime Minister after the Yalta conference in 1945, are relevant again: “Russia is a riddle wrapped in a mystery”.
