Two years after the Ukrainian war, Russia, the giant with feet of clay, still stands. 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 declining,” said the president.
Remember? After the invasion, the IMF predicted a 10% drop in the Russian economy in two years. Depending on the international institutions considered, the collapse predicted for 2022 alone ranged between 11 and 16% of GDP. Well, Russia only contracted by 2.2% in 2022, then grew again. Official Russian statistics – another thing is whether they are reliable – offer a encouraging outlook for 2023 (a growth of 4.8%), while this year should also close with positive data.
Furthermore, unemployment remains at historic lows (2.9%) and salaries are growing by almost 20%, due to the lack of available personnel (between emigration, with a million people who have left the country, and the war effort, there is a lack of labor).
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 great military spending, at the expense of the welfare state. But the Russian people are capable of unimaginable sacrifices thanks to their proud and nationalist character,” she explained.
And the West, especially Europe, brought out the heavy artillery (for now, metaphorically) in terms of sanctions. Russia's reserves abroad (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 a barrel was imposed on Russian crude oil and trade with gas pipelines and exports of technological material were formally cut off. Recently Europe has just launched its thirteenth package, 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 objectives indicated, about two thirds of the restrictions apply to individuals (oligarchs) and a third to companies. The impact, therefore, affects large companies only to a minor extent.
However, the biggest drain on the sanctions comes from trade with satellite countries, former members of the late USSR.
Recent research by the IESEG business school in Paris, led by Eric Dor, has shown that Europeans may be financing Russian coffers in other ways, through sales to the states of the former Soviet galaxy, close to Russia's borders. An anomalous increase in European trade flows with Turkey and the United Arab Emirates has also been detected, with products that could end up in the Russian market.
“We realized that the value of European exports to these countries was increasing exaggeratedly, much higher than inflation. And it affected goods of a certain complexity whose demand was not justified by the size of the market. When you see atypical increases in dishwasher exports to countries like Kyrgyzstan of 12,000%, there is at least the suspicion that the Russians want to take advantage of part of the integrated circuits of these devices,” 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, but these increases occur just when exports to Russia plummet, which suggests a substitution effect (or parallel imports).
According to comments from King's College (which carried out similar research last summer), the Russian conglomerate Rostec has used spare parts from toys and steam engines to assemble ammunition and in some cases semiconductors have been extracted from 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 intervenes. 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 origin of the merchandise,” they explained at King's College.
From these satellite countries (especially Kyrgyzstan, Kazakhstan, Georgia or Armenia), sanctioned goods, others that are not sanctioned but that may have military use, and also financial services are then re-exported to Russia. To close the circle and go one more way, products manufactured in Russian territory are resold to Europeans.
“I would like to think that many European companies carry out these commercial operations, which are legal for all purposes, with good intentions, without being aware that their assets may end up violating an embargo. The EU has a difficult time controlling these movements. The only thing I can think of is that a surveillance system similar to that exercised by banks to prevent money laundering should be established,” says Dor.
Spain's exports to these countries of the former USSR have grown since the start of the war at a triple-digit rate: sales to Kazakhstan have skyrocketed by more than 200% and to Uzbekistan, 126% compared to trade flows before the invasion.
Not only trade in goods remains strong, but also trade 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 robust discounts.
In two years, Russia's oil revenues have already exceeded $500 billion: good support to oil the Russian war machine.
All this has also been possible thanks to the logistical support of some 1,000 ghost ships (or rather in the shadows, as they say in nautical terminology), according to calculations by the Atlantic Council, which transit without proper papers and without insurance through the Baltic waters, bringing Russian oil refined in other countries (such as India) to Europe.
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 sanctions really been of no use? Maybe some cracks are opening in the Russian fortress. The United States Treasury maintains that thanks to sanctions, up to 5% of the growth of the Russian economy has been cut in two years.
Howard Shatz, an analyst at the American consulting firm Rand Corporation, argued in a recent study that “Russia is taking an enormous risk to finance the war, with a deficit in 2023 that is the third largest in its history. In addition, 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 can Russia resist in these conditions? How long will he be able to count on the support of his friends? The words of Winston Churchill, spoken by the British Prime Minister after the Yalta conference in 1945, are once again relevant: “Russia is a riddle wrapped in a mystery.”
