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Two years of war in Ukraine: how Russia's economy resists despite harsh Western sanctions

2024-02-24T20:02:04.265Z

Highlights: Russian economy expected to grow above 2.5% this year, IMF says. Russia has been able to continue exporting its gas and oil through China and India. European companies export these industrial inputs, for example, to Turkish, Armenian or Kazakh companies, which re-export them to Russia. Russian military spending, paradoxically, serves as an expansionary fiscal measure, but it could also be the beginning of a deeper economic decline, says C.B. Kuznetsova. The latest sanctions focus on stopping this flow.


The measures adopted by the US and Europe failed to break Moscow's finances as expected. The Kremlin's strategies to continue exporting its hydrocarbons.


The European Union responded to the Russian war of aggression against Ukraine by sending weapons and ammunition to kyiv and, above all, with packages of sanctions that were to bring the Russian economy to its knees.

The analyzes said that Moscow would not resist, that the inflation caused by the lack of inputs due to the trade union would generate a deep economic depression.

Economic sanctions have some obvious effects, such as the lack of spare parts for the maintenance of Russian airlines,

but the economy is resilient

.

Forecasts from the International Monetary Fund say that Russian GDP will grow above 2.5% this year, more than that of the European Union and more than double the 1.1% it grew in 2023.

This week, coinciding with the start of the third year of war, the Europeans approved their third package of sanctions.

It begins to include measures to prevent Russia from using third countries to escape these measures, because they believe that this is what allows the Kremlin to save itself from the expected economic collapse.

Russian President Vladimir Putin initially admitted problems in the economy, but now the country is resisting.

Photo: AP

The keys

The reasons for Russian economic growth are several.

To begin with,

Russia has been able to continue exporting its gas and oil through China and especially India

, which multiplied its purchases of Russian hydrocarbons by 13.

Faced with this situation of diversion of oil and gas that Europe had stopped buying, the G7 approved a cap on the price of a barrel of Russian crude oil.

They would not pay more than $60 regardless of the price of oil on world markets.

The idea was to make Moscow earn less foreign currency from these exports.

It didn't work either

because Russia began using ghost fleets of oil tankers and transshipping crude oil on the high seas, thus erasing traces of its origin.

Moscow also uses companies from third countries to do triangular trade and bill its oil as if it were, for example, Azeri.

The Europeans also prohibited the export to Russia of semiconductors and other materials necessary for its military industry and which Moscow barely produces.

It was about

preventing it from firing its military production

.

But Moscow is producing at full speed, buying from third countries.

European companies export these industrial inputs, for example, to Turkish, Armenian or Kazakh companies, which re-export them to Russia.

The latest sanctions focus on stopping this flow.

If in the United States there are even criminal consequences for company directors who violate the sanctions regime and inspections are more common, in Europe compliance is hardly enforced.

For a European company, failing to comply with sanctions against Russia, except in the most serious cases, does not entail criminal punishment but rather a small fine.

Effects

The sanctions have some effect, although it is not what was promised.

The European Commission estimates that Russian merchandise exports have fallen by 30% from 2022 and that

the ruble has lost 43% of its value

against the euro in the last year and a half.

Reports from the Community Executive assure that 58% of European exports to Russia and 61% of imports are prohibited and that Moscow receives 24% less income from gas exports.

Russian military spending, paradoxically, serves as an expansionary fiscal measure, but

it could also be the beginning of a deeper economic decline

.

Moscow spent more than $30 billion in 2023 as part of the war economic effort.

And he did it without triggering the fiscal red because oil revenues, despite the sanctions, increased.

If the Europeans manage to block this export of crude oil or at least considerably reduce what Moscow receives for it, the economic damage will be much greater.

C.B.

Source: clarin

All news articles on 2024-02-24

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