The first answers to one of the fundamental questions of this war, at least off the battlefield: do sanctions work? And the answer yes, if the aim of the measures taken by Europe and the United States was to inflict a deep recession on Russia (but not on the Gulf States, not on the African ones, nor on India, let alone China). The World Bank predicted that Russia’s gross product would fall by 11.2% (down 15% according to the Institute for International Finance), exports would fall by 30.9% and imports by 35.2%. As for inflation, only in March was it up 7.6% compared to February (sugar up 44% in one month) and the World Bank forecasts cost of living at 22% this year.
An Armageddon scenario. Especially if the country were which it is not a democracy in which political power rests essentially on popular consent and wellbeing.
The oil and gas node
On the other hand, the answer to the question of the effectiveness of sanctions is more ambiguous, whether the aim is to block or drastically weaken the effectiveness of the Russian state and its army. The first data available since the sanctions began show that they can only paralyze or slow down the Russian war machine if Europe (at least) succeeds in reducing payments to Moscow for gas and oil. Otherwise, the attacking country’s economy and government will suffer, yes. But probably not drastic enough to force the Kremlin to stop.
A twosided painting
Possible? Balance of payments data just released by the central bank in Moscow, combined with World Bank estimates, paint a twosided picture: a collapsing economy, but a balance of payments with exceptionally resilient assets that the Kremlin will somehow try to maintain.
Import and export figures
The sanctions are certainly having a dramatic impact on Russia’s relations with the rest of the world. Despite actually arriving in the last month of the first quarter, Russian exports fell by 8.3% between January and March compared to the previous three months. And that despite the sharp rise in gas and oil prices. Trends are even worse for Russian imports: down 16.8% in the first three months of 2022 compared to the last quarter of last year. Basically, Russia is now probably buying a little over half of what it bought from the rest of the world in peacetime (remember, sanctions didn’t actually start until March) and is certainly selling a lot less, despite the energy price shock. . The country is increasingly isolated.
70% less containers in Vladivostock
This is shown in a work by the Kiel Institute, a German study center. As of April 1, containers arriving at the port of Vladivostok on Russia’s Pacific coast across from Japan are down 70% from a year ago. Those in St. Petersburg are 40% lower. The country loses its supplies.
The balance between giving and taking continues to increase
Despite everything, Russia is not in an economic and financial suffocation. However, the slump in imports exceeds that of exports, also thanks to inflated gas and coal prices and the fact that Europe’s supplies of fossil materials from Russia are almost unchanged. The result is that the positive current account balance (ie the balance between the debits and credits of all the country’s financial and trading items with the rest of the world) increases. In the first quarter of this year, according to the Moscow Central Bank, it was a whopping $58 billion. In the first quarter of last year it was 22.5 billion and in the last 2021 46.6 billion. It is not for nothing that Elina Ribakova from the Institute for International Finance estimates that Russia could post a record positive net current account this year: between 200 and 250 billion dollars.
The black bottoms
It is true that Russia’s euro and dollar reserves at the central bank have been frozen by sanctions. But the hard currency is likely to slip into the black coffers because the regime does not guarantee a flawless constitutional state anyway. And this positive net balance in dollars and euros is still largely converted into rubles to support the exchange rate, as evidenced by the country’s strong recovery. In short, Russia is in serious trouble. Production and industrial capacity will be seriously affected, the population will undoubtedly suffer. But without action on gas and oil, Vladimir Putin’s machinery is unlikely to truly collapse.