Why has Russian economy not collapsed despite multiple years of Western Sanctions from the United States, European Union, United Kingdom, Canada, and Australia?
After the Ukraine Invasion, over 27 countries, including the European Union and the United States, unleashed an economic avalanche on Russia; freezing assets, restricting trade, and locking down entire industries. But the reality turns out to be different. The Russian economy has still not fallen, and the Ruble, once teetering, is standing tall.
Chapter 1: Sanctions and Their Architects
Russia's actions in Crimea and Eastern Ukraine were seen as a direct challenge to the principle of territorial integrity, threatening the stability of the region and setting a dangerous precedent for other territorial disputes worldwide. Beyond the immediate Ukraine crisis, there were broader geopolitical considerations at play. The EU implemented sanctions targeting individuals, entities, and organizations that were believed to be involved in actions against Ukraine. In the list were High-ranking Russian officials, including those in Putin's inner circle, Leaders of separatist groups in Eastern Ukraine, particularly in the Donetsk and Luhansk regions, Russian Business Leaders, Oligarchs and prominent business figures who were infamous for having close ties with the Russian government. The EU focused primarily on asset freezes and travel bans. The US Congress passed the Magnitsky Act, the Big Daddy of all the Sanctions. Severe sanctions were placed on Russia’s financial sector. These sanctions limited the ability of Russian financial institutions to access certain types of financing from the U.S. and European capital markets. They also restricted U.S. and European persons from dealing in new debt or equity of certain sanctioned Russian financial firms. Aim of Sanctions on Russia’s Energy Sector was to restrict Russia's ability to access certain technologies, equipment, and services necessary for energy projects, particularly in oil exploration and production. Joint ventures and partnerships with any Russian company were subjected to restrictions, making it more challenging for Russian firms to access international expertise and resources.
Chapter 2: Russia's Economic Resilience
Western economists forecasted a sharp contraction of Russia's GDP, ranging from 7 to 11%. However, Russia's economy contracted by 2.1% in the year following the invasion. The sanctions should also have resulted in Inflationary Pressures for Russia. Western Forecasts indicated a surge in inflation, with estimates ranging from 20 to 25%. In reality, the inflation is projected to end the year at around 12%. Projections suggested a potential fall in FDI by corporations, possibly up to 25 to 28%. Surprisingly, the decline in FDI turned out to be much milder, estimated at only 1%.
Chapter 3: How Did Russia Do it
During the pre-Ukraine Invasion years, Putin focused on massive state involvement in key sectors. The government exerted full control over natural resources, especially in the energy sector, through state-owned enterprises like Gazprom and Rosneft. Putin's government adopted a policy often referred to as "Fortress Russia." This included building up foreign exchange reserves, reducing reliance on Western financial systems, and finding alternative trade partners. Forging Strategic Alliances was the second leg of the Russia strategy. Russia very tactfully forged strategic alliances with countries that chose not to participate in the sanctions regime. These alliances provided alternative avenues for trade and economic cooperation to Russia. Russia and China have signed multi-billion-dollar agreements for the supply of Russian oil and natural gas to China. This includes the Power of Siberia pipeline, which carries natural gas from Russia to China. Russia and Belarus share deep-rooted cultural, linguistic, and historical connections, which have fostered a strong bilateral relationship. Russia and Belarus are also core members of the E.E.U. Russia and Turkey have bolstered their economic ties, particularly in areas like energy, agriculture, and tourism. They have pursued major energy projects, such as the TurkStream pipeline, which transports natural gas from Russia to Turkey and further into Europe. The third thing that Russia did was the identification of Alternative Trade Routes that bypass the countries imposing sanctions. Arctic Sea Route, Trans-Siberian Railway was the second alternative route identified by the country. The Trans-Siberian Railway, North-South Transport Corridor, Caspian Sea Route and Black Sea, leveraging Russian ports of Novorossiysk and Sevastopol were some of the alternates identified.
Timecode:
00:00 - Introduction
02:27 - Sanctions and Their Architects
06:35 - Russia's Economic Resilience
11:19 - How Did Russia Do it
17:00 - An Uncertain Future
Russia's Secret Strategy Behind its Booming Economy
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