Russian ruble: How resilient against sanctions is Russia's economy?

Russia's economy under sanctions

An employee at the new Russian restaurant chain replacing McDonald's in that country after sanctions. Image: REUTERS/Evgenia Novozhenina

John Letzing
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Minji Sung
Data Visuals and Content Specialist, Strategic Intelligence, World Economic Forum
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  • In many ways Russia’s economy seems to have successfully weathered the sanctions applied in response to its invasion of Ukraine.
  • But many sanctions efforts are either relatively new or slated for the future.
  • Allied countries applying the measures hope they’ll spur a satisfactory end to the war.

The “world's most sanctioned nation” seems to be suffering less than many people anticipated.

Russia’s currency was recently branded the strongest in the world. The country just posted a record trade surplus. And anyone craving a double cheeseburger and chicken nuggets can simply stop by the “Tasty & that's it” restaurant replacing their recently-vacated local McDonald’s.

Five months after Russia’s invasion of Ukraine, its economy appears in many ways to have successfully weathered the massive sanctions levelled in response.

A higher price of oil has certainly cushioned the blow for the world’s third-largest oil producer. And Russia had already been de-dollarizing its economy in a way that buffers it against pushback from a dollar-dominated global economy, while emergency measures like barring residents from sending money abroad have propped up the ruble.

The eagerness of some countries to continue buying Russian energy has also been cited for watering down sanctions. China’s oil imports from Russia reached a record level in May. India’s hit a new high last month.

Still, the full impact of these economic weapons has likely yet to be felt. Germany, traditionally one of the biggest importers of Russian coal, said it will quit cold turkey next month. The EU aims to phase out Russian oil imported by sea by the end of this year, as does the UK. The US recently banned Russian gold, its second-most-valuable export after energy, and the EU will follow suit.

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Russia’s trade surplus is expected to further increase, but in tandem with dwindling imports – as sanctions make it harder to buy Western goods.

One expert likened the situation to the blockade of Nazi Germany roughly eight decades ago, which prompted that country to make up for erstwhile imports by plundering occupied territories (including Ukraine).

Longer-term, the ruble’s resilience may not be sustainable. And Russia's overall economic output is expected to contract sharply this year.

Trying to avoid an economic ‘heart attack’

While many countries aiming to send a message to Russia with sanctions still depend heavily on its natural gas, the re-ordering required to wean them from that export may yet become less intensive. So far, efforts to build new gas terminals and wind farms to replace Russian energy supplies have run into obstacles including unexploded bombs left over from World War II.

Still, gauging the true resilience of Russia’s economy may be difficult, not least because public access to the government's economic statistics like trade data has been blocked.

Indicators for the countries applying sanctions to Russia may be more accessible, but not necessarily uplifting. The US appears to be in a recession of sorts, and the EU expects to post a sharp slowdown in GDP growth – from 5.4% last year to 2.3% by next year.

Image: World Economic Forum

One official representing Germany’s chemical industry recently worried that a complete cutoff of Russian gas supplies in response to sanctions could trigger a “heart attack” for that country’s economy. And a study estimated that the Russia sanctions may halve projected economic growth for the UK this year while denting disposable incomes; in the US, the sanctions are contributing to a rising cost of living that could have political implications.

Each side is therefore engaged in a sort of game of chicken. Allied countries continue pressing the accelerator on sanctions in hopes of ending the war in Ukraine in a satisfactory way, as Russia speeds ahead with the countermeasures at its disposal.

In the meantime, many people will likely suffer.

Russia’s inflation rate is expected to top 20% this year, jacking up the costs of food and essentials as real wages and real disposable incomes decline.

While inflation in Russia has dipped lower recently, its invasion of Ukraine continues to push inflation steadily higher for the EU and elsewhere – including in developing countries, where an estimated 71 million additional people have been pushed into poverty.

More reading on Russia’s economy and the impact of sanctions

For more context, here are links to further reading from the World Economic Forum's Strategic Intelligence platform:

  • “A lot of it doesn’t show up for weeks, months or even years.” This report questions the impact so far of the EU sanctions effort, which has involved the enactment of dozens of new laws and a new task force. (Der Spiegel)
  • “The Western alliance should be careful in what it wishes for.” This piece argues that the US and EU are actually better off without Asia’s support for their Russia energy sanctions. (Carnegie Endowment for International Peace)
  • European leaders should work quickly to take control of the narrative around sanctions, according to this piece, and the EU should do what it can to help countries being indirectly hurt by them. (European Council on Foreign Relations)
  • Russia’s energy giant Gazprom seems intent on inflicting maximum pain in Europe while scoring maximum gain, according to this analysis, and the best way to do that is to maintain uncertainty. (Royal United Services Institute)
  • “No other nation leased a nuclear submarine to another.” An expert weighs in on both big-picture and practical reasons for India to maintain close ties with Russia. (Institut Montaigne)
  • China’s Global Security Initiative opposes “unilateral” sanctions, according to this piece, reflecting the country’s view that the US may one day try to turn the global order against it. (The Atlantic)
  • Central Asia’s economies are intimately tied into trade networks that stretch across the former Soviet Union, according to this analysis, and that now exposes them to the risk of sanctions. (The Diplomat)

On the Strategic Intelligence platform, you can find feeds of expert analysis related to Geo-economics, Geopolitics and hundreds of additional topics. You’ll need to register to view.

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