published8. August 2022, 16:53
Efficient penal measures«Vladimir Putin denies the pain of sanctions»
Is the West harming itself with economic sanctions against Russia? No, a study concludes. The punitive measures worked and put Vladimir Putin and his economy under more pressure than previously known.
According to a study, Western sanctions against Russia are causing massive damage to the country’s economy.
Due to the punitive measures and the exodus of international companies, a significant part of the economic activity in the country has come to a standstill.
The sanctions “not only worked,” they “thoroughly paralyzed the Russian economy at all levels,” according to the analysis by the Yale School of Management.
Do the Western sanctions harm the Russian economy or not? Moscow was demonstratively relaxed on this issue from the start. And Russian President Vladimir Putin never tired of emphasizing that the West is primarily hurting itself with the punitive measures, while the Russian economy is hardly affected.
Kremlin suppresses the negative data
Since the attack on Ukraine began, the Kremlin has withheld negative data series and only published those that make the economic situation look favorable.
«Russian statistics destroyed 30 years of credibility. It is the first time that the authorities have withheld the bases of national income statistics,” Sonnenfeld continued.
Since Moscow no longer publishes important economic data, the researchers used data from companies, banks and trading partners of Russian companies as the basis for their analysis.
Their conclusion: the sanctions imposed by Western states against Russia are causing massive damage to the country’s economy and would have “thoroughly paralyzed the Russian economy at all levels”. In addition, Russia’s income from oil and gas exports has recently fallen significantly.
The 118-page report aims to dispel several myths that Moscow has been spreading since the invasion at the end of February.
Mythos 1: Russia can sell gas exports to Asia instead of Europe.
“This is one of Putin’s most popular and misleading arguments, with which he reaffirms his much-vaunted turn to the East,” says the report. But Russia cannot simply send its gas elsewhere, especially as Russian gas exports continue to depend on a system of fixed pipelines. However, these are mainly aimed at Europe, while the Asian pipeline projects that have been planned for a long time and are currently under construction are still years away from being commissioned. In other words, the gas deals with Asia cannot replace those with Europe because the infrastructure is lacking.
This explains why the 16.5 billion cubic meters of gas that Russia exported to China last year accounted for less than ten percent of the 170 billion cubic meters of gas that Russia shipped to Europe. “The production of the Russian gas company Gazprom has fallen by 30 percent because they can no longer get rid of the gas,” says study author Sonnenfeld. Europe, which used to get 43 percent of its gas from Russia, now buys it from the USA, Norway, Australia and Azerbaijan.
Mythos 2: Because oil is more tradable than gas, Putin can sell more to Asia.
The study finds that the monthly income from oil exports keeps the Russian economy afloat is also wrong. In fact, Russia’s energy revenues have even fallen over the past three months – which is not surprising given that 83 percent of Russian energy exports have gone to Europe so far.
In addition to the lack of infrastructure mentioned, this is also due to the fact that energy partners such as China and India are taking advantage of Europe’s disappearance and demanding heavy price reductions. Import data suggested that China was buying crude oil from Russia at a discount of $35 to the world market price.
Mythos 3: Russia compensates for the losses of Western companies and imports by replacing them with imports from Asia.
According to the Yale report, the argument doesn’t work either. Because imports have plummeted – and even from friendly China, Russia is importing half less: The latest monthly data from China’s general customs administration showed a monthly decline in Chinese exports to Russia of over 8.1 billion dollars from the beginning of the year to April $3.8 billion.
«Considering that China exports seven times as much to the United States as to Russia, it seems that even Chinese companies are more afraid of running afoul of US sanctions than losing marginal positions in the Russian market, reflecting Russia’s weak economic position relative to its global trading partners.”
Mythos 4: Russian domestic consumption remains strong.
Compared to the previous year, retail sales and consumer spending fell by 15 to 20 percent. Other high-frequency data, as well as footfall in Moscow’s retail stores, confirm the precipitous decline in consumer spending and sales – “regardless of what the Kremlin says”.
The study cites the Russian car industry as a particularly drastic example: Sales figures have fallen from 100,000 to 27,000 per month, and because parts from abroad are missing, cars are being manufactured without airbags, automatic transmissions and safety systems such as ABS.
Mythos 5: The flight of companies, capital and knowledge from Russia is overrated.
The study by the Yale School of Management states that the departure of around 1,200 foreign companies will result in a high loss of jobs in the country. “These are the official Russian figures and Russia goes on to say that twelve percent of direct jobs in the country are affected. But our numbers are far higher,” says study author Sonnenfeld.
“But if we only start with the Russian number and look at the indirectly linked jobs, then we are dealing with around 40 percent of the workforce in Russia who are no longer employed due to the withdrawal of companies. It’s really profound.”
According to Sonnenfeld, production is declining in all areas, regardless of whether it is household appliances or porcelain ceramics. The unemployment rate is perhaps around 40 percent and inflation is between 20 and 60 percent, depending on the sector.
Mythos 6: Thanks to high energy prices, Putin is generating a budget surplus.
Even Moscow doesn’t see it that way. According to the Russian finance minister, Russia will post a budget deficit of 2 percent of GDP this year – one of the few times that the budget has been in deficit in years, despite high energy prices. The Yale study blames “Putin’s unsustainable spending frenzy”, not just on military spending. “Dramatic fiscal and monetary interventions” have contributed to the fact that the money supply in Russia has almost doubled since the beginning of the Ukraine invasion. The researchers conclude: “Putin’s reckless spending is clearly putting the Kremlin’s finances under pressure.”
Mythos 7: The ruble is the best performing currency in the world this year.
The ruble is really stronger than it has been for half a decade. That’s because the ruble is no longer being driven by market forces, but by actions by the Putin government and the Russian central bank, which are keeping demand for the currency artificially high.
However, under the prevailing conditions, the strong ruble does not necessarily mean a strong economy. On the contrary, the strength of the ruble, coupled with efforts by the government and banks to limit the impact of the sanctions, could make life for ordinary Russians even more difficult than the sanctions themselves.
According to their own statements, the researchers used data from companies, banks and trading partners of Russian companies as the basis of their analysis, since Moscow has not published important economic data for a long time.