The Russian economy bends, but does not break. After a year of war, she still bears her banishment and the weight of unprecedented economic sanctions.
In 2022, Russia’s gross domestic product shrank by 2.2%, a far less catastrophic outcome than most observers had expected. Inflation peaks at 11.8% at the start of 2023, according to the official Russian statistics agency, Rosstat, whose figures must however be considered with caution.
For want of anything better, the International Monetary Fund relies on it and forecasts positive growth in 2023 for the country, which is demonstrating a tremendous capacity to adapt to its new economic environment.
The measures taken to clip the wings of the Russian economy have hurt, but their full effect is slow to be felt. There are still holes in the blockade erected by the allied countries against Russia.
A Radio-Canada report in Georgia showed us last week how Russians were able to source computers, cell phones and other essentials from neighboring countries, which import them legally for re-shipment to Russia.
From the beginning, the secret of the resilience of the Russian economy has essentially been two things: the country built up a war chest and was ready to face the sanctions; moreover, its oil and gas resources, the price of which has skyrocketed, have provided it with a steady flow of income over the past year.
The oil and gas manna of the Russians, however, is beginning to dry up. European countries, which could not do without Russian supplies at once, managed to reduce their dependence. The oil embargo took full effect last December, along with the imposition of a price cap on buyers of Russian oil at US$60 a barrel.
On February 5, another embargo, on products derived from Russian oil, was put into effect. It could be a game changer.
War of attrition
Now that the invasion of Ukraine is turning into a war of attrition, the Russian strategy could fizzle out.
Before the conflict, Russia supplied 25% of the oil and 40% of the natural gas consumed in the countries of the European Union, according to the Eurostat agency. Together, they sent more than $100 billion to Russia between the start of the conflict and the end of 2022, when the embargo was tightened.
Russia has found other buyers for its oil. China, India and Turkey have enabled it to maintain its exports at pre-war levels, according to the International Energy Agency. The export volume was maintained, but not the revenues.
The price of Russian oil, the Urals, deprived of its main outlets, has fallen sharply since the start of the year. The Urals were trading last Friday around US$49 a barrel, nearly half the international price. Everything indicates that the few buyers of Russian oil are in a position to negotiate even lower prices.
As Russian revenues melt, money rains down on Ukraine. Financial, military and humanitarian aid is increasing day by day, as is the determination of its allies to see this war through to the end.
On the first anniversary of the conflict, several of them increased their commitments, including the most important, the United States. Canada, which will send other Leopard tanks, and Japan, which has pledged to pay 5 billion US dollars to rebuild the destroyed infrastructure, have also just increased their support for Ukraine.
Russia has already suffered heavy human losses, at the front and to the benefit of other countries which have seen the arrival of tens of thousands of its citizens fleeing the war. She will have to face a stronger adversary with more limited means. Difficult choices lie ahead. No, the Russian economy is not on its knees, but we can predict that the worst is yet to come.