Western sanctions have so far failed to achieve their goal
With the sixth package of sanctions against Russia that has just been decided, the EU is trying to hit Putin's government to the core. With an extensive oil embargo, Brussels wants to prevent Russia from exporting its oil to third countries. However, it will only be seen in the long term whether this calculation will work out.
With the previous sanctions, the associated hope that the population would withdraw support from President Putin because of the economic cuts or that there might even be a coup has not been fulfilled. On the contrary: According to current polls, 80 percent of Russians continue to support their president.
The measures are already having an effect: since the beginning of the year, exports have fallen by 30 percent, imports by 35 percent and investments in Russia by 17 percent. According to Finance Minister Anton Siluanov, the deficit in the state budget is 20.4 billion euros.
600,000 Russians are currently on forced leave and must expect to be released. First and foremost, these are employees of foreign companies. The automotive market is also affected. Car prices have doubled since the beginning of the corona pandemic. In March, 64 percent fewer cars were sold. If there were problems with the procurement of microchips at the end of 2021, now everything is missing. Replacement parts for older cars are still available, but cost 25 to 30 percent more than in January. A car battery for a conventional car can cost up to 1000 euros in Moscow. About 800,000 cars are missing due to the withdrawal of foreign manufacturers.
Since supplies from China are stagnating due to tough lockdowns and Russian manufacturers are dependent on foreign components, Moscow will have to allow parallel imports so that the Russian car market can survive. Russia's economy is thus moving into a gray area. Parallel imports means imports via third countries and de facto undermining the rights holder and circumventing sanctions. The US is considering stopping such deals by imposing secondary sanctions on those involved.
Inflation and ruble depreciation
An inflation rate of 20 to 25 percent is expected for this year. The fall in the value of the ruble at the beginning of the Ukraine war caused consumer prices to skyrocket. In a panic, Russian customers withdrew their bank deposits and exchanged them for euros or dollars, which had a negative impact on the value of the ruble. Central Bank governor Elvira Naibullina was able to stop the ruble from falling by imposing strict restrictions on exchanges by both business people and private individuals. In the meantime, it has even exceeded the pre-war value against the dollar (69.69 rubles) and the euro (70.95 rubles).
Admittedly, the sharp drop in imports, the disruption of supply chains and the difficulty of bringing imported goods to Russia due to the blockade of ships and the lack of transport flights have already had a negative impact. Gas supplies fell by 27 percent, but that does Russia more good than harm. Paradoxically, however, the positive trade balance is growing due to the import restrictions, which in turn strengthens the ruble. Rising raw material prices are increasing Russia's earnings from the remaining energy exports, which, with a simultaneous drop in imports by 50 percent, is likely to lead to an expected trade balance surplus of up to 240 billion US dollars. In April, the price increase has already slowed down. The World Bank expects the Russian economy to collapse by 11.2 percent this year. However, despite the sanctions, Russia still has sufficient financial resources. The trade surplus allows the central bank to provide ruble credit to the economy without generating revenue.
This is also the view of the Kiel Institute for the World Economy (IfW). Russia has achieved a stable financial situation in recent years, said trade expert Rolf Langhammer. In addition, public debt is a low 20 percent of gross domestic product and Russia has high savings. With a restrained spending policy, strong reserve building, price controls, income support and the fight against a black market, Moscow could be able to hold out for a long time. However, Russia's long-term success depends on the extent to which it succeeds in increasing exports to third countries that do not support Western sanctions, such as China and India, and on how the West influences them.
Example of Iran
Mohsen Karimi, manager at the Iranian central bank, knows how to defy sanctions in the long term. He suggested the Russians use "rich Iranian experience in sanctions evasion." In fact, the sanctions imposed on the Islamic regime in Iran since 1979 have neither overthrown it nor even weakened it.
Source: Preußische Allgemeine Zeitung
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