Western sanctions take toll on Russia’s wartime economy

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When Russian President Vladimir Putin launched last month a new council to coordinate the affairs of the Russian military, he seemed to recognize the extent of the economic problems facing the country, and his sense of urgency was evident.

“We need to be quick in deciding the questions related to the provision of special forces and restrictions on the economy, without exaggeration, which has never been seen before,” he said.

For months, Putin has claimed that the “economic blitzkrieg” against Russia has failed, but the Western sanctions imposed due to the attack on Ukraine are digging deeper into the Russian economy, increasing the lack of equipment for its military and hindering his ability to launch any new offensive. build new missiles, Russian economists and businessmen said.

Recent figures show that the situation has worsened significantly since the summer when, buoyed by continued oil and gas revenues, Russia’s economy appeared to be stabilizing. Figures released by the Ministry of Finance last week showed a key economic indicator – tax revenue from non-oil and natural gas – fell 20 percent in October compared to a year earlier, while Russia’s state statistics agency Rossstat reported that retail sales it fell to 10. percent year-on-year in September, with sales down 7 percent.

“All objective indicators show that there is a significant economic slowdown,” said Vladimir Milov, Russia’s former deputy energy minister who now leads an opposition political party in exile. “The spiral is increasing, and there is no way out of this now.”

The West’s ban on technology imports affects many sectors of the economy, while the Kremlin’s insistence on more than 300,000 Russian conscripts to serve in Ukraine, combined with the departure of at least as many foreign nationals fleeing the draft, has driven another, economists said. In addition, Putin’s own restrictions on supplying gas to Europe, followed by the mysterious explosion of the Nord Stream gas pipeline, has led to a significant reduction in gas production – down 20 percent in October compared to last year. Meanwhile, oil sales in Europe are falling ahead of the European Union embargo that is expected to be imposed on Dec. 5.

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The Kremlin has blasted a lower-than-expected decline in GDP, the forex of the International Monetary Fund at only 3.5 percent this year, as it shows that the Russian economy can withstand a raft of draconian sanctions.

But economists and businessmen say that the high GDP figures did not reflect the true state of the Russian economy because the Russian government effectively ended the ruble’s conversion since it was sanctioned. “GDP has ceased to have any meaning because first of all we do not know what the real value of the ruble is, and secondly if you produce a tank and send it to the front where it explodes quickly, then it is considered value added,” said Milov, who wrote a report explaining the situation of the Wilfried Martens Center for European Studies published this month.

Serious problems have engulfed Russia’s banking sector where most of it has been classified. The Russian Central Bank reported this week that a record 14.7 billion dollars in hard currency was withdrawn from the Russian banking system in October, amid growing concerns about consolidation and the state of the economy.

However, the November report of the Central Bank warned that Russia’s GDP will face a sharp contraction of 7.1 percent in the fourth quarter of 2022, after falling by 4.1 percent and 4 percent compared to the previous year in the previous two quarters. Last week, as the Russian economy officially entered recession, Central Bank chairperson Elvira Nabiullina told lawmakers that next year the situation could be even bleaker. “We have to look at the situation seriously and open our eyes. Things can get worse, we understand that,” he said.

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Angry families say the Russian conscripts were thrown into the front line unprepared

Putin’s announcement in September of a military build-up was partly to deal with a major blow to business. Janis Kluge, a senior official at the German Institute for Security and International Affairs says: “For many Russian companies the reality of the war has sunk in.” “It was clear that this was going to continue for a long time. Now the expectations are even worse than they were in the summer. “

Putin’s move to the coordination council, led by Prime Minister Mikhail Mishustin, was a sign that the Russian president is suffering from the impact of the sanctions, economists and analysts said. Putin “is worried that he has to intervene to ensure that things will be available,” said Sergei Guriev, France’s acting head of science. “He’s worried that the sanctions will really hit the ability to produce goods.”

It also shows that the Russian government is preparing for a comprehensive consolidation of the Russian economy to supply the military amid chronic shortages of basic goods such as food and uniforms. A series of new laws will impose harsh penalties on businessmen who refuse to carry out orders for the Russian military and possible prison sentences, paving the way for businessmen to be forced to supply goods at low prices. The creation of the council “is connected to the great pressure on business and the need to impose a difficult diktat to make business do what it does not want to do,” said Nikolai Petrov, a senior researcher on Russia and Eurasia at Chatham House. in London.

A Moscow businessman with ties to the defense sector said the quiet consolidation of the Russian economy has been going on for a long time, with many businessmen forced to produce goods for the Russian military but afraid to speak out against orders at reduced prices.

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“This became necessary right from the start of the war,” said the businessman, speaking on condition of anonymity for fear of retaliation. “The quietest business. If you say you are making things or weapons for Russia, you may have problems abroad. “

As Putin escalates the war, some in Russia’s business elite are desperate

Anecdotal evidence reported in the Russian press has shown great problems in providing the newly created Russian writers with materials. An in-depth October report in the Russian daily Kommersant described a severe shortage of equipment and distribution of uniforms in the registry with manufacturers citing difficulties in obtaining the necessary materials due to sanctions.

Some Russian businessmen say the Russian military’s chaos in Ukraine has exposed inefficiencies and corruption in Russia’s military industries. “There are big questions about where all the trillions of rubles have been spent over the past decade,” said one former senior Russian banker with ties to the Russian government.

If the new economic council fails to better coordinate the production of weapons and equipment, it could affect Russia’s ability to launch new offensives in Ukraine, Petrov said. “The main problem before the Kremlin is the question of when the army will be ready to start a new army in Ukraine, and the preparation of weapons and equipment and more will determine these plans.”

The outlook looks set to get even worse when the EU embargo on Russian oil sales comes into force on Dec. 5, economists said. Combined with the price tag expected to be imposed on all Russian oil sales outside the EU, the measure could cost the Russian budget at least 120 million dollars in lost revenue per day, Milov said, and already the Russian budget is expected to collect. Deficit at the end of this year.

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