Allies and enemies help Russia evade war sanctions

The economic apocalypse predicted by the West for Russia as punishment for invading Ukraine on February 24 has yet to materialize, courtesy of maneuvering by the government of Vladimir Putin and the importing helping hand of allies and adversaries.

Its signs, however, permeate the daily lives of Russians, and analysts say the worst could be yet to come with the threat of a major recession.

According to the International Monetary Fund, it is guaranteed for 2022, with a negative growth of 8.5% of GDP (Gross Domestic Product). That’s quite a drop, after a 2021 in which the country recovered from the mildest recession in the first year of the pandemic, when the economy contracted 2.2%.

According to Goldman Sachs, the drop could reach 15% or even 30%, which the Russian Central Bank considers an exaggeration. The Financial Conditions Index of the American institution, which makes a basket with loan conditions, exchange rate and stock exchanges, shows Russia in a much tighter situation than the rest of the world.

This projects an even more negative environment for the second half, even more so with the global downside risk associated with other factors, but it doesn’t change the fact that Joe Biden’s US-led sanctions so far haven’t brought the Russians to their knees — and, as the offensive in eastern and southern Ukraine proves, it did not even stop a bomb from falling on its neighbour.

Putin’s partial success, which is reflected in his government’s record 83% approval rating according to independent institute Centro Levada, has established factors. The main one is the strength of its hydrocarbon exports – a barrel of oil is above US$ 110, compared to US$ 81 on the eve of the conflict.

The European Union only reached a consensus on restricting the purchase of oil from Russia on May 30, and even then in a partial way. The import of Russian natural gas, the mainstay of the continent’s largest economies, remains unchanged.

As a result, in the accounts of the bloc’s executive body, the European Commission, energy purchases should fall from €1 billion (R$5.4 billion) to €760 million (R$4.1 billion) daily. That’s still plenty of money for Putin to turn his economy and the war effort on his neighbor, albeit with occasional criticism.

The US, which cut off Russian gas and oil purchases, didn’t mean much to Moscow’s balance sheet. Allies China and India, who did not condemn the invasion, are going in the opposite direction.

Taking advantage of discounts made by Rosneft, Russia’s Petrobras, New Delhi bought from the beginning of the war until May 26, US$ 3.4 billion (R$ 17.5 billion) in Russian crude of the Urals type. In the whole of last year, it was US$ 2.1 billion (R$ 10.8 billion). The Indian government began negotiations to guarantee another six months of supply of the product.

The Chinese, whose leader Xi Jinping has already been admonished by Biden not to help Moscow, bought 56% more from the Russians in April, compared to the same month in 2021: US$ 8.9 billion (R$ 45.8 billion), estimated 70% of which in energy.

Beijing was already the biggest market for Russian energy commodities before the war: 21% of everything Moscow sold went there. In all, about 54% of this previous flow is now free of sanctions.

“We didn’t have a closed economy — or rather, we had in Soviet times, when we isolated ourselves from the world, we created the so-called Iron Curtain, we created it with our own hands. We will not make the same mistake again,” Putin promised businessmen at the Economic Forum in St. Petersburg, the week before last.

Looking back, he is not entirely wrong: Russian exposure to the world was greater than Brazil’s. In 2020, the country imported the equivalent of 20.6% of its GDP, according to the World Bank, while Brazil scored 15.5%, one of the worst global rates.

It remains to be seen what to do ahead with the barrier raised by the world, today amounting to 7,845 sanctions since the invasion, according to the American data platform Castellum.AI.

This situation is added to a recipe for maneuvers that includes orthodox instruments, such as the hike in interest rates from 9% in February to 20%, falling to 10% on the 10th, and others not so much, such as the mandatory use of the ruble for the purchase of hydrocarbons.

This helped the Russian currency to stabilize, after falling more than 30%, and even appreciate pre-war. Inflation has jumped, doubling to almost 18% in April, but is stable. “Since mid-May, we’ve had zero inflation,” Putin said.

“In addition to the lack of some Western products, what we feel most is the increase in the price of food,” said hematologist Liubov, who asks to reserve her surname. The situation is even more serious in distant regions such as Khabarovsk, where food has risen by an average of 30% since February.

It is in supermarkets that some signs of the crisis show themselves for Muscovites. On the Daily network, popular in the capital, a change caught the attention of consumers in the last month. Juice shelves began to see fewer multicolored packaging in favor of increasingly white cartons.

In some cases, such as in boxes for fermented kefir, they have become completely discolored. Reason? The lack of imported ink to pigment the packaging. Other problems come from the departure of western manufacturers from the country, 750 companies so far.

In the soft drinks section of the markets, attention is drawn to Russian brands that imitate Westerners, such as Cool Cola (Coca/Pepsi) from the manufacturer Otchakovo, which previously specialized in typical drinks such as fermented kvass. On the streets, McDonald’s exit from the country gave way to a hybrid chain, which maintains part of its menu, Gostoso and Ponto.

Heading into the fourth month of the war, Putin seems to believe that this domestic rearrangement will hold until the West tires of the war, as Kiev says it fears. The impact of sanctions on their enforcers is harsh, with record inflation in the US, UK and some European countries, given higher energy and food prices.

In this race against time, the Russian has prevailed, but the extension of the war raises a big question mark about the resistance of his bet.