Russia is coping with the West's sanctions reasonably well, perhaps better than the West is dealing with rising energy prices - that's a commonplace that has been making the rounds for weeks. Sometimes it even leads to the sanctions being called into question altogether.
But the statement is simply wrong, it is downright grotesque, as a recently published in-depth analysis of the Russian economy by economists from Yale University shows. Accordingly, the Russian economy is in a deep crisis, many areas have almost collapsed. The ruling clique in Moscow is trying to cover up and whitewash this. However, that doesn't change the facts. It is therefore important to maintain and tighten the sanctions.
For their investigation, the scientists mainly used data that are not controlled by the Russian authorities. Because these are now of dubious quality or they are simply no longer published because they would be too catastrophic, from individual export data to data on air traffic.
Only data that represents Russia's position better than it is would be published. “These statistics chosen by Putin are then trumpeted beyond the media and used by scores of well-meaning but careless pundits to make forecasts that are unrealistically positive for the Kremlin,” the economists write.
Instead, they rely on a range of alternative data sources, such as Russian-language data that is not disseminated internationally, data from Russia's trading partners or individual companies, high-frequency consumer data, or they use data mining.
The most important finding: Russia's position as a commodity exporter has suffered irreversible damage. It is now acting from a position of weakness and trying to sell its raw materials around the world. However, more than half of the Russian budget is financed by income from raw material exports.
This is also due to the fact that Russia does not hold more than ten percent of the market in any commodity market. This enabled Western industrial companies to quickly replace Russian raw materials, such as Boeing, which previously sourced titanium exclusively from Russia. In addition, after the initial bull market, prices have now fallen significantly again.
The burdens for Russia are far greater than those for the West. This even applies to the gas market. There is a certain dependency here in Europe, especially in Germany. However, this can be overcome. On the other hand, the Russian side is completely different: its raw materials industry is extremely dependent on Western technology, which can hardly be replaced.
In addition, a diversion of gas exports to Asia is a lengthy and difficult process. China recently imported just ten percent of the volume that went to Europe. However, a pipeline currently under construction could at best double exports to China, and even then only in several years and at gigantic costs. In the case of oil, on the other hand, Russia must grant India and China discounts of up to $35 per barrel.
However, according to the scientists, it is not only the Russian energy sector that is suffering severe damage from the sanctions. "Despite some existing loopholes, Russian imports have largely collapsed and the country faces major challenges in securing key inputs, parts and technology, leading to widespread supply shortages in its domestic economy," they write.
Imports have shrunk by around 50 percent, with drastic consequences: "Russian domestic production has come to a complete standstill, with no capacity to replace lost companies, products and talent," continued. And the missing imports could - contrary to Putin's assurances - hardly be replaced.
The withdrawal of Western companies from the Russian market, in turn, has meant that the country has lost companies that account for around 40 percent of economic output. A mass exodus of capital, people and know-how has taken place.
All of this has so far been whitewashed by financial measures taken by the state. "Putin is resorting to patently unsustainable, dramatic fiscal and monetary interventions to address these structural economic weaknesses," the authors said.
This has pushed the state budget into a deficit for the first time in years and is causing foreign exchange reserves to melt away, despite high energy prices. "The Kremlin's finances are in a much, much dire state than is commonly understood."
But none of these measures have been able to prevent retail sales and private consumption from falling drastically, with declines of up to 20 percent since the start of the Russian invasion of Ukraine.
The scientists therefore consider the sanctions to be extremely effective and call for them to be maintained: "Looking ahead, there is no way out of the economic marginalization for Russia as long as the allied countries remain united in maintaining the sanctions pressure against Russia and to raise."
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