Russia is arguably the world's most self-sufficient country
The great irony is that Russia’s economy won’t only survive the harshest and most comprehensive Western sanctions including the unprecedented move of freezing $300 bn of the country’s foreign exchange but it will also emerge from the Ukraine conflict in far better shape than some of the Western nations imposing the sanctions.
Russia doesn’t need to import anything unless it wishes to. That is why the purchasing power of the ruble inside Russia hasn’t been affected by the sanctions much and its trade surplus is projected to rise in 2022 to an estimated $140-$150 bn from $120 bn in 2021. The one problem with all of this, of course, is that at some point it has to come to an end.
Ever since 2014, when the U.S. and the EU sanctioned Russia for its invasion and annexation of Crimea, Russia has been working to create an economic ‘fortress’ that can resist sanctions. This included the build-up of roughly $640 billion worth of gold and foreign currency reserves so that it could outlast sanctions for years. It is clear from Russia’s other reactions to sanctions that the Kremlin had been planning for such a scenario. The central bank raised interest rates to 20%, forced Russian exporters to convert 80% of their foreign exchange revenues into rubles, and limited the amount of money Russians can withdraw from foreign-currency accounts to $10,000. All of this, as well as Putin’s demand that countries pay for natural gas with rubles, was designed to create false demand for the ruble and control the domestic market.
While Russia is surviving, the long-term outlook for the Russian economy is dire. The extreme measures that have been put in place to counter sanctions are not long-term solutions, and if the illusion of stability in the ruble eventually collapses, the economy will too. The country also has to deal with its inability to access the technology and goods necessary to maintain key industries. Other realities such as ‘brain drain’, caused by international isolation, and the eventual reduction in demand for its oil and gas exports will only further diminish its economic strength. Russia has survived sanctions better than almost any other country could, but the struggle is far from over for Moscow.