When the West responded with sanctions to Russia’s invasion of Ukraine, many assumed Russia’s economy would decline rapidly, including analysts from major investment banks on New York’s Wall Street. Six months later they have to revise their assessment.
Russia’s economic output remained four percent below the previous year in the months of April to June. That’s a drop, but it’s a far cry from the 35 percent predicted by the largest US investment bank, JPMorgan. The corona pandemic in 2020 had previously hit Russia harder, with gross domestic product (GDP) in the second quarter falling 7.4 percent year-on-year.
Mind you: Russia’s prosperity is significantly lower than that of Europe or even the USA. GDP was at Spain’s level before the war broke out. However, the resilience of the Russian economy was underestimated – be it against the sanctions against Russian goods and the ban on oil imports or against the exclusion of the Russian ruble from the international currency markets. Meanwhile, JPMorgan expects a long-term recession, but not as sharp.
One of several reasons: It was not “the world” that imposed sanctions on Russia, it was the United States, Canada, most of Europe and Australia, also South Korea and Taiwan have joined the previous EU sanctions, Japan supported the G7 announcement of joint action against Russia and also joined the SWIFT sanctions. All of Africa, almost all of South America and most of Asia is veering.
Russia can now look forward to stronger than expected exports of Russian commodities, including crude oil. This has sustained the economy. Analysts clearly misjudged the situation here.
Wall Street analysts had expected serious damage from the western oil embargo on Russia. Russia is the third largest oil producer in the world. Russia’s economy is accordingly dependent on energy exports. Revenues from the oil and gas sector accounted for around 45 percent of the national budget in 2021.
The US imposed an embargo on Russian energy in March. In May, the European Union passed a gradual ban that will initially affect 75 percent of EU oil imports from Russia. In March, Goldman Sachs wrote that Moscow was unlikely to find other buyers for its crude. One reason for this is the exclusion of the Central Bank of Russia from the Swift system for international payments. That would turn out to be a mistake.
According to Bloomberg, Russia still exports 7.4 million barrels of oil per day in July. Above all, Russia succeeded in greatly expanding its oil exports to India. The country currently imports one million barrels a day of Russian oil – a 900 percent increase from February.
Europe, on the other hand, has not yet managed to break away from Russian crude. The EU currently imports 2.8 million barrels of crude oil from Russia per day. That’s just 30 percent down from February’s four million barrels a day.