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The ruble is rolling: Despite sanctions and war, the Russian economy has not collapsed as badly as experts expected.
Jenny WagnerEditor News
Despite the sanctions, the banking system in Russia has not yet collapsed. The expectations were high. Russia’s exclusion from the Swift system was called a “nuclear option” and “financial nuclear bomb” after Kremlin boss Vladimir Putin (70) had his army attack in Ukraine.
No wonder: the Swift communication system handles international payments in an uncomplicated manner. The exclusion should have cut off the Russians from most global transactions through the Swift payments system. This would have made the import-export business incredibly complicated, combined with enormous costs for Russia.
But despite isolation from the Swift system, the big bang didn’t materialize. The ruble is rolling – sanctions or not. According to Russia, the country’s gross domestic product shrank by only 2.7 percent in 2022, according to the International Monetary Fund (IMF) there is a minus of 3.5 percent. “People hoped that the sanctions would have a stronger effect,” says Gerhard Mangott (56), professor of international relations and Russia expert, to Blick.
EU would cut itself in the flesh
The problem: not all Russian banks are excluded from the international payment system. “Payments for gas, for example, are processed through Gazprombank,” Mangott continued. Sanctioning them would also mean higher costs for the West. “Gazprombank was not excluded from Swift because of this.” The EU in particular would cut itself in the foot with the Swift exclusion of all Russian banks as long as gas and oil are purchased from Russia.
Curiously, precisely because of the sanctions, the value of the ruble is increasing. Many companies are obliged to exchange their foreign currency for rubles, which increases the demand and, as a result, the value of the Russian currency. Such damage limitation prevented a run on the banks in Russia and a deep economic crisis could (so far) be avoided.
“The production must be financed by the state”
In addition, Putin has been prepared for years. The Kremlin boss had already expected severe sanctions when Crimea was annexed. That was in 2014. “Russia took forward-looking measures to become resilient to sanctions,” explains Mangott. Even then, people started promoting their own economy and isolating themselves from the global economy.
According to Mangott, the armaments industry is also a growth factor. But: “The production has to be financed by the state, which in turn puts a strain on the budget.” What is certain is that Russia is putting all its resources into the war.
Europe is still too dependent on oil and gas
The fossil fuel economy remains Russia’s ace up the sleeve – despite oil and gas price caps. As a result of the sanctions, Russia is no longer allowed to transport oil by sea. Mangott on Blick: “It hits Russia hard. Putin has to accept price cuts that bring him less profit.”
But the sanctions clearly miss one goal: “Russia will not end the war because of the sanctions,” Mangott clarifies. “Because for Russia, the economic losses are worth less than the geopolitical goals that are being pursued.”
The goal of the sanctions does not necessarily have to be that Russia ends the war. “There was hardly any public discussion about the goal of the sanctions,” complains Stefanie Walter (45), Professor of International Relations at the University of Zurich. Sanctions can also punish a state for its actions. “This effect is already noticeable, just not to the extent that was hoped for,” states Mangott. And above all, the war capability of the state should be restricted in the medium to long term.
Long-term effects are yet to be seen
“It may well be that the long-term effect of the sanctions on Russia is more negative than the short-term effect,” explains Walter. However, the West cannot afford sanctions forever, because they harm both parties.
“The longer the war lasts, the higher the economic and social costs for the West,” says Nicolas Hayoz (66), professor of political science with a focus on Eastern Europe, to Blick. So it depends on who lasts longer. “Putin believes he is more patient than the West,” Hayoz said.
The Kremlin chief hopes that the EU and the US will urge Ukraine to end the war as quickly as possible. Because time is against Russia. Even if the sanctions do not mean the big collapse. You harm the country. In 2021, Russia was still in the economic upswing. Those days are over.