Russia's prolonged conflict with Ukraine is taking a toll on its economy, despite claims of successfully circumventing Western sanctions and earning substantial revenues, mainly through clandestine trade with India and China. President Vladimir Putin, anticipating elections amid domestic pressure, emphasizes Russia's resilience to international sanctions. While immediate gains from oil and diamond exports and military production boost the economy, the long-term outlook remains uncertain.
Despite adapting to Western sanctions, Russia's economic growth is distorted by the war's impact, diverting resources into military production. Rostec, a state-owned defense company, has significantly increased the production of armaments, munitions, and drones, raising concerns about the sustainability of the economic model. Western powers have targeted Russia's energy and mineral exports, limiting its access to technology and finance since February 2022, but the impact is yet to be fully realized.
Sanctions have prompted Russia to explore alternative markets, with India and China accounting for 90% of its oil exports. The G7 nations attempted to limit Russian oil profits, imposing restrictions that spurred the creation of a shadow fleet to maintain trade with these nations. A growing number of vessels with concealed ownership details facilitate the evasion of Western sanctions. Russia's continued access to SWIFT, a global financial messaging service, enables international transactions despite sanctions on some banks.
The opaque world of merchant shipping complicates efforts to curb evasion, with Russia using intermediaries and alternative supply routes to acquire sanctioned products. Sanctions against individuals and freezing assets have not led to widespread opposition among the elite, as the Kremlin employs coercive tactics, giving oligarchs a choice between supporting the government or risking everything. While sanctions have impacted Russia's military industry's access to sophisticated technology, the country pays a premium for substitutes from other markets.
In the face of these challenges, Russia's economic resilience remains a topic of debate. The cost of the conflict, both in economic and human terms, raises concerns about the sustainability of the current trajectory. The long-term consequences of the war on Russia's economy and its ability to navigate international sanctions remain uncertain, emphasizing the complex interplay between geopolitical events and economic stability.
(With Agency Inputs)