A year of sanctions: how is it possible that the Russian economy is holding up for the time being?

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The shopping streets in Russia have changed slightly, but they are not empty
NOS News
  • Iris de Graaf

    Correspondent Russia

Since President Putin began his so-called “special military operation” in Ukraine, Russia has been one of the most sanctioned countries in the world. Just yesterday, the EU member states reached an agreement on a tenth sanctions package.

Many economists predicted a complete collapse of the Russian economy. Production would come to a halt, due to the ban on buying Russian goods. There would be a major banking crisis, and oil and gas revenues would evaporate. Large-scale protests and unrest among the Russian population were also expected in the West.

Many of these predictions have not come true now, a year later. Natalia Zubarevich, a 68-year-old professor of economics at Moscow State University, explains how this is possible.

Illusion that sanctions could destroy Russian economy

“We were all wrong,” says Zubarevich. She, too, predicted the collapse of the Russian economy. “It was the first time that such large-scale sanctions had been imposed on Russia, and no one knew how the economy and business would adjust. We were not optimistic.”

But she calls it an illusion to think that sanctions could destroy the entire Russian economy. “Russia is a big country, with an enormous amount of raw materials. The world is big, and there are always alternatives.” She also believes that sanctions can never change a political regime.

Russia already had experience and was prepared for tougher sanctions.

Professor of economics, Natalya Zubarevich

Zubarevich explains that the Russian economy has been trying to break away from the West since 2014. Then the country was imposed sanctions after the annexation of Crimea. To counteract this, Russia replaced many Western products with domestic products, or imported goods from other, non-Western countries. Russia has also had no access to its foreign assets since 2014. “So Russia already had experience, and was prepared for tougher sanctions.”

According to Zubarevich, it is naive for the West to expect major consequences because the sanctions were introduced so gradually. The sanctions that hit Russia the hardest were imposed far too late to have the intended effect, she said. “You only started the oil boycott in December. That gave the Russian business community a lot of time to prepare properly, to calculate all the risks and to focus on other markets.”

Things have changed in the street scene. Western shops are still largely closed, there are signs with texts such as “we are temporarily closed due to technical circumstances”. Some chains have since been replaced by Russian variants. For example, McDonald’s has become ‘Tasty, period’ and Starbucks has been replaced by Stars Coffee.

Starbucks is now called Stars Coffee in Russia.

Contrary to expectations, many products and goods are still available. Most sanctions are now circumvented by parallel imports. Almost everything now enters the country through China, Turkey, Dubai, Armenia and Kazakhstan.

“It’s called business. If people want to make money, and they can make a lot of money with this, they always find ways,” says Zubarevich.

Gloomy prospect

Although most economists expect that it could take another three to four years before the treasury in Russia is so empty that it has major consequences, according to Zubarevich, the coming years will also be tough. Either way, years of stagnation and slow decline are coming, she says.

“Half a million people have left since mobilization. That is a huge loss of human capital. Some of them are returning, but how many?” She foresees the biggest problems for the federal budget. “The loss of revenue from oil and gas will certainly hurt. The budget deficit is getting bigger. The state is spending a lot more on the military and defense, at the expense of education or health care, for example.”

When asked why Russians are not protesting against the sanctions en masse, as was expected in the West, she responds with irritation. “I’m getting so tired of that question. Go out on the street yourself. Are you arrested or clubbed by the police in the West if you protest? I don’t think so.”

To survive

Not only state repression plays a major role, but also the fatalism of the Russian inhabitants and their ability to adapt. Russian incomes are expected to fall by 3 percent in the coming years. “That’s not much. And nobody dies. Russians are used to their income falling during crises. They accept it, they will do that until the end.”

We should not forget that almost a quarter of the Russian population is poor, or lives close to the poverty line, she says. And many Russians are also burdened by heavy pressure from their high loans. But a moment when they have had enough, Zubarevich does not see: “Most of Russia is simply trying to survive. We remember well what a repressive state can do. That fear is passed down from generation to generation. In a country where the repression only increases are no longer red lines.”

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