West News Wire: The G7 summit in Hiroshima’s announcement of more sanctions against Russia is confirmation that the west continues to stand firmly with Ukraine in its fight against aggression. Also, it indicates failure.
There hasn’t been a decisive blow in the economic war, despite talk of an early win, and there aren’t even any indications that the Kremlin has changed its mind after freezing assets, targeting billionaires, looking for alternate energy sources, or depriving Russia of essential supplies.
It shouldn’t be shocking that there wasn’t an immediate success. Sanctions were first used in ancient Greece, and since then, they have had a mixed track record. Turning the economic screw has generally only had a moderate positive impact. Furthermore, it takes time decades often for the measures to work.
Sanctions undoubtedly have an effect on Russia, but the west is also affected. Indeed, one reason for the exaggeration of allegations that the Russian economy is in danger of collapsing is because western leaders are aware that the collateral damage expensive energy, rising food prices, and declining living standards affects their own electorate.
In spite of all of this, Ukraine continues to have strong public support in the G7 nations. However, the last 15 months have made clear how challenging it is to impose economic siege on a nation as endowed with natural riches and technological prowess as Russia. The new regulations aim to block Moscow’s access to the international financial system, remove loopholes, further reduce world reliance on Russian energy, and hinder Moscow’s ability to procure resources for its military.
An earlier IMF prediction that the Russian economy will drop by 8.5% in 2022 has recently been changed to a 2.5% decline. This year, the IMF projects growth of 0.7%. 2.3% is a three-year low for inflation, lower than the US, the UK, or the eurozone.
So what is going on? The idea that things are worse than they seem on the surface is one theory that could apply. There have been reports of a skilled worker brain drain and a shortage of replacement parts. While neither would cause the economy to collapse right away, if they were factors that were not addressed in the long run, the economy would slow.
Interestingly, some Russians admit the war has had an impact. Last September, the Institute of National Economic Forecasting of the Russian Academy of Sciences released an assessment in which it admitted the shock from sanctions had affected almost every part of the economy. It said difficulties in obtaining raw materials and components were among the most acute problems.
Despite the extraordinary severity of the issues, the authorities were able to immediately stop the economy’s inflationary rise, avert a bank panic, secure the seamless operation of the payments system, and restore the ruble to its prior exchange rate with a margin, according to the RAS report.
The west believed that the economic war would end quickly, but this confidence was based on three dubious presumptions. The first is that Russia would be unable to fund its military activity because it would run out of money.
The freezing of Russian deposits held by western central banks and the ensuing energy embargoes have turned out to be less successful than anticipated. Russian gas and oil exports have decreased in volume, but thanks to rising prices, the value of those exports has increased.
Additionally, Russia has found many eager customers most notably China and India and has offered to supply oil and gas at a discount. Moscow has not yet had to draw on its reserves, but if the price of energy continues to decline globally, that could change.
The second presumption was that everyone on the planet would stand together against Russian aggression. This has shown to be a positive. When the UN voted to condemn Russia at the outset of the war, many African and Asian nations opted to abstain.
Due to the absence of widespread support for Ukraine, Russia has been able to evade sanctions. According to a study from the German daily Bild, exports of German automobiles to Kazakhstan increased by 507% between 2021 and 2022. Exports of chemical products to Armenia rose by 110%, and sales of electrical and computer products to the same country increased by 343%.
Possibly Kazakhstan and Armenia are currently experiencing economic expansions that call for large increases in imports. It appears much more plausible that the automobiles, chemicals, and electrical equipment are entering Russia via a diversion.
The underlying premise is that Russia in 2023 will be no different from the Soviet Union in the 1980s a failed state that would crumble under the weight of the superior economic system of the west. However, as US economist James Galbraith has noted, Russia has a top-notch educational system, a wealth of technical know-how, and industrial facilities that have been constructed by western multinationals since the end of the cold war. Sanctions provide an incentive for the Russians to substitute home-grown products for western imports.
“Russia is not short of any basic elements food, fuel, materials, scientific and engineering talent,” stated Galbraith. “However, some processes remain to be perfected. “Whether its economic leadership is capable of making effective use of these resources is an open question, but the evidence to the contrary is not compelling at this time,” the author writes.
None of this suggests that Russia will triumph, though. Putin has been guilty of making his own dubious assumptions, including the notion that the conflict will end quickly and that the west would only give nominal assistance to Kiev. However, the latest sanctions and the promise to support Ukraine for “as long as it takes” show that Russia is putting up more of a financial fight than the G7 had anticipated.