Will Russia be able to cope with Western sanctions?
Caliber.Az interview with economists

INTERVIEWS  13 May 2022 - 15:49

In response to Russia's invasion of Ukraine, the West has declared an economic war on Russia. The U.S. banned the sale of a wide range of goods to Russia, major companies left the country one after another, and 60% of the Russian Central Bank's reserves held abroad were frozen. Russia was effectively cut off from the global financial system and deprived of Western technology. Cutting off Russia from the SWIFT payment system was considered by many to be one of the effective restrictions imposed by the West. In addition, EU countries are discussing the 6th package of anti-Russian sanctions. An oil embargo would be its key element. In other words, the list of restrictions is quite impressive.

Nevertheless, although the consequences of the sanctions are painful, that is not to say the Russian economy has collapsed. There are too many factors of uncertainty. Experts' opinions on this matter also differ.

As for Russia's disconnection from SWIFT, Doctor of Economic Sciences Elena Vetrova told Caliber.Az that Russian companies find ways to bypass these restrictions, but this does not benefit them as time and costs increase.

When asked what the total oil and gas embargo might lead to, Vetrova said that there is a small probability that the domestic market will work, but in general, the forecast is negative.

Meanwhile, Western restrictions are having a direct effect on one of the priority areas of Russia's economic development: small and medium business. Moreover, the forecasts of some economists that the withdrawal of foreign companies from the Russian market will have a positive impact on small and medium businesses have not been justified. According to Vetrova, the positive result may be only in individual cases, but not on a large scale. In the meantime, she believes, only a deterioration is discernible.

In turn, the director of the Institute for a New Society, Russian economist Vasily Koltashov has a different opinion. According to him, the sanctions have created problems primarily for the European economy.

"Right, Russia's disconnection from SWIFT hit the Russian financial sector and created difficulties in trade with European countries. But these measures have also created problems for the European economy. Of course, difficulties have not bypassed Russia, but today, Russia's supplies are switched and this is unpleasant news for SWIFT because it (the system) is losing its importance in the world - the interbank information exchange system of Russia, China, India, and Iran begins to replace SWIFT in Eurasia. Thus, European countries will eventually have to switch to other systems, for example, the Russian "Mir" system, which is aimed at developing trade with Russia. In general, these sanctions have the opposite effect. Although we must admit that they have caused considerable damage to banks, financial capital, and the Russian stock market. But the economy has not fallen into the dark, like Washington, London, and Brussels had hoped. Everything is exactly the opposite: the economy retains its position, the real sector is strengthening, the importance of the financial sector is falling," said the economist.

According to Koltashov, a significant part of Russian small and medium businesses is enthusiastic about the departure of Western companies from the Russian market.

"This all evokes a positive reaction from Russian entrepreneurs. In general, it turns out that substitution is becoming possible and necessary, and this is already starting to scare Western businesses, which previously so defiantly left the Russian market. Western companies start to worry that they will not be able to return to the Russian market. All the more so because the latter, as the ruble strengthens, suddenly starts to rise in price. And this is a very serious problem for Western business," our interlocutor said.

Koltashov believes that a total oil and gas embargo on Russia will not happen.

"To make it happen, UN sanctions should be imposed. And there are none. Sanctions in general should only come from the UN. In our case, we see block sanctions. That is, we are witnessing an economic war that violates the norms of the World Trade Organization, and the norms of local law. The West can and will try to impose restrictions on Russian oil. And it will leave them, and in the future, it will be refined in Russia, which can create considerable problems for the Western chemical industry, because after a while they will be offered to buy not Russian oil, but refined products. In fact, there is a very dangerous situation for the chemical concerns in the West. The leadership of these concerns understands the danger of the situation, but they are powerless to do anything, because decisions are taken at a higher level, and the interests of this rather large capital and its concerns are not taken into account," the Russian expert added.

In conclusion, Koltashov noted that the Russian economy was ready for sanctions.

"This is exactly the phenomenality of the current situation - no one knew whether the Russian economy was ready for sanctions or not. Of course, if Russia had been ready, as some claim, more than $300 billion of the Bank of Russia's reserves would not have been left to unfriendly states as a loot. It is clear that Russian banks would not have been under attack either - they would have gotten rid of the SWIFT system long ago, oil refining would have been more extensive, and their own tanker fleet would have been built. But there was no such readiness. The Russian economy was not prepared for such radical sanctions, rather, it evolved in the right direction under the influence of previous sanctions packages, the great global economic crisis of 2008, 2020. In addition, the new sanctions of 2022 showed that Western economies are totally unprepared to put pressure on Russia, and this is the main reason for the failed sanctions attack on Russia," the economist summed up.

Caliber.Az