Russia is able to overcome current sanctions but continued decreasing costs could be devastating for the economy.
Wright 24 [Alexander Kozul, an economist known for his work on international economics, development economics, and globalization, 03/15/2024, “As Putin eyes sure reelection, Russia’s economy defies sanctions, critics,” Aljazeera, https://www.aljazeera.com/economy/2024/3/15/as-putin-eyes-sure-reelection-russias-economy-defies-sanctions-critics#] iman
“Russia has built up a large ‘shadow fleet’, which are tankers with opaque ownership and no Western ties in terms of finance or insurance. In addition, Russia has found plenty of non-Western oil buyers at discount prices China, and India most notably,” Yagoub told Al Jazeera.
“Last month, the majority of Russian Urals were sold above $60. But, Western countries have been clamping down,” Yagoub added, pointing to a reported information request from the US Treasury to shipping companies suspected of violating the cap.
“Over the past year, the Kremlin’s been lucky. Western countries don’t want to snuff out Russian oil altogether, because a supply crunch would trigger global inflation. So, they’ve just chugged along much as they were before the war.”
Russia has also found ways to skirt import restrictions by sourcing goods from countries acting as intermediaries for Western goods. For instance, Serbia’s exports of phones to Russia rose from $8,518 in 2021 to $37m in 2022.
Some observers dispute the suggestion that the pressure campaign against Moscow has backfired.
“Sanctions are working,” Liam Peach, a senior emerging markets economist at Capital Economics, told Al Jazeera.
“It’s reasonable to assume that longer journey times for tankers [previously travelling to EU countries], together with high insurance premiums, have added roughly $30 a barrel to the cost of oil sales.”
“On top of elevated military spending, lower oil revenues will see the deficit widen to 3 percent this year, from 1.5 percent in 2023,” Peach said. “That will require scaling back on other areas of state spending, like healthcare and education, which will slow growth over time.”
Peach also pointed out that falling exports have led to sharp currency depreciations, making imports more expensive. To put a lid on rising prices, the Bank of Russia hiked interest rates by 8.5 percent in 2023, which will also slow economic activity.