Can Russia still hold up despite the war and the recent collapse of the ruble? There are a few factors pointing to the worst for the Russian economy.
Is the Russian economy really capable of holding up anymore? Analysts and strategists are wondering it, especially considering the latest events.
Not only did Putin waver with Wagner’s coup but financial signs show fragility. The ruble, for example, is at its lowest level since March 2022 and appears to have nowhere to go but downwards. Furthermore, with the drop in revenues from fossil fuel sales, the scenario is getting gloomier.
There are, in fact, factors that can play against the Russian economy and the collapse may not be far off.
Why the Russian economy may still collapse
Russia’s economy is going through uncertain times.
In the spring of 2022, the relevant financial heads of Russia’s central bank and finance ministry, faced with unprecedented Western sanctions and capital flight at almost three times the 2021 rate, lowered the exchange rate for capital temporarily.
An even bigger help was the increase in energy prices last year, on fears for Europe of running out of gas. Russia reaped its benefits until the latest cold season showed that Europe could survive with almost no Russian gas and on much less Russian oil than it used to.
Since that first shock, energy prices have stabilised, and a $60 cap on Russian oil supplies went into effect in December. Russia has found ways to keep oil exports stable and even boost seaborne deliveries despite a Western embargo. More than 70% of Russian crude supplies now go to India and China, up from less than 20% before the invasion.
However, the price cap has weakened Russia’s negotiating position in Asia, and fears of a fuel crisis have eased. At the same time, exporters have found ways to circumvent sanctions, switching to suppliers in China and South Asia. They also move Western goods through Turkey and some former Soviet republics.
As a result, Russia’s trade balance in goods and services fell to $22.6 billion in the first quarter of 2023 from $91.4 billion in the second quarter of 2022. Exports and energy prices plummeted, and with them Russian solidity.
In essence, the budget was affected by energy sanctions, the near cessation of gas supplies via pipeline to Europe and the relative momentum of exports to Asia. In the first six months of this year, Russian federal budget revenues fell by nearly 19% in nominal ruble terms, and oil and gas revenues halved.
According to independent trader Fabrizio Mastroforti, the catastrophe was only averted for one reason. In the analysis elaborated on Il Giornale, the expert underlined how much Moscow has dodged the recession “thanks to the extraordinary war production which makes up for the drop in consumption”.
Despite the reassurances of the central bank governor Elvira Nabiullina on the absence of financial risks, the instability of the ruble is a fact for Mastroforti and this could lead Russian citizens to run to the counters to get a currency in exchange more solid (euros or dollars).
Furthermore, Russia is forced to sell stocks of foreign currencies, such as the Chinese yuan, to make up for plummeting energy revenues.
For the trader, “the situation that has arisen has a strong impact on the Russian economy. Sanctions are working on the bear’s flanks. Nabiullina is risking a short step: from savior of the ruble to ferryman of a crisis”.
That’s why the Russian economy can still sink. Original article published on Money.it Italy 2023-07-12 14:47:12. Original title: L’economia russa ha retto fino a oggi, ma adesso può crollare: ecco perché
