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A man waves the Russian national flag as he arrives at the patriotic concert on Red Square in downtown Moscow ahead of Russia Day on June 11, 2023.KIRILL KUDRYAVTSEV/AFP/Getty Images
John Rapley is an author and academic who divides his time between London, Johannesburg and Ottawa. His books include Why Empires Fall (Yale University Press, 2023) and Twilight of the Money Gods (Simon and Schuster, 2017).
When Russia invaded Ukraine two years ago, the Western alliance rallied to both support Ukraine and isolate Russia. In addition to arming Ukraine and welcoming refugees, Western countries have taken swift and decisive action to starve the Russian economy of oxygen: requiring its companies to suspend operations there, banning imports from Russia, and preventing its ships from leaving theirs ports or insurance companies. and, above all, blocking the export of high-tech needed in both the Russian defense and energy sectors.
They wanted to prevent Russia from financing a long-term war while giving Ukraine the help it needed to repel the invasion. At first the West looked triumphant. Not only did Ukrainian forces resist Russia's attempt to take Kiev, but the Russian economy began to decline.
Two years later, however, things look very different. The Russian economy suffered a shallower recession than expected in 2022 and rebounded last year. As Western countries, particularly Western European countries like Germany that were dependent on Russian energy imports, falter, Russia's economic growth now rivals that of the United States
Meanwhile, the country's defense industry is far from hindered, but has managed to expand significantly. The country now produces three million artillery shells per year, almost three times the total output of American and European factories. Every day it fires five times as many shells on the battlefield as Ukraine. As Ukraine is reduced to rubble, its economy has imploded. After losing almost a third of production in 2022, it is still far from recovery.
It goes without saying that reports of Russia's economic decline turned out to be premature. Several factors account for the country's surprising resilience. First of all, it put itself on a war footing. Defense spending skyrocketed so that over 7 percent of the country's economy is now spent on defense. This surge in demand, coupled with the fact that Russia is not directly affected by the war – Western allies insist that Ukraine not use its weapons directly against Russia for fear of the war expanding – has brought the economy back to life .
Second, innovative ways to circumvent sanctions were found. After Western countries stopped exporting the computer chips used in modern weapons, Russia began importing non-banned items such as refrigerators, microwaves and dishwashers and then cannibalizing them for chips. Likewise, it has maintained shipping by operating through shell companies that found ports willing to turn a blind eye and thus maintained its trade. For many intermediate countries, particularly in the developing world, the lifting of sanctions since the outbreak of the Gaza war has become morally easier to justify because, in their view, Western double standards are being demonstrated when it comes to who should be sanctioned.
Third, Russia has found new markets for its exports. When Western countries curbed their imports of Russian oil and natural gas, countries like India and China happily stepped in to meet the supply. Admittedly, they did this at Russia's expense, as they purchased the products at a discount to the world market price, allowing them to comply with the letter, if not the spirit, of the sanctions. India's energy minister was recently able to say with a straight face: “The world is grateful to India for buying Russian oil” because it has kept oil prices low on the world market.
Fourth, European countries mitigated the impact of sanctions on their own economies through backdoor trade with Russia. Western Europe's trade with countries in Central Asia and the South Caucasus has picked up speed – German car sales to Kyrgyzstan suddenly rose by about 5,500 percent in a year, while Kazakhstan's exports of electronic equipment to Russia increased 18-fold in the same period. It's pretty clear what's going on: European countries trade with Russia through intermediaries.
But even if Russia appears to have won its battle with the West, the future of its war still seems questionable. Although the company finds markets for its exports, revenue is lower than it would otherwise be due to the discounts the company has to accept. At the same time, its dependence on trading partners such as China and India, which are not doing it any favors, is growing. Aside from defense, Russia's manufacturing and high-tech sectors that it sought to develop are struggling. This is turning Russia back into a third world country.
If the war drags on, Russia's resources will slowly deplete and the country will be poorer and weaker than before. Vladimir Putin is betting that won't happen. He apparently assumes that Western voters, reassured by the simple life, will pressure their governments to give in to Ukraine, sue for peace and resume regular relations.
If he's right, he's on his way to victory. But if he is wrong and Western countries step in and support Ukraine in the long run, Russia's long-term prospects are bleak.
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