Under the guise of opposing Russia, the United States, as its great ally, has dragged Europe into another conflict, this time at home, leaving it economically and politically dry.
Immediately after the Russia-Ukraine crisis in February 2022, the West launched a barrage of harsh economic sanctions against Moscow with the stated aim of disabling Russia and its citizens from participating in world trade. These were the toughest and most comprehensive sanctions in a century. Cutting Russia’s ties to the international financial system in a globalized economy was a decisive blow. How could a country so dependent on oil exports recover from this? But the predicted economic collapse never happened.
Individual sanctions include travel restrictions and penalties against companies that include asset freezes. Those on the travel ban list are banned from entering or transiting EU territory by land, air or sea. In addition, all accounts held by the named individuals and companies at EU banks will be frozen while an asset freeze is in effect. It is also unlawful to give them access to any finance or assets directly or through an intermediary.
Importantly, the European Union imposed nine packages of sanctions on Russia in 2022, but the country’s GDP barely fell. The sanctions imposed on Russia were the toughest and most extensive in over a century. As a result, the Russian government has restructured its economy more effectively than analysts expected in 2022. As a result, the Russian economy is expected to grow by 0.3% in 2023, according to the International Monetary Fund.
Earlier this year, President Vladimir Putin emphatically stated in his speech: “2022 was a tough year for us and we managed to handle the emerging threats pretty well.” Putin opened the part of his speech devoted to business, while complimenting and thanking the Russian people working in supply chains, agriculture, food, industry, education and essential social services for keeping Russian society intact and on track in difficult conditions. Putin said Western countries had predicted a collapse or at least a 20-25% contraction in Russia’s economy, but the actual GDP contraction will be just 2.2% in 2022.
Remarkably, Russia provided 17.5% of all oil traded on the world market, 47% palladium, 16.7% nickel, 13% aluminum (excluding China) and over 25% of all potash fertilizers. Therefore, it is not in the interest of Western politicians that the global economy forgo Russian raw materials, as this would lead to price spikes and possibly years of stagnation. But Russia’s cut in gas exports to Europe in 2021 caused oil and gas prices to rise. In the first month of the conflict, global oil prices rose 50% to peak at $139 a barrel in April, while European wholesale gas prices rose 500% to peak at €300 ($320) per megawatt hour. This resulted in unexpected revenue for Russia.
Likewise, the West imposed some of the worst sanctions on Russia’s export industries, including steel, coal and processed timber, which had excess capacity in the global economy. In 2021, these basic resources accounted for 11.7% of Russian exports; Therefore, restricting supplies to Europe had little impact on the Russian economy. Notably, the IMF’s report now predicts that Russia’s economy, which shrank by 2.2% last year, would grow again by 0.3% in 2023 and then by 2.1% in 2024.
Interestingly, the other big shift took place in Russia’s energy exports. As the West, particularly Europe, tried to besiege Russian fuel and wean itself off Russian oil and gas, Moscow found other key customers in China and India. Those sales were discounted, but commodity prices rose for most of 2022, resulting in a windfall for Russia. Unfortunately, Europe could not abruptly stop importing Russian gas; in the third quarter of 2012, Russian fuels accounted for around 15% of total EU energy imports.
In addition, according to the Enerdata report, the share of oil and gas revenues in Russia’s budget increased by 28% in 2022. As a result, Russia’s current account surplus, the gap between incoming and outgoing money, hit a record high of $227 billion. Russia may be spending more than $300 million on the conflict, but for most of 2022 it earned $800 million a day from oil exports. This cash flow was enough to stave off worsening living conditions and rebuild Russia’s economy.
Russia’s central bank cut interest rates several times last year to avoid a recession and flooded the financial system with liquidity. This helped prevent a bank collapse. However, central bankers were less concerned about consumer-driven inflation than in the United States. With the war uncertain, households were afraid to spend money; rather they saved. But to keep the economy going, the state increased spending. In the research, Russian economist Oleg Vyugin predicted that additional government spending in 2022 would amount to nearly 4% of GDP, or over $73 billion.
Regardless of how Al Mayadeen reported, the massive costs that Western sanctions against Russia have imposed on both sides and an economic war alone will not solve the crisis in Ukraine. Under the guise of opposing Russia, the United States, as its great ally, has dragged Europe into another conflict, this time at home, leaving it economically and politically dry.
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