It's been six months since Russia invaded Ukraine, and the economic price that Russia is paying for it is one of the most important and slippery questions of the war.
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In the first few weeks of the war, when Russia came under sanctions and western companies divested, the sights of panic in Russian shops and attempts to withdraw foreign currency from ATMs created the sense that the Russian economy would collapse within weeks.
But rather than collapsing, the impression in the last few months is that Russia's economy is getting back on its feet and even seeing some growth, despite the sanctions, the staggering costs of the war, and the corporations that have pulled up stakes. The large stores of foreign currency that the Putin regime amassed in the years before the conflict helped the Kremlin keep buying from countries that still agreed to sell to it. The spiraling price of natural gas didn't hurt, either.
The Kremlin took a series of financial steps that helped the ruble keep its value despite the initial plunge, and this week the country's central bureau of statistics claimed that the Russian GDP had shrunk by only 4% -- much less than original projections.
But throughout the months of the war, claims have been made that Russia is presenting a false picture and is cherry-picking data that suit its image. There is evidence to back up the claims that the country's economic situation is worse than it is being portrayed. According to recently published date, the country's VAT revenue has dropped by over 40%. According to various estimates, the Ukraine war is costing the Russian economy about $1 billion a day, and the country's budget deficit for July stood at $879 billion.
The news that Moscow is waging a successful disinformation war when it comes to its economic figures gained support last month in an extensive study from Yale University. The study showed the scope of the damage caused by the combination of modern warfare at high intensity over a long period of time and crippling sanctions and international boycott. The researchers determined that Russia's status as an exporter of good had dropped at certain points to near-collapse, and that its imports had fallen by almost 50%. According to the study, the country is far from being able to meet its own needs in terms of manufacturing consumer goods.
In the energy sector, the Putin regime's golden goose, business isn't as usual, either. In July, revenue from exports of gas and oil constricted by 29%. Moscow has managed to wield the threat of gas supply against Europe to a lesser extent than expected, and Russian oil is under a partial western embargo. Until December, it can only be piped out. In distress, Russia turned to markets in the east, like China and India, and was happy to find that there was demand, but it was only temporary.
"They said that the Indians are buying Russian oil because it's sold at a discount of $30 per barrel, but in July the sales to India started to decline," Russian energy expert Mikhail Krutikhin said in an interview on the YouTube channel of exiled oligarch Mikhail Khodorkovsky.
"When there was euphoria about sales to China – there were reports that exports had risen 55% -- it tuned out that the figures turned out to be two oil tankers leaving the Kozmino Port in a week rather than one. But when you look at exports over time, it turns out that they stayed at the level of 2020. Two years ago, Russia exports 83 million tons of oil to China per year, and last year it was 72 million tons, and this year that might increase to 80 million tons. You can't expect a radical increase in exports. Last month, Russian oil production dropped by 12%."
At the moment, the most palpable signs that the Russian economy has taken a hit are from the technology sector, where Russia is almost entirely dependent on the West. For example, its civil aviation flagship carrier, Aeroflot, has begun stripping its aircraft for parts.
In the longer term, the war can be expected to do more damage to the well-bring of citizens of Russia, where the average retirement age and life expectancy are worryingly close. While Russia's status as a military superpower has suffered on the battlefields of Kyiv, its status as a functioning economy is in ever-greater doubt, and the war is unlikely to help it.
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