- Experts have told Insider that Russia’s isolation of the West is a disaster to its economy’s long-term health.
- Russia is restricted in its ability to import goods from other countries, which makes it more difficult for Russia to produce.
- Russia’s current situation will significantly impact its status as an energy power.
In the first months of war in Ukraine, experts were shocked by Russia’s resilience under sanctions. But there are signs that Russia is becoming increasingly isolated and will have a severely diminished position as an energy power.
Russia has responded to the initial sanctions from the West by closing out trade with the west, limiting trading with “friendly” countries and building partnerships with nations who can bear doing business with pariah states.
It has had some success in causing chaos through its weaponization of energy trade. Recently, gas flow to Europe’s Nord Stream 1 was haltedIt sold its remaining fuel supplies to customers like India and China while it constructed pipelines. Russia made energy sales to these two countries. More than $24 billionThe war lasted three months.
Yuriy Gorodnichenko from UC Berkeley says signs are beginning to emerge that Russia may be paying a heavy price for isolation, despite Putin’s unflinching display of resilience.
Insider reported that Gorodnichenko said, “What they propose is a recipe of long-term stagnation.” He pointed to other isolated nations, including North Korea, Afghanistan, Cuba, and Cuba, with some of the world’s most fragile economies.
Russia’s isolation began in 2014 and has only worsened its economic situation since then. In 2021, the country’s GDP was $1.78 trillion, a drop from $2.06 trillion seven year earlier. According to the International Monetary Fund, there were $1.78 trillion in GDP for 2021. This is down from $2.06 trillion seven years earlier. Another 6% of GDP declineThis is the year.
“What happens, is that [isolationism]This reduces the number products [Russia]Jay Zagorsky from Boston University’s markets department stated that it can buy. It cannot buy Indian agricultural products, nor can it buy Chinese manufactured goods. You may not get the best quality or the lowest price if you restrict yourself to one country.
That means Russia’s payment ban on the “unfriendly” US dollar – which accounts for Global foreign exchange reserves 88% transactions – is a huge barrier, allowing sellers to charge a premium and make imports more expensive.
Trade with sanctioning nations has fallen by 60% since the war and trade has dropped by 40% with non-sanctioning ones, according to economists. Paul Krugman made this point in a recent opinion pieceCiting data from Peterson Institute for International Economics.
Energy advantage
All this is especially powerful for Russia’s exports of energy.
Last year, oil-and-gas sales were up Russia’s GDP is 45% Russian.According to the International Energy Agency, it is. But, the ability to buy the machinery and technology necessary to power the industry is crucial to sustaining and boosting energy production over the long-term. Much of this equipment is made in the west.
Many of the machines and kits used in oilfield exploration are very high-tech. This is not just about GPS systems or robots that can control things deep below the ground. Zagorsky explained that it’s not just a group of men with big pipes and a lot of sledgehammers.
Russia’s inability to invest in this technology will be a significant roadblock to its dominance on the energy market in the future, especially since energy-strapped Europe is spending billions to increase production over the next ten years.
This is compounded by Russia’s decision to sell its oil to selected customers. That’s earned countries like China and India hefty discounts on Russian crude – and the ability to For a profit, you can sell oil or gas to other customersGorodnichenko explained that Russia’s oil revenue is cut and the country must also give up some of its influence in the market for oil.
Perhaps this is one reason Russia has kept quiet records of its losses since the conflict. Russia’s Finance Ministry doesn’t publish any monthly reports. But internal documents can be reviewed by BloombergIt was found that Russia had suffered billions of dollars in “direct losses” due to western sanctions. The budget surplus was down by 137 million rublesAs of August, it was $2.1 billion.
Insider was told by Don Hanna, an economist from UC Berkeley, that “the fact that they aren’t publishing a lot economic data indicates they know there have been costs but would like to hide the extent thereof.” “All this is done to hide the effects of the invasion in Ukraine on the Russian economy.
