According to estimates from the Institute of International Finance, Russia’s earnings from exports over the past three months were 65% higher than in the same period last year
gas station masquerading as a country,” quipped the late John McCain, an American senator and former presidential nominee, in 2015. In many respects, McCain was right: Russia’s earnings from oil and gas have helped it to weather the economic sanctions imposed on it by Western countries in response to its invasion of Ukraine. On June 10th the central bank announced that it would cut interest rates back to 9.5%—where they were before war began.
The normalisation of its key policy rate is just one sign that Russia’s economy has shrugged off the effect of Western sanctions. Take the rouble. The central bank doubled interest rates to 20% in the aftermath of the invasion to help prevent the currency, which had depreciated sharply against the dollar, from falling further. The policy seems to have worked. By late April the rouble had recovered all of its losses, allowing the central bank to ease interest rates gradually.
The high prices of oil and gas have helped, too. Although the European Union has agreed to boycott 75% of imported Russian oil, the country has been able to find alternative buyers for its fuels. According to estimates from the Institute of International Finance, a trade association for banks, Russia’s earnings from exports over the past three months were 65% higher than in the same period last year. Imports meanwhile, some of which are subject to Western sanctions, are down by 20%.
Yet the economic pain is being felt elsewhere in Russia. The rising price of imports pushed consumer-price inflation up from 9% in February to 17% in May, far above the central bank’s target of 4%. Inflation may now have levelled off, but ordinary Russians are facing shortages of many Western goods: sanctions have caused sales of new cars to fall by four-fifths, and many shops and restaurants are shuttered. Economists expect that imports will have to rise to restore balance to the economy.
Though forecasts differ, most also expect the Russian economy to shrink by between 7.5% and 12.5% this year, according to a Bloomberg poll. On June 8th theto shrink by 10% this year and another 4% in 2023. If that comes true, the economy would be just one-sixth the size of America’s by 2024—when Vladimir Putin will probably seek a fifth presidential term.
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