Russia's economy hasn't tanked yet, but it is inevitable that it will

Today, as the war rages in southeastern Ukraine, it’s hard to identify a significant effect of Western sanctions on the Russian military machine.

 MARKET INFORMATION is displayed on a monitor at the New York Stock Exchange. The invasion of Ukraine and the intensification of international sanctions imposed on Russia are having a strong effect on world markets. (photo credit: Andrew Kelly/Reuters)
MARKET INFORMATION is displayed on a monitor at the New York Stock Exchange. The invasion of Ukraine and the intensification of international sanctions imposed on Russia are having a strong effect on world markets.
(photo credit: Andrew Kelly/Reuters)

It’s nearly impossible these days to find a table in the summer cafes and rooftop restaurants in the trendy Patriarshie Prudi quarter in Moscow. Although the chefs quietly complain about the lack of some key ingredients and wines that were once imported from the West, there is no lack of clients who as always want to party and enjoy the good life.

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“Moscow today seems very normal and beautiful. You can’t tell that there is something wrong or that the country is struggling under sanctions,” Raisa Vlasova, an Israeli who just came back from Moscow, told The Media Line.

Pro-regime Telegram channels that mostly cover social events are full of glossy photos of local celebrities who are now forced to spend their summers in the Russian capital rather than in Biarritz, Nice or Majorca. If one shaped their views on global and local economic developments solely from Russian media, he would think it is the West that suffers the most from the sanctions it imposed on Russia.

“Germany is facing a horrific economic crisis because of Ukraine,” read the headline of an article published by the state-run RIA Novosti domestic news agency on May 18. “The sanctions hit Europe under the belt,” said another headline on a similar article published by the state-owned Sputnik news agency.

Yet beyond the glossy images of Moscow coffee house-goers and anti-Western media campaigns there is a completely different reality of economic and technological failure of “spectacular magnitude,” Leonid Vlasiuk, a Russian political technologist and former analyst for the ruling United Russia party, told The Media Line.

 People walk at the Red Square on a sunny day in Moscow, Russia March 30, 2022. (credit: MAXIM SHEMETOV/REUTERS) People walk at the Red Square on a sunny day in Moscow, Russia March 30, 2022. (credit: MAXIM SHEMETOV/REUTERS)

“The sanctions are working and will keep working, but everything is of course time-sensitive. Russia’s heavy industry is practically liquidated. They still have some reserves, but due to the inability to secure a new supply of bearings, they [the Russians] will not be able to repair their tanks or to produce new ones,” Vlasiuk, a political immigrant to Israel, said.

“The same goes for the aviation industry and cars. Today they repair planes by shifting spare parts between aircraft. At some point they will run out of this option too. But of course, it will not happen soon. Russia enjoyed high oil and gas prices for too long, and now they are living off this supply,” according to Vlasiuk, who left Russia for Israel in 2021.

Just a few days ago, PJSC Sberbank, the largest bank in Russia, said it had started removing the little metal chips from unactivated bank cards in order to overcome the shortage caused by Western sanctions. It is also impossible to repair or install ATM machines, since Russia only used US-made ATM’s until now. A few weeks ago, state-run Russian media reported that large local banks will begin to purchase domestic ATMs based on Russian-made Elbrus processors. Experts warn that these devices have not been checked for vulnerabilities and might pose a risk. A ride in Russian-made vehicles might pose an even bigger threat to human beings since the government has relaxed safety and emission standards in order to stimulate production and meet the demand for new cars.

Yet as prices of food staples and medicine keep rising and workers are losing their jobs, there is no sign for now of popular unrest or of public dissatisfaction with Vladimir Putin’s war on Ukraine that has resulted in heavy Western sanctions.

Will sanctions against Russia be effective?

Abbas Gallyamov, a political analyst and a former speechwriter for Putin, believes that Western sanctions are effective but warns against unrealistic expectations.

“I do not know if anyone among [Western leaders] who introduced sanctions expected them to have immediate effect,” he told The Media Line. “It is a long-term story and it will eventually act against Russian authorities. Even if the Russian economy will fall not by 10% as some expected, but by 3%, it is a very significant development that will take its toll on living standards. The dramatic increase in the cost of food staples and medicines will exacerbate the high level of poverty in Russia. All these factors will lead to dissatisfaction with authorities.”

“The Kremlin tries very hard to make Russians believe that the West is the cause of their suffering, but even in remote villages and towns people understand that if their meals become too expensive, it’s not Joe Biden’s fault,” Gallyamov said.

“The Kremlin tries very hard to make Russians believe that the West is the cause of their suffering, but even in remote villages and towns people understand that if their meals become too expensive, it’s not Joe Biden’s fault.”

Abbas Gallyamov

Trust in Russia's Vladimir Putin is decreasing

He notes that, according to recent polls conducted by the Levada Center, trust in Putin is decreasing.

“In an authoritarian country it’s impossible to pose this question in a straightforward manner. So, the Levada Center instead asks respondents to name politicians whom they trust. It’s easier not to say his name then to answer directly ‘I don’t trust Putin.’ From May to June this indicator fell from 43% to 35%,” Gallyamov explained.

It is unclear when this drop in confidence will result in public unrest and political instability. Today, as the war rages in southeastern Ukraine, it’s hard to identify a significant effect of Western sanctions on the Russian military machine. This is not the first time that Russia has handled a significant economic shock, and today its gross domestic product is down by only 4.5%, similar to what happened after the war in Georgia in 2008.

According to experts, the main difference between today and previous economic crises and defaults that Russia experienced since 1991 is that now there is no redemption in sight and the situation will only get worse for the Kremlin.

“The Russian army has lost all of its new tanks. They are sending machines that were operational for the last time during the ’60s, while the Ukrainians are getting some state-of-the-art modern weapons,” according to Vlasiuk.

“The Russians have the advantage over the Ukrainians in manpower – it’s usually 30-40 Russian soldiers against one Ukrainian. So, of course, the Ukrainians bleed. And yet they fight courageously and plan to retake the Kherson area in order to regain control over wheat shipments,” he added.

“With time the pressure on Russia will keep growing, as it will be impossible to produce new weapons or to repair the old ones. So, the military machine will definitely suffer, and so will other spheres,” Vlasiuk predicted.

The Russian economy might seem resilient to Western sanctions today, when it still has its financial reserves and the West is still dependent on Russian oil and gas exports. Yet, experts expect that if sanctions continue and the pressure is not eased, it will result in massive damage to the Russian economy and, eventually, to the Russian military machine that is now bombing civilians and erasing entire villages and towns in Ukraine from the face of the earth.