Analysts Say Russian Economy Not Collapsing But Burning Slowly But Surely
Six months after invading Ukraine, Russia is bogged down in a war of attrition it didn't anticipate but it is having success on another front — its oil-dependent economy is in a deep recession but proving far more resilient than expected, Clare Sebastian reported for CNN Business.
Photo Insert: China-Russia East-Route natural gas pipeline finalized
"I'm driving through Moscow and the same traffic jams are there as before," says Andrey Nechaev, who was Russia's economy minister in the early 1990s.
The readiness of China and India to snap up cheap Russian oil has helped, but Nechaev and other analysts say Russia's economy has started to decline and is likely facing a prolonged period of stagnation due to Western sanctions.
The International Energy Agency (IEA) says Russia's revenues from selling oil and gas to Europe doubled between March and July this year. That's despite declining volumes. IEA data show gas deliveries to Europe are down by about 75% over the past 12 months.
Oil is a different matter. The IEA's March prediction that 3 million barrels a day of Russian oil would come off the market from April because of sanctions, or the threat of them, has not materialized.
Exports have held up, though Rystad Energy analysts note a slight drop over the summer. The major factor has been Russia's ability to find new markets in Asia. Houmayoun Falakshali of commodities consultancy Kpler said most of Russia's seaborne oil exports have gone to Asia since the start of the war. In July, the share was 56%, compared to just 37% in July 2021.
Between January and July this year, China increased its seaborne imports of heavily-discounted Russian Urals crude by 40%, according to Kpler data. India's seaborne imports from Russia are up more than 1,700% over the same period, according to Kpler. Russia has also been increasing gas exports to China through a Siberian pipeline.
What happens when Europe's embargo on 90% of Russian oil comes into force in December, will be critical. An estimated 2 million barrels a day of Russian oil will be in limbo, and while it's likely some of that will go to Asia, experts doubt whether demand will be high enough to absorb it all.
While global inflation is helping Russia's energy sector, it's hurting its people. Much like the rest of Europe, Russians are already suffering a cost of living crisis, made much worse by the war in Ukraine. Nechaev, who helped steer Russia through a much more dramatic economic collapse in the 1990s, is worried.
"In terms of the standard of living, if you measure it by real incomes, we have gone backwards by about 10 years," he says.
The government is spending to try to combat this. In May, it announced it would raise pensions and the minimum wage by 10%. It's set up a system where employees of companies that have "suspended their activities" can temporarily transfer to another employer without breaking their employment contract.
And it's spending 17 billion rubles ($280 million) buying the bonds of Russian airlines, crippled by airspace bans and sanctions preventing the maintenance and the supply of parts by foreign manufacturers.