Russian Economy In Dire Straits As Sanctions Cripple Production

When Russian President Vladimir Putin launched last month a new council for coordinating supplies for the Russian army, he seemed to recognize the scale of the economic problems facing the country, and his sense of urgency was palpable, Catherine Belton and Robyn Dixon reported for the Washington Post.

Photo Insert: The Russian economy officially entered into recession last week.

"We have to be faster in deciding questions connected to supplying the special military operation and countering restrictions on the economy which, without any exaggeration, are truly unprecedented," he said.

Putin claimed that the "economic blitzkrieg" against Russia had failed, but Western sanctions are digging ever deeper into Russia's economy, exacerbating equipment shortages for its army and hampering its ability to launch any new ground offensive or build new missiles.

The outlook appears likely to worsen when the EU embargo on Russian oil sales comes into force Dec. 5. Combined with a price cap expected to be imposed on all sales of Russian oil outside the EU, the measure could cost the Russian budget at least $120 million in lost revenue per day.

Figures show the situation has worsened considerably since summer, when a steady stream of oil and gas revenue seemed to stabilize the Russian economy.

The Finance Ministry last week showed a key economic indicator - tax revenue from the non-oil and gas sector - fell 20 percent year in October compared with a year earlier. The state statistics agency Rosstat reported that retail sales fell 10 percent year on year in September and cargo turnover fell 7 percent.

"All objective indicators show there is a very strong drop in economic activity," said Vladimir Milov, a former Russian deputy energy minister who is now a leading opposition politician in exile. "The spiral is escalating, and there is no way out of this now."

Deeper problems were also lurking in the Russian banking sector, where most accounting has been classified. The Russian Central Bank reported this week that a record $14.7 billion in hard currency was withdrawn from the Russian banking system in October, amid increasing anxiety over mobilization and the state of the economy.

Even so, a November report by the Central Bank warned that Russia's GDP would face a sharper contraction of 7.1 percent in the fourth quarter of 2022, after falling 4.1 percent and 4 percent compared with last year in the previous two quarters.

Last week, as the Russian economy officially entered into recession, Central Bank Chairwoman Elvira Nabiullina told lawmakers that next year the situation could get darker still.

"We really need to look at the situation very soberly and with our eyes open. Things may get worse, we understand that," she said.

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