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How is the Russian economy performing under international sanctions? (2)

Russia l Economy | Sanctions | Nord Stream | Inflation | Russia-Ukraine war

The following article provides an overview of the Russian economy under the influence of international sanctions.

Account surplus

The current account surplus of the Russian Federation amounted to USD 227.4 billion in 2022, almost doubling compared to 2021.


The Russian Central Bank provides the following explanation for the increase:

  • increase of the current account was related to a significant expansion of the surplus of balance on goods and services as a result of growth in the value of supplies due to a rise in world prices for the main goods of Russian exports

  • in general, in 2022, the value of imports of goods and services reduced, nevertheless, decline in the imports observed in the first half of 2022 compared to last year’s indicator was replaced by their gradual recovery

In 2022, the main driver of the Russian economy, the export of fossil fuels, benefited strongly from the sharp rise in prices. However, it is also apparent that the trend is clearly pointing downwards as sanctions become more stringent. In December 2022, exports of fossil fuels were distributed as follows among different countries:


"The EU remained the largest importer of oil from Russia in December, when pipeline crude oil and all oil products are included. This is changing as Germany ceased to import Russian pipeline oil at the end of December and the oil products ban enters into force in February. Japan became the largest importer of LNG from Russia as European buyers cut purchases. China, South Korea, Turkey, India and Japan were the largest importers of coal." -CREA

According to an estimate by the Centre for Research on Energy and Clean Air (CREA), Russia's earnings from fossil fuel exports are expected to decline further as sanctions are tightened.

"The steps taken by the EU and allies in December–January cut Russiaʼs fossil fuel export revenue by an estimated EUR 160 mn per day. Further measures that are being implemented by February 5, 2023, will result in an estimated additional EUR 120 mn per day reduction. These include the EU oil product import ban, price cap (assumed at USD65/barrel) and Polish Orlenʼs announcement of not renewing a contract with Rosneft in January for pipeline crude oil." -CREA


Part 1 from Jul 13, 2022:


Shortly after Russia's invasion of the Ukraine, the ruble collapsed and reached a new all-time low of around 130 rubles per US-Dollar in March. Since then the ruble has rebounded strongly despite all the sanctions imposed and is currently trading at around 60 rubles per US-Dollar.

A comparison with other emerging market currencies shows impressively how strongly the ruble has recovered since the beginning of the year.


There are two main reasons for the strong recovery of the currency: current account surplus and capital controls. In the second quarter of 2022, Russia's current account surplus hit $70.1 billion, its highest mark since at least 1994. On the export side, Russia is benefiting from the sharp rise in oil and gas prices. On the import side, however, imports have declined even more as a result of the western sanctions. This growing surplus favours an appreciation of the ruble.

Current account surplus

Furthermore, the strict capital controls of the Russian central bank are strengthening the currency. Below is a list of some of these measures:

  • Russian exporters are required to convert a percentage their excess revenues into rubles (currently 50%)

  • $10,000 limit on foreign cash withdrawals

  • During a calendar month, individuals may transfer no more than 10,000 US dollars or an equivalent amount in another currency from their accounts with Russian banks to their foreign accounts or to another individual abroad

The impact of capital controls and Western sanctions on the daily volume of the ruble/dollar spot rate can be seen in the following graph.

"The daily turnover in the Russian ruble–U.S. dollar spot market at Russian banks and at the Moscow Exchange illustrates how access to foreign exchange dollars has been limited (Chart 4). This daily turnover collapsed to near zero in late February/early March. This is the impact of sanctions (preventing ruble asset purchases by nonresidents) and capital controls (preventing dollar asset purchases by residents)."

The Dallas Fed therefore draws the following conclusion:

"Capital controls seem to have prevented capital outflows and stabilized the value of the ruble in the short run."


According to estimates by the Russian Central Bank in April, Russia's GDP will fall by around 8-10% in 2022. However, the central bank has already announced that it will revise this figure upwards.The revised forecast will most likely be published in July. Kirill Tremasov, the Russian Central Bank's director of monetary policy, said the following:

"So far, we can say that the crisis is developing along a softer, gentler trajectory than it was assumed at the beginning of spring … We are clearly moving along a more gentle trajectory. We are already seeing signs of stabilization."

The Ministry of Economic Development estimates that Russia's GDP will decline by 7.8% this year. But also this first estimate has already been announced to be revised upwards. For comparison, the western estimates according to Business Insider:

"Economists polled by Bloomberg in June on average said Russia's GDP will fall 9.6% this year, although that was down from an average forecast of 10% in May."

Interest rates

On 28 February, shortly after the invasion, the Russian Central Bank raised interest rates from 9.5% to 20% in an emergency meeting.

External conditions for the Russian economy have drastically changed. The increase of the key rate will ensure a rise in deposit rates to levels needed to compensate for the increased depreciation and inflation risks. This is needed to support financial and price stability and protect the savings of citizens from depreciation.

Since then, we have returned to 9.5%. On 10 June, the Russian central bank decided to cut the key interest rate by 150 basis points to 9.50%. This step was explained in the following way:

The external environment for the Russian economy remains challenging and significantly constrains economic activity. At the same time, inflation is slowing faster and the decline in economic activity is of a smaller magnitude than the Bank of Russia expected in April. Recent data suggest that price growth rates in May and early June have been low. This comes as a result of ruble exchange rate movements and the tailing-off of the surge in consumer demand in the context of a marked decline in inflation expectations of households and businesses.


Since February, the EU has imposed six packages of sanctions against Russia. With the sixth sanctions package, the EU has banned the purchase, import or transfer of crude oil and certain petroleum products from Russia to the EU. This is to take place over a period of 6 to 8 months.

Since the fifth package, trade sanctions on Russian imports have covered 10% of Russian goods crossing the EU border, equivalent to €14-17 billion of trade (these figures are calculated based on 2019 trade data, in a bid to avoid incorporating the effects from the Covid-19 crisis). Once the sixth package has become fully effective at the end of the year, that figure will have risen to 65%

Share of EU imports from Russia affected by sanctions


The next graph illustrates clearly that the sanctions differ greatly depending on the sector.

Share of EU imports from Russia banned by sanctions


Russian oil exports show a strong shift away from the Western countries towards the BRICS countries.

"Between January 2015 and May 2022, BRICS bound flows increased from a mere 165 kbd to 2.250 mbd, from 4.5% to 44% of total Russian exports. During the same period non-BRICS exports fell from 3.55 mbd to 2.875 mbd, going from 95.5% to 56% of Russian crude exports, according to Kpler."

China and India in particular are profiting as buyers of Russian oil. This is shown by multiple reports from Reuters.

China and India now account for about 50% of Russia's seaborne oil exports. India's imports from Russia rose 15.5% in June from May. At the same time, its share of oil from Iraq and Saudi Arabia dropped 10.5% and 13.5%, respectively. -Reuters


According to the European Council, the following measures that restrict Russian imports have been implemented:

  • cutting-edge technology (e.g. quantum computers and advanced semiconductors, high-end electronics and software)

  • certain types of machinery and transportation equipment

  • specific goods and technology needed for oil refining

  • energy industry equipment, technology and services

  • aviation and space industry goods and technology (e.g. aircraft, spare parts or any kind of equipment for planes and helicopters, jet fuel)

  • maritime navigation goods and radio communication technology

  • a number of dual-use goods (goods that could be used for both civil and military purposes), such as drones and software for drones or encryption devices

  • luxury goods (e.g. luxury cars, watches, jewellery)

There is a consensus among many experts that the serious consequences of the sanctions will only become apparent in the longer term. In particular, the relocation of foreign companies and the lack of imports of essential components will become a problem. As one example resulting from these sanctions, the European Council cites the following:

This means that Russian airlines cannot buy any aircraft, spare parts or equipment for their fleet and cannot perform the necessary repairs or technical inspections. As three-quarters of Russia’s current commercial air fleet were produced in the EU, the US or Canada, over time the ban is likely to result in the grounding of a significant proportion of the Russian civil aviation fleet, even for domestic flights.

In the short term, the Russian economy appears "relatively resilient" to the Western sanctions due to Europe's dependence on Russian commodities and strong capital controls. In the medium to long term, however, the Russian economy is threatened with severe losses. Europe's reduced dependence on Russia's commodities, the shortage of critical imports and the impact of reduced capital controls will be the key factors.

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