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Sanctions against Russia: what can actually break the Putin regime

The report “Sanctions against Russia: what can actually break the Putin regime”

  • Russia’s domestic political stability at the moment seems relatively high. Protest sentiment in Russia is low, there has been no significant split of elites, and the loyalty of the security forces is not yet in question. There is little dissatisfaction with the consequences of the war among a small number of such elites as “technocrats” and “old officials.”
  • Under certain conditions, the huge gap between the youth and the older generation in Russia can be a source of a rift that will lead to qualitative political changes, as this is currently the weak point of the Russian political system. Young people under the age of 30 and the urban middle class are the most affected by the current situation of the population capable of protest.
  • The basis of internal stability in Russia is Putin’s personal image and absolute PERSONAL trust in him by the population, not the government, parliament or government as a whole. It holds an elite consensus, as well as a social contract in Russia, which he himself guarantees and embodies.
  • The Russian financial system is quite stable. According to the generally accepted international criteria, the Central Bank’s unfrozen reserves exceed the level of sufficiency. Given the high oil prices (even with the discount for Russia) and the absence of embargoes from China and Europe, we do not see any serious threats in terms of the balance of payments and foreign exchange needs.
  • As long as oil prices remain high and Russia sells them, there are no risks to Russia’s budget stability. Factors that may critically affect the budgetary stability are: a) oil prices (their decrease); b) embargo on oil purchases from Europe and / or China + secondary sanctions for violating the embargo.
  • Russia’s economy is reaching its critical situation. Sanctions will have critical consequences for the quality and standards of  Russians’ lives in the next ten years, accelerating the emigration process and deepening the demographic crisis. However, the effect of sanctions will be a long-term trend, none of which poses a threat to the regime in 1-2 years.
  • The largest blow by the sanctions will be in the aviation sector, automotive sector, mechanical engineering, electronics sector, oil and gas sector (its modernization), and metallurgy. The more technological production is, the higher the share of imported components and, accordingly, the more it will suffer from sanctions.
  • In foreign policy, Russia’s resilience depends on neutrality / cooperation with most non-Western nations, including the “heavyweights” such as China, India, Turkey, the UAE, Saudi Arabia, etc.
  • Those who do not join the sanctions, for the most part, do not want to do so for political and ideological reasons not related to Ukraine as such or the situation inside of Ukraine. This is either a political calculation, a dependence on strategic resources, commercial interests, a reluctance to violate the traditions of neutrality, or a reluctance to submit to the United States against Russia, and set a precedent.
  • Russia’s key tasks in this area are to prevent non-Western countries from joining sanctions, maintaining cooperation with them, transferring trade to national currencies, reorienting their markets, and establishing supplies of goods through third countries.

Section I. Political stability of the Russian Federation


            As of today, the domestic political stability in the political system of Russia is based on four pillars:

  1. Low level of protest potential.
  2. Personal trust in Vladimir Putin, his political figure, and his legacy.
  3. Consolidation of elite groups.
  4. Army loyalty and control over the regions.


Low level of protest potential

            The main factors influencing the level of protest potential in Russian society are anti-war sentiment among citizens, the number of victims of the war, distrust of the government, the degree of repression against citizens, trade shortages, and falling living standards. However, all these factors have nuances or features that make it very difficult to calculate how each of them can be a catalyst for political change.

            The anti-war sentiment among Russians is still quite low. It has never been high, mostly due to the peculiarities of the relationship between civil society and government in Russia and the post-Soviet space in general. Unlike the United States and Europe, where civil society exists autonomously from the government, this has not happened in Russia. The most autonomous citizens in matters of valuable understanding of everyday life are mainly residents of large cities with higher education, the leftist intelligentsia, or oppositional political parties and organizations. The rest of the Russians do not have the opportunity and time to engage in activism. Due to the high level of anti-Western sentiment, activism itself (including pacifism) has always been identified with something else, different and negative, such as the activities of foreign agents and the “fifth column.”[1]

            In addition, anti-war sentiment in Russia was not born because the country, unlike Europe and the United States, has never gone through the tragedy of total military defeat on the mental and cultural-ideological levels. After 1945, Stalin pursued a policy aimed at creating the myth of the “great victory”, which was further picked up by his successors M. Khrushchev and L. Brezhnev, and after 1991, Putin built the same understanding, only on the results of the Cold War.

            It is also important to note that the factor of the absence of war, which would affect most of the territory, also influences the situation. For most Russians, even World War II is a “victory parade” and a “Red Army attack on Berlin.” The memory of the war is based on ideologies, making it easy for the Kremlin to create and manage ideological military myths.

            The combination of triumphant nostalgic myths, an imposed sense of injustice incomparable with these myths, and aggressive revanchist sentiments actually gave rise to the neoconservative post-Soviet Russian ideology, which became the basis of the worldview of Russian leaders. In this logic, any talk of reconciliation was impossible because it was perceived as a weakness.

            Therefore, it is not surprising that more than 60% of Russians, according to a Levada Center poll conducted in late February 2022, believe that Russia’s war in Ukraine was provoked by the United States and NATO countries [2]. More than 70% of Russians, according to a poll by the VTsIOM on March 17, support Russia’s “military operation” in Ukraine [3].

            At the same time, the current situation with regard to protests strongly depends on another relatively new problem faced by Russian elites – the widening gap between the youth and the older generation. In a recent study in November 2021, the Levada Center noted that attitudes among young people under the age of 30 had changed dramatically, their willingness to participate in protests has increased, and pessimism about power and their ability to govern has increased as well. [4] Lev Gudkov, head of the Levada Center, said in an interview that Russian youth today is very different from older people, the authorities do not know what to do with them, and young people are afraid of the administration and police, wars, and mass repressions.[5]

            The number of war victims so far cannot change Russian public opinion due to the emptiness of the information in Russia’s media space. Even the 20,000-30,000 deaths among Russian servicemen are unlikely to be the “drop” that will force Russians to go to rallies and resist the political system, let alone form adequate, conscious political demands or support the emergence of leaders who can outline these demands to the audience and gather people around themselves.

            It seems that the price of human life in Russia is lower than the price of human life in Ukraine or in European countries. This is Russia’s advantage in this war, which Putin is actively using because he knows that his country’s “sensitivity threshold” is much lower in this conflict than that of his opponents.

            An ideological construct also plays a role in reducing sensitivity. The average Russian citizen sees the war as a “picture” and their military as a “liberator.” Therefore, the number of victims for them is just a “statistic” that exists in light of the “big country”; it is not a deep personal tragedy.

            The biggest number of participants in anti-war rallies in Russia was mostly in
St. Petersburg and Moscow
. From February 24 to 27, almost 6,000 people were detained across Russia for participating in unauthorized rallies. [6] Gradually, the number of demonstrators decreased. If in the first three days after the start of the war, the number of detainees exceeded 3,000, then after the peak protests on March 6, when more than 5,000 people were detained [7], and this wave began to subside rapidly. More than 800 people were detained at various anti-war rallies on March 13, and by March 20, the situation had returned to single pickets. As of mid-March, 65% of people expressed support for Russia’s invasion of Ukraine [8].

            Distrust of the government in Russia has always been present but in contrast to Ukraine, where criticism of the government is perceived as our national trait or even value, [9] in Russia it is customary to criticize conditional “boyars” and not the “tsar” himself.

            In other words, public and open criticism of a political leader is unacceptable to most Russians, not only because they are afraid but because it is part of their mentality and historical tradition. Therefore, it is useless to expect distrust of the government to increase as a result of the war. On the contrary: tightening the screws and consolidating media resources will lead to even greater unification of supporters around the leader, and the blame for failures can always be “thrown” on disloyal “boyars” or “fifth column”. In such circumstances, the growth of anti-war sentiment will be suppressed as a manifestation of “weakness” or “betrayal of state interests.”

            Commodity shortages, falling living standards and incomes are also medium- and long-term factors and not instantaneous. Moreover, these are very difficult to be predicted. As historical examples show (Syria, Venezuela, Iran, North Korea, Cuba, Iraq), authoritarian systems of impoverishment and a sharp decline in income provoke political reaction only among some wealthy people in big cities and a part of the middle business class. The rest of the citizens are consolidating around their leaders. They are becoming easier to manage because they are even more dependent on the state, its services, and the distribution of wealth.

            It is also important to understand the ideological construction of the “great country”. Since Soviet times, sentiments have been instilled that “for the sake of the greatness of the country, it is acceptable to suffer.” In other words, the decline in living standards in light of “external victories ” will not be perceived by a large part of the population as a factor of irritation. Exceptions are megacities that have partially emerged from the Sovietpublic sentiment’s ideological construction.

            When an authoritarian system inevitably begins to degenerate into a totalitarian system (as in North Korea), the economic and financial consequences of sanctions only make it easier for the authorities to tighten the screws, renew elites, and consolidate the population around their leaders. Therefore, it is unlikely that the economic and financial consequences of sanctions will be able to change the protest mood of Russians in the near future. Most likely, changes should be expected only if the depth and strength of sanctions’ pressure remain unchanged for the next 1-4 years.

            Repression against Russian population can lead to a decline in trust in government institutions and provoke a protest. But this will only occur if it happens en masse and affects DIFFERENT groups of Russian citizens, not just those who are “traditionally” detained and repressed, such as various liberal activists in St. Petersburg and Moscow, whose fate for most loyal Russians in provinces and other regions is indifferent, as shown by the murder of Boris Nemtsov or the arrest of Alexei Navalniy.

            In addition, most of those detained at anti-war rallies on February 25-March 6 were released by Russian authorities. It demonstrates the government’s efforts to avoid large-scale repression against the people. So far, Moscow is holding back the protesters with the psychological pressure that is currently working. The Kremlin is aware that in the case of excessive tightening of the screws, when the issue ceases to be “Ukrainian” and crosses the border becoming “Russian domestic one”, then the situation will seriously deteriorate Russia’s elites position.

            A much more REAL reaction, even of a political nature, can be provoked by repressions that will affect the interests of citizens or even those of regional elites, as happened, for example, in Khabarovsk in 2021.

            As of today, we assess the willingness of Russians to actively protest as quite low, except in large cities with an active middle class and young people, who will suffer the most from all the above factors. However, this will not be enough to create a critical blow to the political system and bring a change of government until Putin’s personal credibility and his personality will be questioned and people will sense the lies on the part of their leaders.


Personal trust in Vladimir Putin

            Personal trust in Vladimir Putin in Russia is built around his image. As long as his image remains strong, his actions will continue to be supported by the nuclear electorate of conservative Russians in the provinces and suburbs.

            Putin’s image and personality are based on several fundamental narratives that are not yet under threat of destruction:

  • Vladimir Putin is the first Russian leader in a long time to restore at least part of the “greatness” of the country after the humiliating 1980s and 1990s;
  • Vladimir Putin may be an imperfect leader, but he has really improved the lives of Russians since the “terrible Western experiments” of the 1990s, and for that, he must go down in history;
  • Vladimir Putin has significantly strengthened Russia’s foreign policy position over the past 10-15 years, and for that, he and Russia are hated in the West;
  • Vladimir Putin became the architect of Russia’s military modernization, which allowed Russia to return to the active international policy of the Soviet era, including through successful interventions in Syria, Libya, Ukraine, Kazakhstan, Nagorno-Karabakh, Venezuela, etc., and now challenge the West and the United States;
  • Vladimir Putin is a just leader whose military interventions, while leading to tragedies and undesirable conflicts with the West, nevertheless aims to “restore justice” in the world that Russia was deprived of after 1991, leading to Russia’s “collective salvation” because of struggle with the evil forces that first destroyed the Russian Empire, then the USSR, and are now trying to destroy Russia.

            Putin’s image was deliberately built around the imperial myth. As long as the Kremlin demonstrates (but it will only show, not have the real results) victory in the logic of “strengthening the state”, Putin’s popularity will not fall. The key factor is the information – what matters is not what happened but what was “shown and said.”


Unity of elite groups

            In any political system, especially an authoritarian one, stability is based on the consolidation and unity of elites around a political leader. As long as they are united around him, it may be too early to talk about the rapid collapse of such a system. For example, the political crisis in Belarus in 2020 did not lead to significant changes precisely because of the loyalty of elites to President Lukashenko. Most elite groups remained consolidated around Syrian President Assad in 2011-2021, which allowed him to stay in power. The unity of the elites in Iran also shapes the Islamic Republic’s resilience to external pressure.

            In the case of Russia, the main elite groups that form the basis of Putin’s political system now remain consolidated around the Russian president. Slight cracks between them are evident, but mostly in the economic and financial consequences of sanctions pressure.

            Currently, the main elite groups in Russia can be divided as follows, according to the classification we gave in the report “The Death of Putin” in 2019 [10]:

  1. “Security officers” Group (S. Shoigu, O. Bortnikov, O. Bastrykin, V. Gerasimov, A. Vaino, D. Kozak, M. Patrushev, V. Zolotov, V. Kolokoltsev, and others);
  2. State Corporation Group (S. Chemezov, I. Sechin, S. Miller, D. Rogozin, D. Medvedev, and others);
  3. “Fuel and Energy Complex” Subgroup (I. Sechin, O. Miller, V. Khmarin, B. Kovalchuk, O. Likhachev, S. Kirienko, and others);
  4. “Military-Industrial Complex” Subgroup (M. Kolesov, S. Chemezov, D. Manturov, S. Sokol, A. Bokaryov, O. Kryvoruchko, M. Fradkov, J. Novikov, O. Artyukhov, and others);
  5. Technocrats Group (M. Mishustin, G. Gref, A. Siluanov, E. Nabiullina, O. Kudrin, I. Shuvalov, S. Kirienko,and others);
  6. “Politics \ ideology \ foreign policy” Group (S. Lavrov, A. Turchak, Y. Ushakov, L. Slutsky, D. Peskov, B. Gryzlov, V. Surkov, V. Volodin, V. Zhirinovsiky, S. Mironov, G. Zyuganov, Patriarch Kirill, and others);
  7. Private Business Group (Y. Kovalchuk, A. Rottenberg, R. Abramovich, D. Mazepin, A. Usmanov, V. Potanin, O. Deripaska , G. Timchenko);
  8. “Regional Elites” Group (S. Sobyanin, R. Kadyrov, Y. Trutnev, R. Minnikhanov, A. Vorobyov, R. Khabirov, A. Beglov, and others).

One should also recall the purge of regional leaders in 2012-2020. With the exception of regions where local elites have declared 100% loyalty to Putin (Group 8), the rest are now led by so-called “paratroopers” – supporters of the center, who are gradually cutting off local political and financial groups from decision-making. These representatives have the support of one of the seven target groups, depending on the interest in the region and its resources.

            Currently, the greatest dissatisfaction with the situation in Ukraine is among the representatives of the financial and economic bloc from the group of “technocrats”, as they have to deal with Western sanctions in a context where Russia’s economy is still dependent on Western financial systems and markets.

            In addition, minor “cracks” have emerged among the oligarchs of the Private Business group, but not all, only those who previously worked with Putin and today are not close to him. For example, Roman Abramovich, Petro Aven, and Oleg Deripaska expressed their dissatisfaction with the war.

            Finally, some progress has been made among political associates of the “early” Putin, people from the group of “Politicians / ideologues” who are currently not close to the Russian president. In particular, Arkadiy Dvorkovich and Anatoliy Chubais resigned and left the Russian Federation.

            However, all these “dissatisfied” do not come together and do not resist the system but prefer to distance themselves from the problems and just leave. Therefore, this cannot be called a full-fledged split of the ruling elites, especially since it does not in any way affect the stability of Putin’s political vertical.

            Finally, it should be noted that all of the above groups compete with each other and do not have their own alternative candidates who could be an alternative to Putin or around whom several groups of influence could unite. If that happens, only then will they be considered a REAL threat to Putin’s political monopoly and his inner circle.


Loyalty of the army and special services

            The loyalty of the army and special services is a very important factor in Russia, especially for senior officers. As long as the security forces remain loyal to the president, the chances of the system collapsing quickly are diminishing.

            The Russian military has not become a separate institution or class in Russia as, for example, in some Middle Eastern states. The loyalty of the Russian army is based on a brutal vertical of government, as well as on the unlimited power of senior officers, which require only loyalty personally to the President of the Russian Federation. The involvement of senior military command in business circles also contributes to their consolidation around a political leader.

            However, Russia’s special services, especially the FSB, have become a separate class, both power and political one, on which Putin’s vertical relies.

            The stability of the social contract in Russia is very important now: the population gives the government legitimacy, and the government gives people a sense of stability and greatness. As long as this pattern of relations remains, especially for state-dependent Russians in the regions, and as long as the center can subsidize the regions and cover their basic needs, there will be a political system built by Vladimir Putin, supported by advocacy. The same will affect the general condition of ordinary servicemen, special services,and members of their families.

            But it is worth noting that this very social contract is largely based on the figure of President Putin, who both embodies it and guarantees its implementation, and so far, few can doubt that.

            A separate factor that also affects Russia’s political stability is the presence of an external enemy, which channels all the negativity, explaining both the causes of the war, its prolongation, and casualties.

            The narrative of the “Nazis” in Ukraine is not central to this discourse; it is only an auxiliary line used to de-humanize Ukrainians using images that are closer to Russian historical propaganda and culture – World War II.

            The narrative about the confrontation between Russia and the United States remains critical, through which Russia must bear all these sacrifices and sufferings. In a sense, in the perception of Russians, the war in Ukraine is a global battle with the United States, due to the victory of which the country will come to “collective salvation” in a more just world.

Section II. Financial and economic stability of Russia

From the economic point of view, the strength of the current regime in Russia is influenced by two groups of factors:

  1. Factors of financial stability: Reserves of the Central Bank and Balance of Payments, and Budget (depending on export revenues).
  2. Factors of economic stability: GDP, inflation, employment, real incomes, etc.

Financial stability is determined by:

  1. the availability of currency to pay for critical imports and the fulfillment by economic agents of their foreign economic obligations (i.e., balance of trade, balance of payments, and reserves of the Central Bank).
  2. the ability of the Russian economy to generate sufficient funds to finance budget expenditures, i.e.,budget revenues.

Economic stability is determined as a set of indicators that reflect the real state of the economic sector and form the preconditions for the growth of domestic discontent and protests. Of course, we have no illusions about the possibility of a rapid overthrow of the regime. The dictatorship based on resources is insensitive to protests, and Putin as a “dictator of fear”, is well versed in the tools to suppress them.

However, our analysis is based on the impact of sanctions on the economy and incomes of citizens because this is where the slow-moving mine for the regime is laid (not at the moment, but in the long run). An economically weak, technologically backward country with poverty and gradual barbarization of the population can be a good springboard for the emergence of Lenin 2.0 and the people’s revolution.


  1. Financial stability
  2. a) Reserves of the Central Bank and Balance of Payments (BP)

The stability of the foreign exchange market is determined by the amount of currency coming into the country. These are mainly export revenues, while in Russia, these are primarily revenues from exports of oil and oil products (about 40% of total exports of goods in 2021), as well as natural gas (10-11% ).

If the inflow of currency into the country exceeds its outflow, a positive balance of payments is formed. Due to the surplus of BP, the reserves of the Central Bank are replenished, which act as a safety cushion in case of macroeconomic destabilization.

Due to high energy prices, Russia has had a foreign trade surplus in recent years (up to $200 billion per year), a positive balance of payments (excluding 2014 and 2020), and was able to accumulate a significant amount of reserves – $640 billion (as of 18.02.2022). Some of them were frozen due to sanctions. According to various estimates, the Central Bank has around $200-340 billion at its disposal.

  • According to some estimates, this is about $200 billion: about $130 billion stored in Russia in the form of monetary gold and $70 billion in yuan. It should be noted that gold is an illiquid asset, and it is unlikely to be sold for foreign currency.
  • According to the Minister of Finance of the Russian Federation, Siluanov, about $300 billion of Russia’s reserves were frozen due to sanctions by the United States, the European Union, and their allies. Accordingly, $340 billion are left.
  • According to the Russian market participants, about 50% of reserves are frozen, with the most liquid part. About $300-320 billion remain unfrozen. Among them:
  • about $140 billion – in monetary gold;
  • $90 billion – in China;
  • $30 billion – Russia’s share in international organizations;
  • $35 billion – cash in the Central Bank’s vault.

According to this source, about $70 billion in reserves are in other countries (information not disclosed), and some of them may be available to Russia.

According to media reports, the United States is putting pressure on China to limit Russia’s access to its yuan reserves. The United States has also opposed the digital yuan. It is believed that Russia can use it after disconnecting from SWIFT.

Russia also has the National Welfare Fund, the so-called airbag, the funds of which are used to cover the deficit of the Federal budget, the budget of the Pension Fund, and co-financing of voluntary pension savings.

The Fund is replenished from revenues of the oil and gas sector in accordance with the budget rule (additional revenues from price increases above the budget threshold) and from revenues of the Fund’s management activities (purchase of debt, securities, shares, deposits).

As of February 1, 2022, the Fund’s assets amount to $175 billion, of which 50% ($87 billion) are in foreign currency on the accounts of the Central Bank and are accounted for as part of the Central Bank’s reserves (which can probably be frozen) and gold (also taken into account as part of the reserves of the Central Bank).

The analysis comes back to the Central Bank’s reserves. For now, we will start from the available estimates of funds available to Russia – $200-340 billion.

Even $200 billion is a sufficient amount for the financial stability of the Russian Federation for the next 6 months – 1 year.

The Central Bank’s reserves are needed primarily to pay for critical imports.

According to the IMF criterion, the amount of reserves must provide financing for at least three months of future imports of goods and services. The annual volume of imports of goods and services of the Russian Federation in 2021 amounted to $378 billion. This year, imports will decline significantly, both due to direct sanctions and logistical gaps, but we estimate that it will not fall below $200-250 billion.

According to the IMF criteria, a sufficient level of Central Bank reserves for Russia in 2022 is about $50-60 billion. Even the level of $200 billion is 3-4 times more than necessary.

According to the Reddy ‘s criterion, the minimum level of reserves should be sufficient to cover three months of imports of goods and services to cover all payments on external public and private debt over the next 12 months.

Payments on Russia’s external debt (public and private) for the next 12 months (April 2022-March 2023), according to the Central Bank, amount to about $65 billion, and the value of three-month imports – $50-60 billion. According to this criterion, the sufficient level of reserves for Russia is $115-125 billion, which is also significantly lower than the unfrozen $200-340 billion.

According to the Currency Board criterion, international reserves should be sufficient to convert the monetary base into dollars at the exchange rate. The volume of the monetary base in the Russian Federation as of March 1, 2022, is 16.3 trillion rubles; the official exchange rate is 95.66 rubles per dollar (as of 26.03.2022). Thus, the minimum level of reserves is estimated at $170 billion.

That is, according to any of the generally accepted international criteria, the unfrozen reserves of the Central Bank exceed the level of sufficiency.

Regarding the demand for currency and its coverage for the next 12 months:

  1. Due to the war and the imposition of large-scale sanctions against Russia, capital flight has According to market participants, the demand for currency from Russians who want to withdraw money abroad is about $100-150 billion. In an attempt to stabilize the system, the authorities imposed restrictions on the free circulation of currency. Until September, it is forbidden to withdraw deposits in euros and dollars (more than $10 thousand ), transfer funds to their foreign accounts, and export foreign currency (more than $10 thousand). Foreigners cannot sell Russian stocks and bonds and transfer coupons and dividends to their accounts, while residents and non-residents of 43 countries (which have imposed sanctions on Russia) cannot transfer funds to their bank accounts outside Russia. Exporters were obliged to sell 80% of foreign exchange earnings. Restrictions in full or in part may persist until the general shock is absorbed and the ruble exchange rate stabilizes. To stabilize the situation on the stock exchanges, the Central Bank is likely to use the most liquid part of the reserves.
  2. Russia’s external public debt is relatively small: $478 billion or 26.9% of GDP (as of the end of 2021). But what matters is not the debt itself but the payments for it.

According to the Central Bank, in the next 12 months. they will amount to $65 billion. There are alsoother estimates: “In the next 12 months, Russian banks and companies will have to repay about $100 billion , which they planned to refinance. This means that the Russian economy will have to direct significant financial resources to repay foreign debt. Thus, depending on the estimate, this is another $65-100 billion to the above-mentioned $100-150 billion of potential capital outflow from the country.

For reference: in early April, the Russian government must pay €2 billion in Eurobonds. Of course, there are enough existing reserves to do so, so the announcement of the default, which has recently been actively reported in the media, may be a purely political decision, a kind of counter-sanction and revenge of Russia on the West. The default will have no serious consequences for Russia in terms of financial stability in the short term.

  1. On the other hand, demand for the currency from the Russian population is expected to shrink, which will sharply reduce travel abroad (estimated at minus several tens of $ billions).
  2. The key aspect here, though, is a positive trade balance. According to the Central Bank, the positive balance of trade in goods in 2021 amounted to $186 billion. In the 3rd and 4th quarters, it was $18 billion and $20 billion per In just two months of 2022 – January-February – the trade surplus exceeded $45 billion, which is 2.5 times higher than in January-February 2021 (Central Bank data ).

So far, the embargo on the purchase of Russian oil and petroleum products has been imposed only by the United States, Great Britain, Canada, and Australia, whose total share in Russia’s oil exports is about 6%.

The sanctions have been joined by some private companies, such as BP and Shell , which are not only leaving Russian businesses (closing gas stations in Russia ) but also stopped buying Russian oil. Maersk, a company specializing in maritime freight, refuses to carry Russian oil.

It is unlikely that the embargo will be supported in the coming months by key buyers of Russian oil – China and Europe.

Europe pays about $700 million a day . Russia finances its budget and military operations for oil and gas, which replenish Russia’s foreign exchange reserves.

Now let’s look at the oil prices:

Brand III quarter of 2021 VI quarter of 2021 2021 January-February 2022 03/21/2022 2022E
Brent, USD / barrel 73.51 79.61 70.86 91.69 122.29 105 135
Urals, USD / barrel 71.12 77.89 69.12 89.83 95.3 n / a


According to the EIA and Goldman Sachs forecasts, the average annual price of Brent oil in 2022 will rise to $105-135 per barrel due to sanctions against Russia, and according to JP Morgan, at the end of the year may reach $185 per barrel .

Obviously, with such oil prices, even if Russia sells it at a discount of 15-20-30% (discount of Urals to Brent reached 28.5 dollars / barrel), and the expected reduction in imports, the trade balance will be in the black. The reduction in physical supply (the EIA estimates a possible reduction in oil production in Russia by 25-30% ) can be fully or partially offset by rising prices. The same applies to possible restrictions on the purchase of Russian gas in Europe. In the short term, the tightening of measures will stimulate price increases.

Metals exported by Russia are now also at their peak (nickel – more than doubled since the beginning of the year, palladium – + 27% since the beginning of the year).

Accordingly, while maintaining the current price situation, Russia’s trade surplus may well fluctuate at $18-20 billion per month or $220-240 billion per year, which is enough to cover the demand for currency, stabilize the foreign exchange market, and even form the economic preconditions for strengthening the ruble by the end of the year.

Thus, given the high oil prices (even with the discount for Russia) and the absence of embargoes from China and Europe, we do not see any serious threats in terms of the balance of payments and foreign exchange needs. The Central Bank’s existing reserves are sufficient to balance short-term shocks caused by panic and to finance critical imports.

  1. b) Budget

The ability of the Russian economy to generate sufficient revenues to finance budget expenditures depends primarily on the price of oil and, to a lesser extent – the price of natural gas (according to Russian experts, it is 15-20 times lower than oil in terms of incoming rent to the budget). The share of oil and gas revenues in the federal budget of the Russian Federation ranges from 36 to 46% (depending on the year), and in some years , it has reached 50% .

Budget revenues should be sufficient to, first of all, “feed” the security forces, guards, security guards, and Putin’s inner circle. These are relatively small amounts compared to the total budget (up to 10% ). As long as there is money to pay the police for dispersing the protesters, the regime is holding on.

Secondly, it is necessary to make social payments (pensions, various types of assistance), pay state employees, and support the poorest electorate, which will be even poorer in light of inflation.

The oligarchs (who are close to Putin) also “benefit” from oil and gas.

The budget of the Russian Federation for 2022 is designed based on the following indicators:

  • The projected price for oil is $77.7 / barrel (forecast by the Ministry of Economic Development of the Russian Federation), and the price for financing budget expenditures is set at $44.2 / barrel .

According to the budget rule, when planning the federal budget, the maximum price for Urals oil has been set (in 2022 – 44.2 dollars / barrel). If the price rises above the established threshold, all additional budget revenues will not cover the expenditure part but will go to the National Welfare Fund. This allows to not inflate budget spending at high energy prices.

Actual figures as of March 2022 are as follows:

War and sanctions will definitely affect budget revenues. However, high oil prices and the devaluation of the ruble, in our estimation, compensate for the decline in the physical volume of oil exports and the expected contraction of the economy. Revenues from VAT and other taxes are likely to increase due to inflation.

Therefore, provided that oil prices remain high, we do not see any problems with the financing of the expenditure part of the budget. It is likely that by the end of the year, the budget will be consolidated with a small deficit (up to 3% of GDP), which can be easily financed by domestic loans and the National Welfare Fund.

If necessary, a printing press can be turned on at any time to finance payments in rubles. However, this will inevitably lead to even higher inflation and even greater impoverishment.

Thus, the factors that may critically affect Russia’s budgetary stability:

  1. oil prices;
  2. embargo on oil purchases from Europe and / or China + secondary sanctions for violating the embargo.

Scenarios in which the price of oil may fall :

  • Increase in oil production in OPEC and Saudi Arabia: possible increase in production of Saudi Arabia –+2 million bpd , UAE – +1 million bpd .
  • The lifting of sanctions on Iran, the export of Iranian oil, the signing of a nuclear agreement between the United States and Iran: a possible increase in oil production by Iran – + 1 3 million bpd .
  • The lifting of sanctions on Venezuela, the export of Venezuelan oil: a possible increase in Venezuelan production – + 1-2 million bpd (only with significant investment).
  • A sharp decline in demand for oil amid the fall of the world economy (the emergence of new “black swans”, COVID 2.0).

Much depends on whether the United States succeeds in persuading the Middle East and whether it can reach an agreement with Iran. Russia and Israel are trying to thwart this agreement.

Scenarios in which the embargo is imposed by China and / or Europe:

  • If China or both China and Europe join the embargo, it can be assumed that the war will end in the complete defeat of Russia.
  • A possible scenario is that only Europe will impose an embargo. In this case, there will be an attempt to redirect oil from Europe to China, which has its own logistical limitations: the presence of tankers, the reluctance of individual shipowners to carry Russian oil due to reputational risks, and so on.

Secondary sanctions for Chinese banks could be a constraint in this scenario. That is, sanctions are imposed on those who buy oil from Russian companies. An example of falling under secondary sanctions is the French bank BNP Paribas which violated the US sanctions and paid a fine of $9 billion a few years ago .

  • There is also a scenario in which China does not join the embargo, and Russia will redirect all oil to China with a large discount in price (up to 30%). At the same time, all oil and liquefied natural gas currently exported to China are diverted to Europe.

In conclusion, we emphasize once again that the main sanction against Russia – a full oil embargo – has not been implemented. As long as oil prices remain high and Russia sells them, there are no risks to Russia’s fiscal stability.

  1. Russia’s economic stability.

In this section, we will look at the impact of sanctions on the Russian economy and their implications for different sectors and populations.

Unemployment, inflation, falling real incomes, and the deteriorating quality of life are creating discontent in society, which could theoretically lead to protests and regime change.

But, as we mentioned earlier, an increase in the level of protest potential does not mean willingness to protestor overthrow the government. There are several arguments as to why the current regime will be sustainable despite rising social tensions:

  • Fear. The dictatorship, based on its resources, does not need the funds of its taxpayers, it does not need to buy the loyalty of citizens, it is enough for it to have money to defend its own regime. That is, to keep the police, army, security guards, and make sure that people are “afraid to go out.” Since 2021, public protest in Russia has become even more dangerous. While there is no critical decline in export earnings from oil, financing such costs is not a problem, and the motivation to defend the regime remains high.
  • The complexity of the conspiracy. According to Russian political scientists, for many years, Putin has done hard work and built a reliable system of “protection against coups” .
  • Poverty and growing dependence on the state. The population will be poorer, and the poor are not the protest executioners. Falling incomes are forcing people to turn even more for help from the state and consolidate around the current government. Especially given the archetype of the people, who are accustomed to being unconditionally subject to power for the last few hundred years.

At the same time, the current situation in Russia and the implemented sanctions are unprecedented. The war in Ukraine has already caused a resonance and a relatively large number of harsh statements against the current government by the middle class, the Russian intelligentsia, and the circles of the so-called liberal opposition.

There is a study by political scientist Eric Chenovet  , based on which the ” 3.5% rule ” was derived. It is necessary to involve 3.5% of the population in the protest in order to achieve changes in society and guarantee any concessions from the government. For Russia, this is about 5 million people.

According to Russian political scientists, the first blow fell on those who “have moral guidelines.” It is them who are now opposing the war.

In the next round, when the isolation will fully take its toll, the rest of the population will be hit. People’s motives and behavior will also be determined by economic factors, such as the progressive trade deficit, the inability to buy ordinary goods, falling real disposable incomes, and impoverishment.

The longer this war lasts, the greater will be the public’s awareness of human and economic losses.

The more people protest against war and sanctions, the more costly the regime will be and the greater the preconditions for domestic political destabilization.

Sanctions and their consequences.

Sanctions against Russia can be divided into two types:

  • official government sanctions;
  • expression of the will of private companies (about 400 companies as of March 18).

Consequences of sanctions in the near future (1-6 months, 2nd quarter of 2022)

  1. Devaluation. During the month of the war, the Russian ruble fell by 19% in exchange for the US dollar; the official exchange rate as of March 26 is 66 rubles per dollar (but during the month, the fall reached 30%). During the closure of the stock exchange on March 24, 2022, the dollar exchange rate was 96 rubles . On the “black” market, one dollar is estimated at 250-300 rubles . For reference: in March, the European Union and the United States imposed a ban on the import of banknotes into Russia.

It is believed that the devaluation of the ruble by 10% leads to inflation by 1%. Accordingly, the fall of the ruble will lead to the “weight loss of Russians’ wallets”, reducing their real disposable income. For the economy, this means a reduction in effective demand.

  1. Reduction in the supply of imported products, a sharp narrowing of supply, and shortages of certain goods.

According to FourKites, since the beginning of the war, imports to Russia have fallen by 59%, including imports of household goods and industrial goods.

This is due to the influence of several factors:

  • Some companies have suspended supplies to Russia, in particular for moral and ethical reasons, due to reputational risks and more. LG Electronics, Apple, Cisco, Dell, HP, Ericsson, IBM, Intel, Microsoft, Nokia, Samsung, Siemens, Sony, L’Oreal, Louis Vuitton, Prada, Chanel, Tommy Hilfiger, Calvin Klein, Adidas, Nike, Puma,ZARA, H&M, IKEA, McDonald’s, PepsiCo, Netflix, Universal, Suzuki, Mercedes-Benz, BMW, Volkswagen, FedEx and UPS, Deutsche Bank, JP Morgan Chase, Baker McKenzie, Deloitte, E&Y, PWC, KPMG, PayPal, and many other companies have left Russia or suspended their activities.
  • World leaders in container shipping – Mediterranean Shipping Company (MSC), Maersk, and CMA CGM – have announced the cessation of new orders for the transportation of containers to / from Russia from March 1. Also, some terminals have stopped working with Russian containers. These containers carry food, medicine, clothing and footwear, gadgets, and other consumer goods. Russian economists estimate a 50% reduction in container traffic.
  • Sanctions have led to payment issues. Five Russian banks subject to sanctions are isolated from settlements in the five major world currencies. Sberbank transactions are blocked if they are carried out with the participation of the US and UK banks. Some suppliers now require full prepayment , which makes it difficult for many businesses in Russia that do not have the available circulating Some banks have introduced additional inspections due to sanctions, which increases the time of operations (there have been cases of the temporary blocking of Russian importers’ transactions ).

Exit of foreign banks from the Russian market (Deutsche Bank , Goldman Sachs , JPMorganChase , Commerzbank , Credit Agricole , BNP Paribas , SEB ) also creates certain difficulties as they cease to serve customers from Russia.

The G7 and the EU have also decided to disconnect several Russian banks from the SWIFT system. The disconnection of banks from SWIFT does not limit their ability to make payments in foreign currency but slows down payments and makes them more expensive (funds are debited from Russian companies but do not go directly to the counterparty and pass through third-country banks ).

It is important to note that the problems of banking transactions are rather temporary. At the moment, this leads to supply disruptions and rising costs, but over time, both importers and banks will adapt. Alternative and fast methods of payment through third countries or analogs of the SWIFT system will be created (for example, Russian SPFP and Chinese CIPS ).

Russian consumers have already faced a shortage of imported medicine and a rapid rise in their prices. The reason for the deficit is not a ban on the import of medicine to Russia but the cessation of container supplies and the refusal of pharmaceutical companies to supply medication.

The share of imported drugs in the Russian market is 55% , and the share of imported substances (substances from which medicine is then made) in Russian production – 80-85%.

It is likely that some of the Western suppliers that have left the market will be replaced by Indian pharmaceutical companies (negotiations are underway in this direction ). In part, this will be an alternative in the form of Russian-made medicine. The danger of import-substituting industries is that not all Russian manufacturers will be able to make quality analogs of some foreign medicine (for example, for the treatment of oncology and other serious diseases). Some unscrupulous companies may offer consumers an alternative in the form of a conditional “oak bark tincture.” This poses serious risks to Russian health and could lead to lower life expectancy in Russia in the long run.

  1. In the market economy, a reduction in supply always means an increase in prices.

So far, inflation estimates vary by 20-25% year on year , but it is possible that it will be higher (it all depends on further sanctions, imports, and the supply of goods in the Russian market). Economists predict the development of galloping inflation and even the Venezuela scenario .

From 26.02.22 to 4.03.22, prices in Russia increased by 2.2 % (according to Rosstat), and inflation could reach 10% in a month. For reference: hyperinflation is 20% per month.

First of all, the rise in prices will affect the “middle-class urban family” with a high share of imported products in the consumer basket.

Due to sanctions and inflation, in the long run, the consumer line is expected to change, namely in simplification, leaching of high-tech products, and increasing the share of Chinese and Indian goods (medicines, gadgets, cars, etc.).

In villages where you have your own potatoes, locally produced pasta, oil, sugar, it may be a little easier at first.

However, with a certain lag, prices will rise for everything, including domestic products. The consequences will be the most traumatic for the low-income group of people, whose consumer basket consists mainly of food and medicine.

Inflation hits the poorest. Half of Russia’s population in 2020 had a monthly income of up to 27,000 rubles ($ 375 ).

Population’s structure by the level of average monthly income in Russia, 2020

Income level, RUB per month Fraction
Together: 100.0%
up to 7 thousand rubles 3.5%
7-10 thousand rubles 5.6%
10-14 thousand rubles 9.7%
14-19 thousand rubles 12.8%
19-27 thousand rubles 18.0%
27-45 thousand rubles 25.3%
45-60 thousand rubles 10.5%
60-75 thousand rubles 5.8%
75-10 thousand rubles 4.7%
over 100 thousand rubles 4.1%

Source: Rosstat

As we have already noted, the “poor” are not the protest executioners. The likelihood that they will join the protest remains low. It is most likely that 70-80% of the population will suffer and shrink, trying to “squeeze” something out of the state and thus become even more dependent on “perks” from the state.

  1. Industry decline: decline in production, the decline in employment, unemployment:
  • Automobile production

Two main problems:

Volkswagen , BMW, Renault , Mercedes , Hyundai , Toyota and Sollers Ford have temporarily ceased operations.

Capacity utilization of cars and light commercial vehicles has already decreased by 45% .

Due to the lack of components, car production was suspended by AvtoVAZ. Kamaz also has issues – the supply of components from Europe is frozen.

If the shutdown is continued, it will have a multiplier effect on the economy.

Orders for metallurgists’ products will decrease, which in turn will reduce the consumption of coke, electricity, and more. People who will lose their job or part of their income will be forced to reduce their usual expenses for food, clothing, leisure, etc.

Initially, the Russian car industry may have part-time employment, paying off the “tariff” (part of the salary). However, the sector is likely to become fully subsidized.

The Russian car industry employs about 300 thousand people, and another 700-900 thousand are employed in Russian companies that are suppliers to the automotive industry.

  • Mechanical engineering (energy, transport)

Direct sanctions for the entire mechanical engineering sector have not been introduced, but the sanctions include:

  1. Enterprises related to the defense sector. For example, the US Ministry of Finance sanctioned the Kurgan Machine-Building Plant , which is part of Rostech state corporation.
  2. Supply of components for mechanical engineering to Russia directly affects the industry. According to Russian economists, almost all enterprises in the industry are tied to components from foreign suppliers.

Uralvagonzavod and Chelyabinsk Tractor Plant have already stopped their operations due to the lack of foreign components. Uralvagonzavod is the only serial tank assembly plant in Russia. The enterprises also produced and repaired other equipment for military purposes.

German concern Siemens Energy AG – one of the main suppliers of energy equipment in Russia – has announced the cessation of supply and work  of the new businesses in Russia. However, the concern will continue local maintenance and repair activities under the sanctions. Siemens, together with the power engineering company Power Machines, owns Siemens Gas Turbine Technology (65% ).

Supplies and future investments in Russia are suspended by the French concern Alstom SA (which owns a 20% stake in Transmashholding).

It is expected that the sector will have issues with supporting the current production and then building new ones. There is a high probability that costs will increase due to the transition to other components, equipment, and software.

The more technological the production, the higher the share of imported components, and, accordingly, the more it will suffer from sanctions.

  • Aviation sector: air transportation, aircraft maintenance, and airports

Sanctions: a ban on the supply of civil aircraft and spare parts to Russia and their maintenance and insurance. In addition, the sanctions oblige lessors to terminate contracts with existing airlines by the end of March. Boeing and Airbus abolished the leasing and maintenance of aircraft in Russia.

External flights are closed, and the safety of domestic flights will be in question: in response to sanctions, the Russian government intends to increase the airworthiness regime for up to a year. Issues with spare parts are likely to be solved by removing parts from old aircraft (including those that Russia has “nationalized”).

The blow will fall on all major cities with airports. Moscow Sheremetyevo Airport has already sent about 40% of employees or 6-7 thousand people in “idle” mode due to reduced passenger traffic. It is assumed that they will be paid 2/3 of the salary.

It is also possible that some Russian pilots will have to work in China.

  • Electronics sector

Government sanctions:

  • United Kingdom : Ban on exports of high-tech and critical technical equipment and components in sectors such as electronics, telecommunications, and aerospace.
  • USA : Wide-scale, radical restrictions have been imposed on a number of products, including chips and computers. These new measures also apply to the export of such products from outside the United States to Russia, if those are produced using American technology.
  • EU: Restrictions on exports of dual-use goods and technologies , including semiconductors, telecommunications equipment, and
  • Japan : an embargo on exports of 266 goods, such as semiconductors, communications equipment, and technology, including software design programs for chip production.

Despite the fact that the sanctions do not directly affect the consumer market, international companies limit the supply of electronics, components, and servers to Russia, which depends not only on the domestic production of electronics but also on the maintenance of existing infrastructure in working order.

In Russia, there are virtually no companies that can produce electronics without imported components, as they are engaged in a rather fast assembly .

For example, the Russian companies MCST and Baikal Electronics , produced processors for their products at the facilities of TSMC in Taiwan, which supported US sanctions and refused to cooperate with Russia .

Russia does not yet have processor production facilities. An alternative to this could be “gray imports”, supplies from China, and other countries that have not joined the sanctions. But these components may not be suitable for existing systems, equipment, and adaptation takes time.

There is also a shortage of server equipment and components in Russia. This will have negative consequences for the financial sector, state-owned companies, industry, retailers, and technology companies – all IT-related infrastructure is built on servers.

  • Oil and gas sector.

There are two points here. The first is sanctions on the purchase of energy resources from Russia (government embargo or reluctance of private companies to deal with Russian oil and gas), the second is the suspension of funding for oil and gas projects in Russia (investments, loans), and a ban on equipment and technology.

As we have already written in the “Financial stability” section, Russia now sells oil at a discount (about 20%). So far, the high price fully compensates for this discount.

Currently, some oil is “blocked” in tankers, and companies do not provide insurance for cargo due to uncertainty; tankers are “hanging out at sea”. There are estimates by Russian economists that a third of the oil is not yet sold.

At the same time, the most vulnerable position is for Lukoil because it sells oil to the American market more than others, and the most profitable is for Rosneft, 50% of its exports go to China.

It is most likely that problems with transactions and logistics will still be resolved. Sanctioned oil and oil products will be partially refocused on India and China, and some will go to the domestic market.

We do not rule out that some oil wells will be “closed”as well.

As of natural gas:

If Europe refuses to buy Russian gas, then in the short term, it does not have any equivalent alternative except for Russia. The projected capacity to transfer gas to China is estimated at 60 billion cubic meters, despite the fact that European countries supply about 150-170 billion cubic meters. Construction of infrastructure for LNG supply will take some time (1-2 years).

On the other hand, Europe itself is not ready to give up Russian gas yet, because, at the time of the refusal, European countries may suffer even greater losses than Russia.

Another important point is that revenues from gas exports are not budget-generating, unlike oil products and the oil itself (more than 90% of rents from natural resources are oil).

Russian oil and gas companies are almost entirely dependent on imports of technology and equipment from the EU. Imported equipment (more than 90%) is used everywhere in complex deposits where horizontal drilling and fracturing are required. In Novateka gas liquefaction plants, the share of imported equipment also reaches 90%.

Sanctions imposed include a ban on the supply of goods and technology to the energy sector, provision of services, maintenance, new investment in the sector, limited exploration, production, and refining of gas, oil, and coal (EU sanctions).

EU countries may make exceptions if this is critical to the EU’s energy security, but the rest of the EU and the European Commission must be notified.

Four of the world’s largest oil service companies have already announced their withdrawal from the Russian market. Halliburton , Schlumberger , Baker Hughes, and Weatherford International stopped investing and implementing technologies in Russia. Their combined share in the Russian oil service market is about 18% .

The sanctions could seriously affect Rosneft, Russia’s largest oil refinery. Throughout 2023-2026, Rosneft had plans to build seven plants at its refineries.

Australia has announced a ban on supplies of alumina, aluminum ores, and bauxite to Russia . This will put extra pressure on the aluminum giant RUSAL. Australia accounts for almost 20% of Russia’s alumina supply, a key component of aluminum production.

Sanctions have been imposed on Russian oligarchs who own assets in the industry, and their companies are also under attack:

Large metallurgical plants are usually city-forming enterprises, so in terms of employment, this can be a social catastrophe for some regions.

For example, the population of the city of Magnitogorsk, where MMP is located, exceeds 400 thousand people. More than 300,000 people live in Cherepovets, where Severstal’s largest plant is located. Novotroitsk and Staryi Oskol (both Metaloinvest plants) are mono-cities with a population of more than 100,000.

In addition to external sanctions, Russian metallurgists may face domestic restrictions, namely state price regulation. According to unofficial data of industry participants, metal producers are allowed to set up to 20% markup on the cost, metal traders – 3-5%.

  • Titanium industry.

Boeing refused to buy titanium from VSMPO Avisma , which provided 1/3 of the company’s needs. It is expected that Boeing will be able to function without Russian titanium due to its own reserves and the search for other suppliers.

26% of the titanium produced by VSMPO-Avisma was sold in the USA. Despite the fact that titanium is used in various segments (from the construction of spacecraft to medical instruments) and the company may refocus on them, the main demand for titanium is concentrated in the aerospace industry ( 50% of exports).

Boeing’s refusal could be significant for Avisma. It depends on whether Boeing will be able to completely and long-term abandon the Russian titan and how successfully Avisma will be able to reorient sales.

  • Agricultural sector and food industry.

Russia depends on imports:

It should be noted that on March 14, Rosselhospnadzor resumed the import of seed material from 11 foreign countries to Russia, which were previously subject to restrictions.

Most segments of the food industry also depend on imports. For example, factories that produce formula and baby food operate on imported raw materials.

At the same time, the decline in the industry will not necessarily be accompanied by a rise in unemployment. It is most likely that there will be no mass layoffs; instead, there will be a transition to a 2-3-day working week, vacations, “tariff onboarding”, unpaid vacations, etc. Accordingly, people will lose part of their income, which is quite significant, but in the official statistics, they will not be taken into account as “unemployed”.

  1. Falling incomes and employment in the sphere of The first thing on which consumers save when real incomes are reduced are services: beauty salons, fitness centers, catering, restaurants, recreation, and more. The tourism sector is likely to decline. A decline is also expected in trade. This is an important part of the Russian economy: the share of wholesale and retail trade is almost 12% of GDP and 15% of all employees. According to Russian economists, in a third of Russia’s regions, only in 4 sectors (trade, car repair, hotels, and catering) the share of employees reaches 20-27% of total employment.
  2. A blow on construction and real estate markets.

About 40% of Russian companies have already frozen their construction projects across the country. This is due to the imposition of sanctions against Russia, which lead to disruption of construction materials supplies, their shortage, and a rise in price. According to experts, since the beginning of the war, the cost of building materials has increased in some segments by 80-100%. Some companies decided to freeze some of their projects indefinitely and redirect resources to complete the almost completed projects.

On the other hand, demand for new buildings is clearly expected to decline. Given the rise in interest rates (up to 20%), mortgages are becoming unaffordable for domestic consumers, and rising prices for building materials further increase the cost of housing.

  1. Nationalization
    Russia plans to appropriate the foreign companies that have left the market. The Public Consumer Initiative has created a list of 59 companies that can be nationalized, including McDonald’s, Volkswagen, Apple, IKEA, Microsoft, IBM, Shell, Porsche, Toyota, H&M, and others.

Two options are currently being discussed in this regard:

  • Compulsory bankruptcy of companies with a share of non-residents over 25% under the accelerated procedure and further property nationalization.
  • External management. The companies’ activities will be It is envisaged to create external management, for example, by “WEB.RF” or the Deposit Insurance Agency, which will manage assets for 3-6 months and create a new organization. This organization is expected to be sold at auction later. If there is no buyer, the state will buy the asset. A prerequisite for the acquisition is the preservation of 2/3 of the staff.

So far, it is expected that after the war, foreign companies that left Russia, or at least some of them, will return to the Russian market. But if they go bankrupt and are nationalized, the likelihood of their return will be nullified.

As for the possible nationalization of Russian banks, according to the Central Bank, the banking system is stable and has a sufficient supply of liquidity and capital. If necessary, the Central Bank is ready to supply banks with the required amount of cash and non-cash liquidity in rubles. Also, according to the Central Bank, the regulator is ready to provide assistance to banks that are under sanctions. In this regard, nationalization is not discussed yet.

  1. Exit from partnerships of oil and gas foreign partners:

What is critical here is that companies are coming up with their own technologies, including offshore drilling technologies for gas production, which Russia needs for the development of the new fields.

  1. Sharp increase in interest rates on loans and lack of working capital in business.
  2. Reduction in microcredit amounts (lending for those who cannot reach the next salary). People who live from salary to salary cannot get a loan today. This is again a factor in the growth of poverty, the barbarism of the population, and the growth of crime.
  3. The outflow of labor migrants in light of the devaluation of the ruble and devaluation of their incomes.

Consequences of long-term sanctions:

  • Facing an impossibility to create a technological chain on its own, Russia needs technology and imported equipment. Even Russia’s agricultural sector works on imported equipment, raw materials, and components. Not all high-precision machines and software can be replaced by Chinese ones. This will mean the technological backwardness of the Russian economy, a decline in its competitiveness in the world, and a lack of the basis for economic growth.

Technological sanctions:

  • United Kingdom: Ban on the export of high-tech and critical technical equipment and components in sectors such as electronics, telecommunications, and aerospace.
  • USA: Wide-scale, radical restrictions have been imposed on a number of products, including chips and computers (exports from the United States and other countries if the products are made using American technology). The export of American high-tech technologies to Russia, which is used forthe Russian military industry, aerospace, and maritime sectors, is limited.
  • EU: Ban on exports of all aircraft, spare parts, and equipment for Russian airlines and the space industry, exports to Russia of maritime navigation and radio technologies . Additional restrictions on exports of dual-use goods and technologies , including semiconductors, telecommunications equipment, software, including encryption, lasers, aerospace systems, and refining equipment.
  • Japan : embargo on exports of 266 goods, such as semiconductors, communications equipment, and advanced materials, refining equipment and technology; 26 technologies, including design programs for chip production machines. All exports to 49 Russian military-related organizations are banned.
  • Exclusion of Russian producers from international production chains.
  • Falling volume and deteriorating investment structure.
  • Limitation and exit from the small business market (in this regard, the Russian government has already initiated a number of measures for support: a moratorium on business inspections until the end of 2022, tax breaks, credit holiday, capital amnesty, extension of tax paying dealines at the regional and federal levels).
  • Growing share of the shadow economy, reducing the tax base and budget revenues.
  • An increase in the share of the public sector in the economy and, accordingly, a decrease in the private sector. Given the high level of corruption in Russia and the inefficiency of public administration, the redistribution of money through the state will further undermine economic growth.
  • An increase in dependence on the regime by citizens. The more sanctions – the more the population depends on the state. This will result in high budget costs that need to be replenished.
  • Increasing payments to the guards, security guards, and oligarchs. It will be necessary to “get” more money from the “squeezing pie” (economy) to protect the regime.
  • Demographic crisis: human losses in the war, the outflow of the highest quality of human capital, brain drain.
  • General impoverishment, gradual but pervasive barbarization of the population. Poverty has a very strong effect on thinking, limits the planning horizon, prevents thinking strategically, and thus reproduces itself.
  • High mortality and reduced life expectancy.

Russia’s economy is reaching a very critical point. Experts talk about the beginning of the economic winter in Russia, using the term “ironization” of the Russian economy, and drawing parallels between Russia and North Korea.

Sanctions have critical consequences in terms of living standards and quality of life in Russia over the next ten years. Lack of prospects, opportunities to realize their life potential, the need to survive instead of making plans for the future and development – all this calls into question the feasibility of life in Russia on the horizon of 5-10-20 years and makes the issue of emigration more relevant than ever. Summing up in one sentence, we can say that “Vladimir Putin stole the future from the Russians.”

However, the implementation of the described factors will have a long-term trend. None of them pose a serious threat to the regime in 1-2 years.

According to our estimates, the economic and financial system will not collapse in the next 1-1.5 years (unless there is a critical decline in oil prices or a complete embargo). The resource base will be supported by the revenues from the oil and gas sector and other illicit exports. Funding for national programs and budget expenditures will be provided, including due to emission.

The timing of Russia’s economic collapse depends primarily on the actions of the Western world and China. Sanctions on oil exports and to a lesser extent on the gas from Russia are vital, but so is the aid that China may or may not give to Russia after all.

Section III. Russia’s foreign policy stability

            Russia’s resilience at the international level is determined by several key factors:

  1. Non-accession to the Western sanctions by non-Western countries in Africa, Latin America, the Middle East, Central, South, and Southeast Asia;
  2. The dependence of different countries on Russia in specific areas, which is very difficult to replace quickly;
  3. The perception of the war in Ukraine as an element of the global confrontation between China and the United States, Russia and the West, etc.

            The vast majority of non-Western countries have not joined the anti-Russian sanctions and are in no hurry to impose their own. With the exception of the countries that belong to the conditional “collective West” – Japan, South Korea, Australia, New Zealand – the rest have taken a position of pragmatic neutrality. They did not condemn the Russian invasion of Ukraine or simply did not mention it, but also did not support Moscow and did not even vote to condemn Russia’s actions at the UN General Assembly on March 3.

            There are four main reasons why these countries have not joined the anti-Russian sanctions and taken a neutral position on Ukraine:

  1. Insufficient geostrategic value of Ukraine in comparison with Russia, including its information presence, volumes of trade turnover, supply of vital resources, availability of systemic bilateral communications, etc. For many countries in Southeast Asia, the Middle East, and Africa, Ukraine is not an “indispensable” state in some areas and is not perceived as a separate center of political influence, even at the regional level;
  2. The perception of the Russian-Ukrainian war as part of the confrontation between Russia and the United States. Therefore, any action in favor of one party is seen as supporting either the United States or Russia in global rivalry, violating the neutral traditions and policies of many countries. For example, the US support in this war for some countries means a sharp weakening of Russia, and thus strengthening the US monopoly in world affairs, which is not in the interests of many regional players;
  3. The perception of Russia’s invasion of Ukraine as part of the inevitable process of collapse of the world order dominated by Western institutions. Accordingly, this process is beneficial for many countries in the long run because they want to play a more active role in world affairs, and breaking the system for them is a chance to achieve this. Since the role of Ukraine in this process is uncertain for them, there is no motivation to defend our country;
  4. Different attitude to the sanctions mechanisms. Asian countries do not support anti-Russian sanctions not because they welcome Russia’s invasion of Ukraine but because, for them the US-led Western sanctions are one-sided and not entirely correct in their view of a “fair world” in which the only legal sanctions are those approved by the UN Security Council. In other words, those which are not commanded by Washington or another center of world influence. This is in line with many countries’ perceptions that the US-led world system is declining, ineffective, and sanctions have been abused to achieve political goals rather than prevent conflict. Thus, accession to the Western sanctions is seen as subject to the will of the United States, as well as a precedent that can later be applied to everyone else under a different pretext.

            This “pragmatic neutrality” of the non-Western world is one of the pillars of Russia’s foreign policy stability. In the conditions of Western isolation, Russia has the opportunity to drift to the East and balance between different players. Countries such as China, India, Turkey, UAE, Saudi Arabia, Egypt, Indonesia, Kazakhstan, and others are unlikely to support Moscow politically or militarily. But at the same time, they are able to help Russia in replacing some of the Western goods, reorient some sectors of the Russian economy to the East, compensate for some of the financial losses from Western sanctions, open their markets to Russian goods, and more.

            The key in this process is that the ability of non-Western states to partially assist Russia in trade and economic terms coincides with their commercial situational interests, which arose in light of the war in Ukraine. For example, Russia’s Western isolation creates opportunities for China to both expand its own market at Russia’s expense and make Russia even more dependent on itself by offering supplies of goods or components taken away by the West.

            In addition to the situational commercial and business interests of trying to circumvent or minimize some of the Western sanctions, many states depend on Russia in some vital areas and are unable to refuse to or unable to diversify their dependence. In addition, it is not only about material resources but also about the role of the Russian Federation in its political strategies and vision of the future.

            For example, countries such as Egypt, Algeria, Saudi Arabia, the UAE, Qatar, Lebanon, and Syria are dependent on Russian grain imports. It is extremely difficult and expensive to replace it quickly with the aidfrom other suppliers. Their own reserves are scarce, and global climate change is complicating the food situation in the regions of the Global South. Saudi Arabia, Kuwait, UAE, and Iraq depend on close cooperation with Russia within OPEC, in which, since 2017, they have regulated world oil prices through an agreement with Russia OPEC +.

            Turkey and Azerbaijan have close trade and energy relations with Russia, and Armenia is dependent on Russia in the security and political dimension. This dependence has intensified as a result of the war in Nagorno-Karabakh in 2020. Iran, in addition to trade and economic cooperation that helps it stabilize its economy under Western sanctions, relies on Russia’s role in the “nuclear deal” under which Moscow is working to repurpose Iran’s nuclear facility in Fordo and take enriched uranium and exchange it for the usualone.

            A number of countries – China, India, Vietnam, Myanmar, Venezuela, Cuba, UAE, Saudi Arabia, Turkey, Iran, Mali, CAR – use Russia as an alternative center of political influence that can “erode” the unconditional US and Western monopoly, which has not been desirable for them lately, especially given the growing regional ambitions of these states. For example, Israel does not depend on Russia for resources, but cooperation with the Kremlin has tied the security balance in Syria, which allows them to freely launch air strikes on pro-Iranian targets in Syria. Similarly, Saudi Arabia and the UAE need Russia as another player that can support their position in the war in Yemen, especially after the United States has withdrawn itself.

            Since Ukraine cannot replace the role played by Russia for them, these states are in no hurry to side with anyone or join Western sanctions by severing relations with Moscow. It is difficult to replace Russia quickly in these political maneuvers, and this may take some time. But if this can be achieved, it will be a real blow to Russia’s position in the world.

            Another factor that determines Russia’s resilience in the international arena is the perception (largely deliberately shaped by the US and Russian actions) of the war in Ukraine as part of the global confrontation between Russia and the United States, East and West, and in some cases even the Global South and Global North.

            For many countries, Russia’s invasion of Ukraine may seem like a very toxic story, a tragedy involving serious risks. But for many of these countries, it is also part of a wider confrontation over the transition from the old pro-American world system to a “multipolar” system, which will allow these countries to play a more active role in world affairs whereas they did not play in full dominance of the West and the United States after the Cold War.

            Not surprisingly, the part of Russia’s narrative about Moscow’s struggle for a “fairer world” and a “new security architecture” in which the United States will not dictate rules of life finds positive reviews in many countries or among some of its elite groups. For example, Turkey raised the same issue last year when President Erdogan publicly condemned the dictates of “a handful of victorious countries in World War II.” Similarly, China is now promoting a “new common security concept” between the West and the East, hinting at a more active role for China itself and other East and South countries.

            The war in Ukraine is perceived as part of this great process. Russia’s invasion of many countries is a “torpedo” under the “Western” world order, which breaks the existing security system dominated by Euro-Atlantic structures and the United States. In turn, this provides an opportunity to create new game rules and a new balance of power, in which Turkey, China, India, Iran, UAE, Poland, Britain, France, Germany, and many other countries will get their “worthy” roles. Few people are interested in Russia’s role in this future. But today, the Kremlin’s role as a “ram” of the system is seen as necessary for medium- and long-term interests.

            Some countries do not benefit from the total defeat of Russia, as it will create even greater security and humanitarian risks and strengthen the dominance of the United States and the West, which are now trying to mobilize partners under their flags. For example, Washington is considering bringing China under anti-Russian sanctions, neutralizing Russia through its long-term involvement in the war in Ukraine, to increase pressure on Beijing. However, China is in no hurry to help by joining the sanctions and vice versa: it calls for an end to the war as soon as possible or suggests freezing the conflict.

            For Russia itself, the eastern and southern directions can help partially minimize the effect of sanctions (informal boycott of foreign companies, loss of some markets), offset some costs, find a way to circumvent sanctions (Iran, China, India, UAE, Singapore), reorient to other markets (Bangladesh, Indonesia, Iran, Malaysia, Africa), convert trade into national currencies (India, Saudi Arabia, UAE, China), establish alternative routes for the supply of goods (Georgia, Kazakhstan, Turkey, Armenia, Qatar), and continue to export energy (even at a discount, at prices over $100 per barrel of oil and over $3,000 per gas is a surplus for them).

            Many Russian oligarchs have begun moving their property and assets from the West to other countries, such as the UAE or Turkey. Turkish companies have already offered to replace some Western retailers and food companies in the Russian market. In recent talks between Moscow and Tehran, the Iranians have agreed to open their market for Russian poultry and beef, and Russia will double its imports of fruits and vegetables from Iran. Russia has eased some sanctions against Georgia by allowing Georgian companies to import some food into Russia instead of those currently in short supply.

            Finally, the resumption of talks on a “nuclear deal” between the United States and Iran, the removal of Iran from sanctions, and the US agreement to ensure that Russia’s cooperation with Iran is not subject to sanctions. This will allow Russia to resume talks on the North-South transport and logistics corridor, allowing goods to be transported from India through the South Caucasus to Russia to the north and west to Turkey and Europe.

            What remains unclear is the sanctions pressure at the level set by NATO and the United States after February 24. The recent agreement between the United States and Russia to remove cooperation between Russia and Iran from anti-Russian sanctions creates a potential “hole” in the Western sanctions. There could potentially be many such “holes”, given the number of countries that have not joined the sanctions, especially Turkey, Serbia, Bosnia&Herzegovina, Egypt, Saudi Arabia, UAE, Qatar, China, India, Azerbaijan, Pakistan,and Moldova.

            Thus, as of now, the pressure of sanctions is forcing the Russian political leadership to restructure its foreign policy and trade ties, as well as to find an alternative to the usual logistics, which were largely tied to Western countries. The effectiveness of the West’s “sanction war” against Russia and, consequently, Russia’s position on the way out of the war in Ukraine depends on the extent to which this can be done.

            The main tasks of Moscow and Kyiv in the foreign policy dimension in the near future will be the following:

  1. Ensure the loyalty or neutrality of non-Western countries, especially China, India, Turkey, UAE, Saudi Arabia, Kazakhstan, and Armenia. Accordingly, Ukraine’s task is to prevent the transition of “neutral” positions of these and other countries to pro-Russian positions, as well as to find an acceptable way for them to replace the role of Russia or diversify their dependence on Russia. It does not make sense to demand public political support, as it does not solve any problems and seems impossible;
  2. Creating as many “holes” in the Western sanctions curtain to diversify and bypass sanctions. Therefore, the main thing for Ukraine is either to prevent the formation of such detours, or to narrow them to 1-2, which are easy to monitor and control, or to create competitive opportunities in these areas to offer Ukraine as a more reliable and less problematic partner;
  3. Speeding up the topic of war in Ukraine as part of the “bloc confrontation” between the West and the East. It is important for Ukraine to occupy the niche of the “middle state” between the West and the East, and to become a better, more constructive alternative to both Russia and the United States, which divide the world into two blocs. Ukraine must advocate the consolidation and reconciliation on fair and equal terms. After all, the more Russia promotes the thesis that the war in Ukraine is their way of “doing everyone a favor” and weakening the unconditional US initiative in the international arena, the more Ukraine will be perceived not as a state defending its own territory and waging a just defense war but as a puppet country used to neutralize Russia.

[1]      https://ridl.io/nas-vtjagivajut-v-vojnu/

[2]      https://www.levada.ru/2022/02/24/ukraina-i-donbass-2/ с

[3]      https://wciom.ru/analytical-reviews/analiticheskii-obzor/specialnaja-voennaja-operacija-monitoring

[4]      https://www.levada.ru/2021/11/25/molodezh-ot-moskvy-do-bryanska-privedet-li-smena-pokolenij-k-modernizatsii-strany/

[5]      https://www.levada.ru/2021/05/11/lev-gudkov-edinstvo-imperii-v-rossii-uderzhivayut-tri-instituta-shkola-armiya-i-politsiya/

[6]      https://ovdinfo.org/articles/2022/02/28/zaderzhaniya-po-vsey-strane-itogi-protestov-protiv-voyny-s-ukrainoy-24-27

[7]      https://t.me/ovdinfo/13862

[8]      https://meduza.io/feature/2022/03/05/esli-verit-gosudarstvennym-sotsoprosam-bolshinstvo-rossiyan-podderzhivayut-voynu-v-ukraine-no-mozhno-li-im-verit

[9]      https://uifuture.org/publications/hto-my-portret-ukrayincziv-ochyma-ukrayincziv/

[10]    https://uifuture.org/reports/dopovid-smert-putina/