DEEP DIVE — More than two and a half years after its full-scale invasion of Ukraine, Russia's economy shows surprising resilience. Despite an unprecedented 2,000 sanctions targeting its corporations, financial institutions and elites, the nation's factories still churn, its oil sales boom, and Russian President Vladimir Putin maintains a firm grip on power.
Why haven't all the international penalties delivered the intended crippling blow? The answer lies in a complex interplay of geopolitics and the technicalities of enforcing sanctions on a resource-rich nation.
"Russia has managed to replace most of its lost trade with Western countries by shifting to Asia,” Alexander Graef, a Senior Researcher for the Institute for Peace Research and Security Policy at the University of Hamburg, told The Cipher Brief. Graef said high global demand for oil and gas has helped Russia, as has the revenue generation produced in a wartime economy.
Meanwhile, a report this week from the Kyiv School of Economics Institute found that the Kremlin has used so-called “shadow tankers” to carry huge volumes of Russian oil and evade Western sanctions. The report said that Russia has invested roughly $10 billion in developing a fleet of these tankers, which it said are often poorly maintained, unmarked and difficult to track. In the first half of this year alone, the report found, these “shadow tankers” had transported more than 75 million barrels of Russian oil every month.
Beyond oil and gas, two other major sectors – agriculture and mining – are helping bring revenues into the Kremlin’s coffers. So are the many Moscow-friendly nations that are willing to buy.
An energy boom
The West's strategy to weaken the Russian economy rests heavily on sanctions aimed at its vital oil and gas sectors. Following Russia’s February 2022 full-scale invasion of Ukraine, the U.S. and European Union imposed a record number of sanctions on Russian energy, and moved to diminish their reliance on these resources. The U.S. halted imports immediately, while the E.U., Russia's largest energy market, gradually phased out Russian seaborne oil imports and significantly reduced its dependence on Russian natural gas from 40 percent before the war to below 10 percent by 2023.
Russia responded proactively, reconfiguring its energy landscape and leveraging partnerships in the non-Western world. It also sold its oil at below-market rates, and almost immediately after the sanctions were imposed, China, India, and even Turkey—a NATO member—stepped up to buy, significantly increasing their energy imports from Russia. Although these nations did not directly support Putin’s war, they prioritized their economic interests over support for the Ukrainian resistance.
As India’s Minister of External Affairs Subrahmanyam Jaishankar said earlier this year, “The fact is that Russia is one of the biggest natural resources producers in the world,” and ranks “very, very high” among countries which support India’s economic growth.
"Oil and natural gas exports remain absolutely critical to Russia's post-war economy,” Treston Wheat, a global risk and security specialist, and adjunct professor at Georgetown University, told The Cipher Brief. "They are staying strong in this area because countries that do not care about their aggression in Ukraine will still use the oil and natural gas from Russia.” He cited China and India in particular, noting that overall trade between Russia and China hit a high in 2023.
This capacity to identify new buyers has proven crucial for the Kremlin. Remarkably, oil and gas revenues surged 28 percent in 2022 compared to the previous year, and in 2024 its energy exports have continued to climb. Russia expects to receive approximately 10.99 trillion rubles ($115 billion) from oil and gas sales this year. Higher international oil prices, due in part to production cuts by OPEC+, have also helped.
Some experts believe the Russian gains are overstated. Sergey Sukhankin, a Senior Fellow at The Jamestown Foundation and an advisor at Gulf State Analytics, said that while “net profits are much higher than operational expenses" for the oil sector, the natural gas sector has been harder hit.
"In terms of natural gas, losses are already visible,” Sukhankin told The Cipher Brief. “Gazprom has reported very high losses, meaning the forfeiture of the E.U.'s market has not gone unnoticed."
Gazprom, the natural gas giant that is majority-owned by the Russian government, was the world's largest natural gas company until 2023. The company drills for gas, refines it, and transports it through pipelines across vast distances.
"Gazprom decoupled from the European market when they stopped supplying to E.U. member states, and they have struggled with that decision as they do not have a new market to make up for the loss," Wheat said. "Liquefied Natural Gas (LNG) exports to the E.U. have continued, though, helping make up for the problems in the market."
Overall, Russia's oil and gas revenues remained strong in the first half of 2024, reportedly reaching 4.157 trillion rubles ($45.3 billion) in the first four months—a 82% rise from the same period in 2023.
A loophole for Russian agriculture
While Russia's agricultural sector was also sanctioned after the invasion of Ukraine, it has remained largely unscathed due to a deliberate decision by the West to avoid jeopardizing global food security. For all the outrage over Russian aggression, the West was also well aware that shutting down Russian agriculture completely would punish some of the world’s poorest nations.
As a result of that judgment, Russia has seen record wheat production and exports; the U.S. Department of Agriculture forecasts that Russian wheat exports will reach an unprecedented 51 million metric tons for 2023–2024. That would translate to approximately $46.6 billion, a 12 percent jump from the 2022 figure of $41.6 billion.
"The main buyers of Russia's agricultural products and fertilizers –no less important than foodstuffs – come from developing economies and countries of the so-called Global South," Sukhankin explained. "Thus, Western sanctions have not had any direct impact on this sector of the Russian economy."
Meanwhile, Ukraine's agricultural production has suffered significantly from the war – a double-punch of damage to Ukraine’s economy and global food security. Initially, Ukraine's grain and oilseed exports were halted by the war; they have resumed through the Black Sea Grain Initiative facilitated by the U.N. The EU, through its "Solidarity Lanes," now imports and ships a significant amount of Ukrainian grain, with Constanta, Romania now a key port. However, Russia remains the dominant exporter in the Black Sea region. Analysts say favorable weather conditions have enabled Russia to produce unprecedented amounts of wheat and sell cheaply on the world market.
But the grain sector is volatile – and here, experts say Russia’s good fortunes may not last. The 2024-25 season is expected to be far weaker, given the consequences of extreme weather. The Russian grain harvest has been estimated at 132 million tons in 2024, a 9% decrease from 2023 and a 16% drop from 2022.
Mining and Metals
For all the sanctions imposed against Russia since the war began, Russia remains a major supplier of 34 key raw materials to Europe.
"Many Western countries continued to import Russian resources, albeit often through third countries with longer transit routes," Igor Danchenko, a Washington-based Russia expert, told The Cipher Brief.
Several of these materials are vital for the EU to achieve its climate neutrality goal by 2050, given their importance in manufacturing electric vehicles and other climate-friendly products. Russia is a major source of nickel, which is essential for stainless steel and battery production, and iron ore, which is used in steel production. Continued EU imports of these raw materials represent one more source of revenue for the Kremlin, and the Russian mining and metals sector has continued to see high profits from its exports to the EU and other parts of the world.
Russia remains a critical exporter of nickel, iron ore, aluminum, and copper, and Wheat, the Georgetown expert, noted that Russian aluminum, like Russian oil, “is still making its way to the market because it remains cheaper.” And as with the energy and agricultural sectors, Wheat said many of Russia’s mining exports are now headed for countries in Asia that are willing to ignore the sanctions.
“Essentially, Russia is focusing on exports to Asia for most parts of its economy," Wheat said.
GDP earned from the mining sector in Russia reached approximately 3,854 billion rubles in the first quarter of 2024, a figure that has held steady despite an initial drop immediately after the invasion, thanks to a spike in global demand.
The future for Russia’s war chest
Despite all the sanctions, the International Monetary Fund (IMF) expects Russia's economy to grow faster – 3.2 percent – than any advanced economy this year. Of course, for Russia, that figure represents growth over a far lower base.
"We do not know the real state of the Russian economy,” Sukhankin said. "Just like during the Soviet times, Russian authorities are making up numbers and reports – classifying some things, such as exports and foreign trade, so the picture we have is likely different from reality.”
Many experts believe that while Russia has stayed afloat thus far, it is likely to face steep economic woes in the coming months and years.
"The main short-term risks are fluctuations in oil and gas prices,” Graef said. “The state of the Russian economy has become increasingly tied to the war effort and its politics, which presents a problem," he added, “(and) the longer the war lasts, the more permanent this adaptation process will become.”
According to Wheat, Russia has also blunted the impact of Western sanctions by its massive increases in government wartime spending, a shift which he and others say is unsustainable.
"While Russia is currently able to turn to Asia for oil, wheat, and other commodities, the future of the Russian economy is bleak," he noted. "When the war ends, Russia is highly likely to enter a recession with the reduction in government spending, and it will take several years to reach a moderate recovery."
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