Goldman’s deep-dive into the effect of sanctions ought to end all wishful thinking. The US investment bank forecasts that the Russian economy will contract by 10pc this year, a bad recession but not an economic breakdown.
Growth will then recover to 2.4pc next year and 3.4pc in 2024 as the country adjusts. Exports will be back to 98pc of prior levels by early next year. If so, Putin is not going to lose sleep over this.
Russia’s trade will mostly be diverted rather than destroyed. There may even be some short-term growth stimulus as Russia replaces western goods with home-made manufactures. Putin has been building a fortress economy ever since the annexation of Crimea. Net foreign funding is negligible. Total public debt is 18pc of GDP, one of the lowest ratios in the world.
Over four-fifths of GDP come from sectors that import just 15pc or less of their inputs, falling to 7pc in the mining industry. This is a radically different economic structure from western states such as Poland.
“If Russia were fully integrated into global supply chains, restrictions on imports and exports would be immediately destructive. However, Russia largely exports goods that are almost fully produced locally,” said Mr Grafe.
Iran endured tougher sanctions without buckling. Cornell professor Nick Mulder, author of The Economic Weapon, said the country settled into a new equilibrium within a couple of months. “If Iran’s experience is any guide, Russia will survive and return to lacklustre growth,” he said.
“Historically, sanctions have hardly ever been successful in stopping wars,” he said. A rare exception was the Balkan ‘war of the stray dog’ in 1925. Needless to say, Putin’s war on Ukraine is not a border skirmish. It is a long-planned attempt to overturn the post-Cold War settlement and alter the world’s balance of power.
European ministers once again grappled with a hydrocarbon embargo – the fifth package of sanctions – at an EU meeting on Monday. Once again the proposals ran into resistance from Germany, with Italy and others happy to tuck in behind.
Russia continues to make coupon payments. That indicates it has the capital available to do so and avenues are open. Without cutting Russia off from the financial system and banning energy purchases, the country can continue to operate effectively. Due to its size and dominance of several key commodity markets, Russia has ample scope to cause mischief on a grand scale.Click HERE to subscribe to Fuller Treacy Money Back to top