The impact on the russian economy after 6 months of war

russia - The Most Sanctioned Country In The World

The war between russia and Ukraine changed the global picture instantly and drastically. The effects became so global that it even touched countries that are not connected to russia, the EU, or Ukraine. It's been 6 months since the war started at the end of February 2022 and the list of sanctions, as well as affected sectors, has greatly increased. 

We can not say that any country should be considered an economic victim because the country of Ukraine has lost the most. Accordingly, this article will not represent russia as a victim of sanctions, but rather as the country which caused these negative effects on itself, on purpose. Even though the economic sector of the federation was significantly damaged, it still continues effective operations and suggests new solutions and services to those who live within the russian borders.

Through their actions, russia denied every caution and broke every general regulation and restriction. This is why the USA, UK, and EU started massive and strict regulations against the russian federation. The list of all these restrictions is pretty long and global in scale. In total there are more than 5 000 sanctions currently being imposed on the country. Leading to russia now being the most sanctioned country in the world. Of these 5 000 regulations, more than 1 300 are internal. These new rules cover economic, trading, and transportation sectors and individual personal permissions.

Let’s start with the main economic sanctions. It is a historical fact that 10 russian banks are completely banned from SWIFT. The country no longer has access to capital coming from the EU or its financial markets. The operations of russian companies in Europe are now fully limited. russian Central Bank operations and all its activities have also been banned. Accordingly, the ban is for individual financial transactions, crypto wallets, euro-dominated banknotes, and the like. Citizens no longer have access to the free withdrawal or depositing of funds, and there is a full list of restrictions with amounts dictating personal permissions.

Their transportation system is also under sanctions. More specifically, russian air companies are banned from EU airspace. For citizens, in most EU countries, entrance is limited and visas permissions are heavily restricted. Similar to airspace, ports are also closed for russian vessels. The same rings true for road operators and trading lines. 

The war also completely changed the market for exports and imports. Because russia is the biggest country in the world and is responsible for large amounts of coal, oil, and gas exports, the restrictions affected international trade negatively. Imports from russia are banned, for every category of goods including oil, gas, and financial assets. The same is true for luxury goods and russia is no longer able to export steel, wood, iron, cement, or liquor among other resources.

Civilian goods or similar technologies are also fully banned from export. Along with this, countries are not allowed to use their own defense resources to help russia in this war. russian media is under heavy sanctions, with broadcasts from Sputnik, RTR, russia 24, and other central channels being seen as disinformation and underlined as fake news.

Because migration significantly increased, visa processes are also under sanctions. Some countries banned russian citizens from entering their territory, no matter the purpose or reason. Most countries installed limitations and strict regulations on russian entry, with some interesting sanctions being placed on specific individuals. This list continuously increases and includes russians who are operating in the EU market. For example, people like Vladimir Putin, Roman Abramovich, Sergey Lavrov, and other businessmen, military groups, government officials, Duma, and National Security members, no longer have access to their assets and can no longer enter the EU or USA.

How Historically Sanctions Caused Negative Rates In russia

It is logical that sanctions completely changed the financial rates for both the EU and russia. The main effect is on GDP which accordingly determines the price politics. As you saw from the illustrated statistics for the second quarter of 2022, GDP has been reduced by 4%. 

The predictions about the next quarters are not looking any more positive. For russia, most of the GDP was generated from the service sector which was around 58%, retail trading made up about 20%, and the public administration sector was around 12%. Because each of these sectors is under such strict regulations, it could easily cause more large-scale decreases in the country’s GDP. 

Another major outcome of these sanctions is connected to international trading. We clearly saw how prices of oil, coal, and gas increased steadily as the war continues. The same is happening with everyday goods. Import, as well as export from russia, is extremely limited. This is why we have seen import tariffs increase by 35% on more than 500 different groups of goods. The driving force behind this decision was the president of the USA. Included in this sanctioned group is more than 2.3 billion USD worth of goods. Global western markets are trying to fully ban products with the 10001C code which will completely cancel the import of every type of product from russia. 

How russia Is Getting Close To North Korean Service Alternatives

After these massive sanctions started getting imposed, many international companies, which were mostly from the consumer goods sector, shut down their businesses in russia. The list is very long and includes more than 1 000 companies. The main result of this is that more than 200 000 people lost their jobs and the revenue from retail, which was very profitable for the country, was significantly reduced. These companies were 45% of the total GDP. Here are the top 10 companies that are no longer available to russia’s citizens.

• H&M 
• McDonald’s
• IKEA
• Zara
• Nike
• Amazon
• Airbnb
• Apple
• Paypal
• Samsung

How Gas, Coal, And Other Resources Are Affected By The War

russia is one of the central players in the international trading industry. A lot of global resources are dependent on its manufacturing and production sector. After the war, the most damaged were central products such as gas and coal.

Gazprom is a russian gas company on which many countries depend. After starting the war, the price of gas increased. In Europe, the price of electricity per megawatt-hour increased by 292.32 USD during August. At the beginning of the war, it was equal to 128.36 USD. This is a massive change of 127.6%. The EU says that it will reduce imports, but on the other hand, Gazprom also claims that it will reduce the daily supply amount, which means that 167 million cubic meters of gas will be reduced to 100.

Similar to gas, coal is one of russia’s main products and before February, 45% was supplied by them. Because import is already under the ban, the price dramatically increased. Before the war, on the Rotterdam Coal Market, the price was about 192 USD which has now increased to 377 USD. The price was higher in March when it reached 399 USD. 

A similar negative effect has shown up with oil trading. Here, fluctuations are more often what causes losses for companies as well as individual users. Europeans are already joking about the fact that oil is a luxury product because of its historically high price. From February, the price increased by 2.7% and is sitting at 101.75 USD per barrel. The main problem with this is that the biggest supplier of oil to the EU was russia. Recently the EU activated the 6th package of sanctions against russia, which includes reducing supply by 90%, while Europe requires 2.2 million barrels a day. 

Migration Rate - People Are Running From Putin’s Regime

After the first month of the war, many people decided to leave and escape the Putin regime. This occurred due to the predicted sanctions and limited freedom. russia tries to hide the real number of people who left russia during this uncertain period, but according to the latest statistics, the minimum number of people is at least 3 800 000. This is the data from March, which means that the actual figure has probably greatly increased by now. It is necessary to mention that the number of tourists coming from russia increased significantly, but most of these people still have not returned to their homeland.

An interesting statistic is the profession of these people that are migrating. Most of the people are from the tech sector. Researchers have found that more than 70 000 professionals left the country during February. Most of them worked in the IT sector. Along with this, the number of newly registered companies by russian citizens has significantly increased. They simply moved their companies to countries that made business easier and cheaper. Some of these countries include Cyprus, Spain, Georgia, Indonesia, Thailand, and Turkey, among others.

Western experts estimate that more than 15 000 millionaires will leave russia because of these sanctions. They mostly represent people who are significant partners or co-owners of global companies.

So taking the whole picture into consideration, the russian business industry faces a massive brain drain which automatically reduces opportunities for work and will place unprecedented demands on the supply of HR around the country. This will definitely have, and already has had, a negative effect on the country's economy as a whole.

How Sanctions Changed The Daily Life Of russian Citizens

When you live in a country that is sanctioned with more than a thousand regulations, it is not surprising that daily life becomes more complex and difficult than under normal circumstances. When russia is one of the main players in the trading and business industry, restricting imports, and exports, and limiting international asset transactions, it is no surprise that this will automatically increase the daily costs for locals. Their situation was not the best because of living without freedom, but because of the war, higher costs have now been added to their ever-growing list of problems. 

Let’s start with general products such as oil. russia produces about 80% of oil and because of sanctions the price immediately increased by 2.2%. Sugar prices rose by 20%. As mentioned earlier, many companies left the market which caused serious problems in prices as well as supply. The prices for smartphones or TVs increased by 10%, but the bigger problem is that people can no longer buy at all because Samsung, Apple, Xiaomi, and other companies left russia. 

To conclude, the daily cost of living increased significantly. For example, for general goods, the daily cost increased by 21%, the cost of electronic products rose by 40%, clothes and similar consumables went up by 22%, and groceries saw a price increase of 16%. 

What Are The Main Predictions For 2022 - Will Russia Survive Economically?

It’s been 6 months since the war started. Everybody knows that the economic picture will be more complex and negative after finishing the war than it is now. Because of sanctions against russia and supportive regulations for Ukraine, we will see changes in the structure of global trade as well as business. But what is the most realistic future of the russian economic sector?

Well, every expert predicts that each mentioned rate will be significantly increased for russia by the end of 2022. As the EU recently activated the 6th package of sanctions, we can expect to see higher inflation, lower GDP, and higher costs for russia citizens. 

Inflation is already historically high, and quickly reaching levels that have not been seen since the Soviet Union days. But, by the end of the year 2022, it is predicted that inflation will increase by 15%, the GDP will be reduced significantly, and international trade will be regulated more strictly than ever before.

For the rest of the world, predictions are that prices will also increase because of imports and exports being under strict regulations, which will raise everyday costs for EU as well as russian citizens. 

What the destiny of russian business companies will be is difficult to say. As experts claim, the russian market has become worthless and it will be very hard, if not impossible, to increase investments in the country because of the sanctions. When the country's global corporations are not operating, the supply, as well as demand, will be under pressure. This is why predictions on the business sector and customer confidence sentiment are mostly negative. The only clear picture is that the current situation in russia, as well as in the EU, will last for a long time because the end of the war is still unpredictable. But even after it ends, who knows what kind of society will be left to pick up the pieces?