Sanctions hit hard enough to hurt Russia, if not stop it | Economy
The sanctions have affected many aspects of life in Russia, but one particular shortage has sent the wealthy elite into a tailspin: beauty clinics are running out of Botox.
The business daily Kommersant reported this month that Botox imports tripled to 74,500 units between January and March compared to the same period last year, after a Western manufacturer stopped exporting to Russia.
While the beauty industry is just a small cog in the machine, the decision by Western allies to sever financial and trade ties with Russia has plunged the country’s economy into a deep recession, the OECD forecasting a contraction of 10% this year and a fall of more than 4% in 2023.
The sanctions have not stopped the military onslaught, but some are now wondering if a promise to lift them could bring Russia to the negotiating table: a return to global markets, in exchange for peace in Ukraine. British Foreign Secretary Liz Truss hinted at such a prospect in March, when she suggested Britain could lift sanctions if Russia committed to a full ceasefire and withdrawal. , with the promise of “no further aggression”.
Some of the allies have closer ties to Russia than others. Last week, former German Prime Minister Angela Merkel defended her decision to increase trade ties with Russia and Germany’s reliance on Russian hydrocarbons, following the annexation of Crimea in 2014. a great tragedy that it didn’t work, but I didn’t blame myself for trying,” she said. But Tim Ash, a Russian expert at the Chatham House think tank, says that Germany has long underestimated Putin.He says the sanctions, which should have been tougher in response to Crimea, are working and should stay in place.
“The sanctions exceeded most people’s expectations and they exceeded Putin’s as well,” he said. “McDonald’s self-sanction has also hit the Russian economy, with around 1,000 large companies pulling out of the country when they didn’t need to. They weren’t on any sanctions list.
Production in industries from aviation to automobiles has collapsed. In May, the number of cars sold across Russia fell 83% from the previous month, to 24,000. Rewind to May 2021 and monthly sales were closer to 150,000. Russian planes are in dire straits now that US, Japanese, EU and UK sanctions have stalled the industry.
Russia’s Transport Ministry, anticipating a successful outcome to hostilities from Moscow’s perspective, estimates it will take until 2030 for passenger air traffic to reach pre-pandemic levels. A “pessimistic” forecast based on sanctions going on for years concluded that more than half of Russia’s aircraft fleet could be stripped to pieces by 2025 to keep the rest in the skies.
At the start of the invasion, many believed that the West would impose only weak sanctions and that Moscow would find allies to circumvent the most damaging ones. Ash says none of the assumptions turned out to be true.
When Russia was kicked out of the Swift international payment network, for example, China had to step in and build an alternative in alliance with Moscow’s central bank.
But, says Ash, “President Xi is angry that Putin lied about his intentions with Ukraine. Now that the invasion has taken place, it has sparked a cost-of-living crisis in China that is compounding Xi’s other economic problems. Moreover, he adds, “Xi doesn’t want to upset the United States too much.”
Yakov Feygin, a Russian expert at the Berggruen Institute in the United States, agrees that China rejected Putin’s overtures to circumvent sanctions. India is also likely to be wary of non-compliance with sanctions, he says. “It was a major flaw in Putin’s strategy to think that China would bail him out. It was a colossal illusion.
There will be countries buying Russian oil rejected by Europe, and there will probably also be a market for stolen Ukrainian grain, but the high-end tools and sophisticated components needed to run computer systems in large Russian cities come from countries that strongly support the sanctions regime. “You can smuggle components and raw materials,” Feygin says. “And Russia will probably do what it can to import goods through the back door. But they can’t do it at scale or reliably. And this will force Russian companies to ration their production. It will also limit the Russian military’s ability to replenish the equipment it needs to fight in Ukraine.
Sanctions critics tend to believe that Putin’s goals are limited to eastern Ukraine and that sanctions undermine diplomatic efforts to secure peace. Robert Skidelsky, the economist and Labor peer who until last year was a board member of a Russian company, opposes the use of far-reaching sanctions in the current war in a new pamphlet , Economic sanctions: a weapon out of control.
There is no evidence that sanctions trigger regime change, he says. Instead, citizens blame the sanctioners for their difficulties. Accusing governments of wasting sanctions for decades in pursuit of inconsistent goals, he says they ‘should only be used after exhaustion of diplomatic efforts to find peaceful solutions, never as an alternative to them’ .
Some analysts have argued that the rally in the Russian currency since last month and the central bank’s recent cuts to previously exorbitant interest rates show that Moscow is coping with the sanctions regime.
Feygin says the ruble’s rise can be explained by the collapse of imports while exports, mainly of oil and gas, have continued unabated. “When you have more exports than imports, your currency appreciates, but that’s not really an indicator of the health of the nation or its financial situation. The ruble is not really a currency for the moment. It’s more like play money,” he says.
For now, peace seems a distant prospect. The sanctions, with their boomerang effect on wheat and gas, limiting shipments and raising prices, will remain in place for many more months.