Page 7 - RusRPTJul22

Russia finds ways to dodge the sanctions and self-sanctions, largely by massively expanding oil shipments by tanker to India, China and the rest of Asia. The West is attempting to stop this leakage and intends to sanction the use of tankers via their need to get insurance, but a G7 summit in Bavaria came to an end without any concrete proposals being tabled. Experts say blocking Russia exports this way will be very hard.
But Russia remains vulnerable to more energy sancitons and if oil and gas were cut off completely Russia could only cope for a few months before FX liquidity would disappear, inflation would surge, the ruble would collapse and a wave of defaults and bankruptcies would begin. Even if a price cap of $80 were imposed then the budget would likely go into deficit and Russia would be forced to burn through its remaining reserves, pushing Putin to end the war.
But as things are in general the sanctions regime has hit a brick wall as all the sanctions the West can impose on Russia that don’t hurt its own interests have been imposed, leaving only those sanctions that will hurt the West as much, or more, such as banning the import of Russian oil and gas. This is the fatal flaw in the sanction’s regime: the West is very unwilling to hurt its own economy for the sake of rescuing Ukraine.
However, long-term damage has been done to the Russian economy that will slow its develop and take a generation to undo. German Gref says that the economy will stagnate over the next decade if things stay as they are.
In the meantime, Russian President Vladimir Putin is working hard to build new relations for Russia with the nonaligned countries of the Global South. He attended the BRICS summit and is due to attend the G20 summit as well as the second Africa summit in November where he hopes to forge an alliance amongst the nonaligned countries in opposition to the West.
Russia defaulted on a $100mn bond at the end of June that the Kremlin says was a force majeure forced by the US sanctions. The Ministry of Finance actually transfer the payment, in dollars, but it was not sent on to bond holders by Euroclear causing a default. The default will have immediate effect as Russia’s budget is in surplus and it doesn’t need to use the international capital markets. But over the long-term the default will be a black mark and will drive up borrowing costs, even from friendly countries. The whole episode is now headed to court where it will take years to resolve.
But the high oil prices will carry the Kremlin over for the meantime.
7 RUSSIA Country Report October 2020 www.intellinews.com