Vladimir Putin gave the go-ahead for the invasion of Ukraine on February 24 after some 100,000 of his troops had spent several weeks massed along the border with its eastern neighbour. But since then, Western powers have retaliated with force by smashing Russia with several rounds of crushing sanctions, aimed at blowing a huge hole in Russia’s creaking economy and derailing Putin’s brutal war plan.
Russian exports of oil and gas – both extremely valuable commodities to Moscow – are now heavily depleted, with European countries refusing and now unable to buy both of these.
The Nord Stream 1 gas pipeline from Russia into Europe has seen gas flows severely reduced following the completion of annual maintenance last month.
The result of all of this has seen Russia’s economy take a monumental battering, with new analysis predicting it is on course to plunge towards a massive crash.
The report from the Kyiv School of Economics warns: “Once oil and gas revenues fall below a critical level – which seems to be about $150bn per annum – then external balance will require either the extensive use of international reserves and/or a major adjustment in the RUB exchange rate.
“In practice, we think the Russian authorities would then face a difficult choice between letting the RUB weaken and accepting a reacceleration of inflation, which will squeeze real incomes, or implementing a sharp tightening in policy, as seen this spring, to weaken outflows and support the RUB, which will slow the economy.
“In either scenario, the Russian economy will be seriously impaired – with an impact similar to the levels of the 2009, 2014, and 2019 crises – weakening Putin’s ability to continue waging his war of imperial aggression against Ukraine.”
The Russian economy is forecast to shrink by 9.5 percent in 2022, according to the report, which provided a disastrous prediction from the head of one major bank which it claimed said it could take up to a decade to restore Russia’s GDP to the level of 2021.
It continued: “Interestingly, the mentioned reports estimate that Russian GDP will continue to decline in 2023 and will start recovering from 2024 only.
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“According to S&P Global Market Intelligence, Russia’s economic recovery to the level of 2021 will take 10 years. The head of Sberbank also stated that it may take ten years to restore Russia’s GDP to the level of 2021.”
The report also stated that investment activity “continued to decline at an accelerating pace in May 2022” citing forecasts from the Russian Centre for Macroeconomic Analysis and Short-term Forecasting (CAMAC).
It added: “The corresponding index, which is a weighted average of the indices of production (excluding exports) and imports of investment equipment and vehicles, as well as supply (production and imports, excluding exports) of building materials, in May amounted to 91.9% of the average monthly level of pre-COVID 2019.
“On average for 2021, the index was equal to 109.5% of the level of 2019.”
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“Russia’s exports (mainly, energy exports) started shifting from Western markets to India, China, Turkey and other Asian markets that observed considerable growth of Russian supplies.”
The report also forecast Russian gas and oil revenues could plunge by more than 40 percent next year, from £273million to just £157billion in 2023.
This could even fall below the “critical” £124billion a year rate by the end of next year.
It will come at a critical time for Russia when the European oil embargo fully kicks in, severely restricting the country’s ability to sell valuable energy reserves to major countries throughout the continent.
The Kyiv School of Economics report continued: “Our detailed bottom-up projections of Russian oil and gas revenues, which are aligned with the estimates of reputable international agencies such as the IEA, suggest that next year Russia will experience such a drop in oil and gas revenues, into a sensitive zone.
“This will come as the European oil embargo comes into force, with revenues falling by over 40 percent from around $330bn in 2022 to $190bn in 2023 in our base case, and running at around the critical $150bn a year pace by the end of 2023.”