An April 24 essay published by the London Economist magazine headlined “Under Siege: The Kremlin Has Isolated Russia’s Economy,” profiles the Russian economy, arguing that President Vladimir Putin has systematically reduced Russia’s vulnerabilities to Western shocks, but has some chinks in the armor. “This fortress is effective at protecting against outside shocks. But inside its walls it breeds stagnation and malaise, which fuel Alexey Navalny’s opposition movement and the protests against Vladimir Putin, Russia’s president,” they argue hopefully.
The article, which reads like a reconnaissance mission for an upcoming strategic bombing run, noted, “The foundations of the fortress are high reserves and low debt.” Putin learned the lesson of the 2014 financial warfare, when there was a run on the ruble and the central bank burned through reserves to try to slow down the devaluation. “Russia has since rebuilt and restructured its reserves. At the end of 2020.… Russia’s overall international reserves stood at $596bn, equivalent to nearly two years of imports. To hedge against sanctions, the central bank has also shifted its holdings away from American banks and out of American dollars: the share of its international reserves held on American territory fell from 30% in 2013 to just 7% now. It has more of its overall reserves in gold (24%) than in dollars (22%).”
Foreign-held debt has also been systematically worked down, with non-financial firms reducing their foreign obligations by 25% since 2014, while banks cut theirs by 65%. That means that “even a wider ban on the secondary market may merely lead to more debt being held domestically. Russian banks buy most of the new bonds.”
Then there is trade. “The share of its exports handled in dollars has fallen from 80% in 2013 to less than 60% last year. Less than half of Russia’s trade with China is settled in dollars. In trade with the EU, the euro has almost overtaken the dollar.”
One of Russia’s real weaknesses, the Economist reported, is its dependence on foreign IT and other technologies. “The Kremlin would like to see cyber-decoupling, too…. Yet Russia has neither the breadth of home-grown technologies nor the technical capabilities at the state level to erect a Chinese-style firewall.”
Another point of vulnerability is Russia’s dependence on hydrocarbon exports to Europe, but the Economist notes that this is a double-edged sword. “The EU remains Russia’s biggest customer and Russia the EU’s biggest supplier, accounting for 30% of the bloc’s crude-oil imports and 40% of its natural gas. That would make any embargo on Russian energy exports too disruptive for the West to stomach.”
Russia is having trouble with inflation, they add with satisfaction. “Food prices have risen by 77% since February 2020.”
The bottom line is that pressure from abroad will keep Russia in a fortress mode, and this can be used to fuel domestic unrest, protests, and Navalny-like political destabilization. https://www.economist.com/briefing/2021/04/24/the-kremlin-has-isolated-russias-economy