Russian Trade Boomed After Invading Ukraine, Providing Ample War Funds

Russia’s relationship with the world continues to develop rapidly. To gauge global change, The Times analyzed years of country-level trade data compiled by the Observatory of Economic Complexity, an online data platform. Because the data is published with lag, the image it provides is inherently outdated. Russia’s ability to trade with the rest of the world could be further restricted in the coming months as the West introduces new restrictions.

But so far, the data shows how deeply Russia is intertwined with the global economy, allowing Moscow to generate substantial sums as it enters the ninth month of war. Efforts by Western nations to use sanctions and other measures to cripple the Russian economy have so far had limited effects.

“It is very difficult to live without Russian resources,” said Sergey Aleksashenko, former Deputy Minister of Finance and Vice President of the Central Bank of Russia. “There is no alternative.”

As it drags on, war, and the world’s response to it, is bringing about a dramatic change in international trade flows. Food is in short supply in many countries that rely on wheat and other staples grown outside their borders. Prices for fuel and other products have risen at a time of record inflation. And Russia’s longstanding economic ties to Europe are being phased out, and new alliances are forming as goods are diverted to other countries, the data shows.

The European Union, the United States and the United Kingdom have imposed harsh economic penalties on Russia, sanctioning hundreds of wealthy citizens and government officials and largely cutting the country off from the international financial system. economic. They also vowed to stop sending advanced technology and banned Russian airlines from flying to the West.

The decision to cease operations of global companies in Russia also had a major impact. Container ships full of foreign goods no longer enter the port of St.Petersburg, a major connection point with the rest of the world. And inflation and economic uncertainty are causing Russian consumers to cut back on products that are still on store shelves.

However, sanctions on Russian energy that help power Western economies have been slower to take effect. The US has cut its oil purchases from Russia, and the UK will do the same later this year. But no country is a big buyer.

The European Union – which is heavily dependent on Russian energy and, like many countries, already struggling with inflation – has been slower to act. Europe stopped importing Russian coal in August. It would ban all seaborne oil imports from Russia in December and all petroleum products in February. Russia, in turn, has ban some of its own exportsincluding agricultural and medical products.

Oil and gas are Russia’s most important exports by far, and a major source of government funding. High oil and gas prices last year boosted the value of the country’s exports, helping Moscow make up for lost revenue due to sanctions. Gazprom, Russia’s giant state energy corporation, announced record profits in the first half of this year, even as shipments to Europe began to decline.

The International Monetary Fund has repeatedly revised its forecasts this year for the Russian economy, saying it will shrink less than the organization’s projections. IMF said in October that the Russian economy is expected to shrink 3.4% this year, a much smaller contraction than the 6% it forecast in July and the 8.5% it expected in April.

“Russia has withstood economic sanctions better than anticipated, supported by oil and gas prices,” said Gilberto Garcia-Vazquez, chief economist at Datawheel, which runs the Observatory of Economic Complexity. high gas and our dependence on fossil fuels.

The new bans on oil and petroleum products that European officials will introduce in the coming months could represent a major loss for Russia. However, oil leaving Russia on oceanic vessels will likely find its way to new markets. Since invading Ukraine, India and China have become much larger buyers of Russian crude oil.

In turn, countries that used to sell more oil to India and China – like Saudi Arabia, Iraq or Angola – can sell more oil to Europe. Aleksashenko said that would lead to a global “energy market reshuffle” in which Russian oil would simply be diverted to new markets, not cut off.

How much money Russia will ultimately generate from its oil sales remains unclear. As demand for its products elsewhere fell, Moscow was forced to sell its oil to India and China at a discount. Western countries are now trying to introduce price limit that would further limit the revenue Moscow could make from every barrel of oil it sold.

So far, higher energy prices have offset those effects. Prices for benchmarks such as Brent and Urals – the heavily traded crudes that serve as a global reference price for oil buyers and sellers – have fallen in recent months. But due to high energy prices for most of this year, Russia really get more money from oil and gas sales in dollars from March to July compared with previous years, according to the International Energy Agency.

In the longer term, the outlook for Russian gas sales looks dimmer. Unlike oil exports, where much of it is transported by tankers at sea, most of Russia’s gas leaves the country via pipelines that take years to build, making it difficult for Moscow to switch to a foreign market. new school.

By July, Germany had cut its natural gas imports from Russia in half and switched to importing more from Norway and the United States. In September, the main pipelines carrying gas from Russia to Germany damaged in explosions.

Russia is trying to find gas buyers elsewhere. Its exports to China have increased, but it has only one existing pipeline to China that can transfer some of its pipeline volume to Europe. To transport gas by ship, Russia will need to build new facilities for liquefaction of gas, an expensive and time-consuming process.

In addition to energy, Russia also continues to be the top exporter of other essential commodities, from fertilizers, asbestos and nuclear reactors to wheat. International carmakers still depend on Russian palladium and rhodium to make catalytic converters. French nuclear plant relies on Russian uranium, while Belgium still plays an important role in the Russian diamond trade.

Russia’s ample trade, and the war stock it has created, could begin to dwindle next year as more sanctions take effect.

Alexander Gabuev, a senior fellow at the Carnegie Endowment for International Peace, said that he expects Russian export volumes to decline significantly over the longer term as Europe gradually transitions to new energy sources and sanctions. further penalties, including potential oil prices. cap, effect.

Developments in the war, where Russia has suffered recently a series of failure, can also affect economic relationships. This weekend, it withdraw from a global agreement that would allow grain exports from Ukrainian ports. If Russia uses nuclear weapon in Ukraine, for example, that could trigger more global sanctions that could lead Russia to cut off trade with Asia, Gabuev said.

“We will probably see a different picture next year,” Gabuev said.