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Elephant has not yet been trampled. How Russia is turning into Iran while the TV beats the fridge

The Page collage

The Page collage

During almost two months of a large-scale invasion of Ukraine, Russia has lost part of its gold and foreign exchange reserves and jewelry export and is selling oil and shares for next to nothing.

The Page has compiled the main theses of the discussion "Russian economy, go f*** yourself", during which Ukrainian economic experts Serhiy Budkin, Ivan Uhlianytsia and Yevhen Dubohryz explain why it is too early to bury the Russian economy, and what sanctions have already hit it already now and will hit it in 2023.


Gold and foreign exchange reserves: Losses during 5 weeks

Photo: Dmitry Rukhlenko/Alamy

Photo: Dmitry Rukhlenko/Alamy

Over the past 5 weeks, Russia's gold and foreign exchange reserves, as estimated, dropped from $640 to 600 billion, says Serhiy Budkin, co-founder and managing partner at FinPoint Investment Advisors. A significant part (about $300 billion) has been arrested.

Associate expert at CASE Ukraine, ex-Deputy Head of the National Bank Department Yevhen Dubohryz provided an infographic with a slightly lower direct loss figure, but with the exception of seized assets:

Thus, since February 25, 2022, Russia has lost from $20 to 40 billion in reserves, not counting the arrest of half of the assets.


With vodka, but without sanitary towels and medications

Pixabay photos mix

Pixabay photos mix

In the coming years, Russia will definitely not run out of:

  • money (since they will mint them again);
  • some basic products — bread, vegetable oil, salt, and buckwheat;
  • vodka and simple alcoholic drinks (including beer);
  • petrol;
  • furniture;
  • low-cost cigarettes.

According to Serhiy Budkin, the Russian economy will be simplified, because services will no longer be needed. Advertising, financial services, journalism, IT, catering establishments — in their current form will die out as well. There will be massive layoffs and closures.

As for what Russia has already run out or is running out, the expert gives the following list:

  • spare parts for cars;
  • medications (of good quality);
  • dollars in free circulation;
  • women's sanitary towels (most of Russian imports are produced by Poland);
  • international capital markets (wealthy Russians are already being restricted from investing, less wealthy ones are being restricted from deposits abroad — 50,000 pounds in the UK, 100,000 euros — in the EU);
  • household security;
  • convertible ruble.

About 35% of food imports are something that will not soon be available to Russians on the territory of the Kremlin state.


"Fridge begins to resist"

Photo: Pixabay

Photo: Pixabay

Regarding how the sanctions are now affecting the Russians, Yevhen Dubohryz stresses that the oil embargo matters, but the impact on consumption is no less important.

From an economic point of view, sanctions on ordinary Russians are no less effective, because this reduces the ability to fight, produce weapons, and provide logistics.

Quote"The TV is still beating the fridge, but the fridge has begun to offer desperate resistance," Serhiy Budkin stresses.

We see an increase in the price of basic products by more than half for some items since 2020:

  • onions — from 30 to 80 rubles/kg
  • carrots – from 35 to 80 rubles/kg
  • cabbage — from 30 to 100 rubles/kg
  • tomatoes — from 150 to 250 rubles/kg
  • cucumbers — from 160 to 280 rubles/kg
  • buckwheat — from 85 to 110 rubles/kg
  • sugar — from 50 to 100 rubles/kg
  • milk — from 75 to 100 rubles/kg
  • flour — from 40 to 80 rubles/kg
  • potatoes — from 30 to 100 rubles/kg

Budkin adds that consumption-related sanctions should be kept for as long as possible. According to him, this destroys the conditional social contract of the Russians with the authorities a la Singapore:

Quote"You sacrifice freedoms, and we give you security, spiritual "bait" on TV and small but permanent economic improvement."

Investment market expert Ivan Uhlianytsia also stresses that consumption is a large base of the social contract and religious base in the Russian Federation.

Quote"Most of the budget revenues are indirect taxes on consumption. Russia ceases to have access to quality goods and materials — it was all imports. Despite all the statements that were about all this import substitution, it was a void — nothing like this happened.

Oil, metals, poultry meat, and weapons

Pixabay photos mix

Pixabay photos mix

In the long term, oil, gas, metals, and weapons, as well as agricultural products will suffer in the export sector. In 2021, export shares looked like this:

Currently and in 2023, the situation will be as follows:

Until the end of the year, the share of agriculture will increase, but next year it will face problems, says Serhiy Budkin.

Regarding what problems have already begun in Russia and what are waiting for it in 2023, we see the following picture:

  • the jewelry export for Russia is completely blocked (every 20 dollars from exports came from the selling jewelry by the Almazy Rossii-Sakha company, whose stock price dropped twice even according to official data of the stock exchange in the RF);
  • logistic isolation (entering ports of the Russian Federation has become economically unprofitable);
  • exports of agricultural products from Russia should drop sharply in 2023, when there will be no more of:
  1. elite seeds from abroad;
  2. high-quality cattle, because elite bulls for breeding were imported from abroad as well;
  3. good quality poultry meat, because the Russian Federation imports breeding hens (90% of all hens are bred by four companies — three American companies and one British company, and they are halting this import) as well.
  • metal exports are already decreasing and in 2023 they will drop dramatically, if not catastrophically, but they will also be subject to sanctions, and even China will not help here, since it is a direct competitor of Russia with excess capacity and has every chance of completely ousting the Russian Federation from the market ;
  • weapon exports will suffer — at the end of 2021, the Russian Federation sold weapons worth $30 billion, but counterparties are already refusing to purchase them in 2023, and a number of countries have announced an embargo, for example, Greece that was in the TOP-10 buyers.
Quote"The most important thing is that Russian weapons have shown that they do not produce the results that they advertise at exhibitions. In addition, regardless of the results of the hostilities now, Russia will need to rearm, so exports will decrease in 2023," Budkin says.
  • the oil embargo will be in one form or another, but already now oil is traded at 35-40% of the discount.
Quote"Shale oil from the United States has played a role here, and another factor to impact this is that the US will finally persuade any of the major states to increase selling energy products so that world prices decrease a little," the expert stresses.

Ivan Uhlianytsia is also sure that the energy embargo also awaits Russia:

Quote"This will directly hit incomes, foreign exchange earnings, and there are no more significant incomes in Russia. Some kind of ban must be implemented, a gradual flow of long-term contracts that will no longer be renewed awaits them.

He also confirmed the impossibility or significant decrease in sales — now or soon — of metal, agricultural products, precious metals, and oil products over the indirect sanctions, when large companies refuse to buy "dirty oil":

Quote"Companies, as well as civilized countries, do not want to deal with dirty bloody oil and metals."

Russia on the way to Iran’s fate


The Russian Federation in the context of the sanctions imposed on the state and ordinary citizens will have much in common with Iran. These are the following consequences:

  • most of the service economy will die;
  • technologically obsolete cars have already begun and will continue to be produced — euro zero;
  • there will be a decrease in the agricultural commodity production;
  • further aging of the Politburo and the conservation of the elite are expected (in the context of the Russian Federation-Ukraine, the war is between the elite with an average age of 64 years versus 42 years);
  • emigration of the economically active educated population;
  • over an uneven drop in exports and imports, there will be a short-term improvement in the balance of payments, because Russia is still selling energy products (but not for long);
  • 2 to 3 million unemployed who are likely to be recruited to the army;
  • the risk of a coup implemented not by liberals, but by complete scumbags;
  • acceleration of the demographic shift towards the non-Russian population due to the birth of more children in the North Caucasus and fewer children in the conditionally Slavic territories because of the population impoverishment.

The financial market is almost dead

Photo: Pixabay

Photo: Pixabay

Russia's financial market is practically dead. This opinion is expressed by Ivan Uhlianytsia:

Quote"According to the settlement market, there are two rates — the bank’s one and the commercial one that was somewhere around 250-300 rubles per dollar in early March, and this is a big difference from the official one, in Ukraine it is 9-10%."

If we talk about shares, then foreign receipts are not traded, the volumes have dropped by about 10 times. Central banksa and some state institutions bought back shares, but this did not help. Gazprom, Novatek, and Sberbank bought something, but the only shares to rise in price were those of Rosneft, he notes.

Quote"If looking at prices, I would look at Russian bonds that are being traded at about 17% of par, and before that they were traded at more than 100% — at a premium. This already speaks of a default," the expert stresses.

All this is due to both official sanctions and indirect moral sanctions, Uhlianytsia adds:

Quote"The entire forward-minded adequate world sympathizes with Ukraine, and, in my opinion, a significant part of the sanctions work like that — not only direct sanctions, but those that are atop of the sanctions — the carpet ones."

Uhlianytsia notes that a lot of banks were still preventively disconnected, and the entire infrastructure affiliated with banks was disconnected with them, including aircraft and tankers. As an example, he cites the arrest of a Russian tanker by Greece, because it belonged to a sanctioned bank.


Naming and shaming: Companies leaving RF


There are public discussions in the media with fears that sanctions will be lifted quickly, but this will be difficult to do, Uhlianytsia believes. After all, it is still difficult for large companies to understand what kind of sanctions are in effect. It's logistically difficult.

Dubohryz, for his part, notes that it becomes unprofitable for foreign companies to cooperate with the Russian Federation in the future as well, because other markets are more valuable to them. As an example, he cited Decathlon who left Russia after a protest in Australia, when the company realized that it was not ready to lose the Australian market.

The expert, answering the question of how Ukrainians could facilitate the withdrawal of large brands from Russia, says that all you can do in Ukraine is to tag the ambassadors and write to your acquaintances and friends abroad to protest.

Quote"But it’s better to work and ensure our own well-being, we will help the economy more in such a way," he explains.

Regarding the control of sanctions and the fact that some companies are returning to Russia after the alleged leaving the Russian market, he adds:

Quote"Here, the only way is to monitor: naming and shaming, so that the company understands that losing this market is much less painful. Hundreds of people are doing this kind of monitoring."

Too early to bury Russian economy


Yevhen Dubohryz, despite all the financial losses of Moscowia, warns that it is too early to "bury" the Russian economy:

Quote"There are a lot of hat-throwing moods now prevailing — as if there is no Russia any more, sanctions will strangle it. But the elephant is not yet taken down, let alone trampled."

According to him, the way the Central Bank of the Russian Federation reacted to the sanctions suggests that it was completely unexpected for them.

Nothing new was invented as a response to the restrictions, he notes: they imposed currency restrictions and cross-border restrictions — now it is impossible to withdraw money now, confiscation of accounts, and minting money.

The discount rate in Russia is no longer a monetary instrument — it was raised to 20% and forced people to carry money to banks. They also imposed restrictions on cash withdrawals, but the ones that do not affect the majority of Russians. There was a closure of all markets, so that the Russians do not see the shock in Western markets.

Quote"Already according to the classics — forced negotiations, when the central bank summons the banker and tells them how to trade. If not, then blame yourself," the expert explains.

As a result of such steps, the panic in the Russian financial market subsided.

At the same time, Dubohryz stresses that one should not underestimate the enemy.


Time works for Ukraine


On average, wars in the modern world last up to a year, and here time works for Ukraine.

According to Serhiy Budkin, the longer Ukraine holds out and defends itself, the more economic sanctions will have an impact..

The possibility of a turning point in the economic war will come from July 2022, when sanctions will hit especially hard.

Quote"At the same time, it will be easier for our warriors to fight surrounded by the greenery and it will be easier to inflict tactical and, possibly, strategic defeats on Russia," the expert believes.

Now a 15% drop is a lot for the Russian Federation, he stresses. The fact that Ukraine has a larger drop is not an indicator, because we hope for external support, and Moscow will not have it.


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