Sanctions, Rubles, And Oil: Decoding Russia’S Economic Strategy

Nearly two years after the onset of the conflict in Ukraine, this report provides a comprehensive overview of the current state of the Russian economy. The focus lies on fiscal conditions, external balances, and the impact of Western sanctions on Russia’s trade relations with the European Union and select third countries. Despite heavy military expenditures, Russia managed to keep last year’s fiscal deficit in check. The primary source of coverage was the sovereign National Welfare Fund. Notably, EU exports of economically critical (EC) goods and common high-priority (CHP) items to Russia have virtually ceased due to the effectiveness of the sanctions in preventing direct exports. However, third countries—such as China, Hong Kong, Turkey, and the Commonwealth of Independent States (CIS)—have stepped in and increased their market share. These countries now serve as Russia’s primary suppliers for missing EC goods and CHP items. Our findings indicate a significant likelihood of sanctions evasion through CIS countries like Armenia, Kazakhstan, Uzbekistan, and Kyrgyzstan. Although the evasion is less pronounced via Turkey and China, it remains a notable concern.