However, Russia’s central bank was able to quickly stabilise the exchange rate, bringing it back to pre-war levels. Inflation peaked at 18 per cent in April 2022 before easing to 12 per cent by December 2022.
Even after that, some Western observers continued to insist that the sanctions were crippling the Russian economy. It is true that the sanctions have devastated certain sectors, notably aviation and auto manufacturing, which saw an 80 per cent decline in output due to lack of imported components.
However, overall Russia finished 2022 with a mere 3 per cent contraction in its gross domestic product. Retail sales fell 9 per cent during the year, with local brands – along with some Chinese and Turkish companies – replacing Western companies on the domestic market.
Despite the sanctions and setbacks on the battlefield, Putin has shown no signs of backing down. In September 2022, he mobilised 300,000 reservists and started a campaign to cripple Ukraine’s electricity system through missile and drone attacks.
I have studied the Soviet and the Russian economy for over four decades. I believe there are four reasons the sky has yet not fallen in on the Russian economy.
RUSSIA’S ENERGY LIFELINE
Russia may be spending over US$300 million a day to fight the war, but for much of 2022, it was earning US$800 million every day from energy exports. That revenue stream was enough to prevent living standards from collapsing and to replenish Russia’s stock of arms and ammunition.
The war, together with Russia’s cutback on gas deliveries to Europe in 2021, caused a spike in oil and gas prices. In the first month of the war, global oil prices surged 50 per cent, reaching a peak of US$139 a barrel in April, while wholesale gas prices in Europe increased 500 per cent, peaking at €300 (US$320) per megawatt-hour. This created windfall profits for Russia.
