Vladimir Putin is someone who knows inside and out of the Russian system. The man has been well-trained in every kind of warfare including military, economic and even information. It is said that he spends a lot of time consuming newspapers. Apparently, it turns out that all these experiences have helped Russian President Putin turn western sanctions into child’s play.
Predictions did not come true
When western countries started to impose a flurry of sanctions on Russia, it seemed as if all was doomed for the country. Depending on the predicting agency, it was speculated that Russia would lose anywhere between 8 to 15 percent of its Gross domestic product. Apparently, the prediction is now down to 5 percent of the GDP. It turns out that Putin was well prepared for it.
The foremost impact which these sanctions could deliver was on export of Russian oil and gas. To put it plainly, the sanctions actually did not work. As soon as sanctions were announced, Russia galvanised those countries which were willing to take up Russian fuel. Turkey increased its Russian oil import by 50 percent while Italy increased it by 200 percent. Both countries are called weak spots of the sanctions regime. Later, these countries did fall in line with sanctions, but not before pouring money into Russian treasury.
Innovative ways of oil trade
To those countries whom Russia can’t supply oil due to sanctions, it is indirectly doing it through Middle East giants like Saudi Arabia and UAE. Russia is supplying fuel to Egypt, which again is a weak spot in sanction regime and from there on, it finds its way to Saudi Arabia. And finally, when it gets Saudi’s stamps, it makes its inroads into global oil trade. In June, Saudi Arabia imported 3.2 million barrels of power station fuels from Egypt. Even UAE is also buying cheap Russian oil, possibly to sell it in the international market and earn profits. Additionally, Putin administration is also using common sense tricks like ship-to-ship transfer of oil to earn more revenues.
And then there are countries like Russia and China. Russia has become main source of oil, with year-on-year jump of 55 percent. India on the other hand is also sidelining OPEC countries in favour of Russia. Russia used to supply anywhere between 1 to 3 percent of our oil needs. Now, it is on the verge of replacing IRAQ as top oil supplier.
Stability in Rouble
But, export revenues are not enough. Any country needs to have stable currency in order to assure exporters. After sanctions were announced, Rouble suddenly tanked in international market. To save its currency, Russian central bank raised the interest rate from 9.5 percent to 20 percent. Moreover, Putin has also taken extraordinary measures to manipulate Rouble in its favour. These measures include strengthening macroeconomic fundamentals.
Since, Europe can’t stop importing Russian energy, Putin has told them to deposit Dollars in Gazprombank, the financial arm of Russian energy giant Gazprom. In return, Russia has told them to accept Rouble, in turn subtly increasing Rouble’s acceptability.
Counter to SWIFT
These steps have helped Russia evade the impact of SWIFT sanctions on its Rouble in massive way. Additionally, Russia’s own SPFS (System for Transfer of Financial Messages) has also turned out to be a game changer in neutralizing SWIFT sanctions. Today, Rouble is stable, negating Biden’s threat of converting in into Rubble.
One more negative impact of SWIFT was the ousting of Visa and Mastercard from Russian market. Russia now accepts payments in Mir, the Russian alternative payment system.
Modern problems require modern solutions
Putin is also taking steps towards eliminating Dollar requirement from bilateral trade. Moreover, Russia has roped in the crypto world. Putin administration is planning to issue a gold-backed cryptocurrency in order to sidestep the requirement of excessive centralised currency called Dollar. Interestingly, Putin may get help from American miners in this regard.
All these initiatives have been successful only because Putin has maintained a stronghold on Russia’s power circle. Russia’s political system is strongly tilted towards Putin and nothing wrong can escape Putin’s eye. Even the economic system is a mix of oligopolistic capitalism and liberal tax regime. That is why Russian companies have jumped in to save their country and now products banned for exports are being consumed inside Russia.
What Putin is doing may not be accepted by every polity. It is not democratic in nature. But, hey! Who says only democracy can deliver prosperity. Greeks, Romans, Mesopotamians, every other civilisation was prosperous. Democracy was not the reason for prosperity.
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