And expectations are increasing for these cracks to widen in the coming months, according to economists, who based their expectations on the Russian government’s announcement of a budget deficit of about $23.5 billion last January, with spending rising 59 percent year on year and revenues declining by 35 percent.
Experts explained in statements to “Sky News Arabia Economy” that the Ukrainian crisis left an international strategic economic impact and a huge impact on energy in the world, noting that Russia has so far won the energy war with the West, but the energy crisis that began in Europe turned into a crisis due to the war. Global energy, with the direction of Russian energy exports shifting from west to east, i.e. from the European Union and Western countries to the Pacific Ocean Basin region.
While several international bodies and institutions expected the collapse of the ruble and the Russian economy to shrink between 10 and 20 percent, the economy shrank by 2.1 percent in 2022 compared to a growth of 5.6 percent on an annual basis in 2021, according to the Russian Federal Statistics Service, which attributed the contraction to “the repercussions of the decision to send tens of thousands of dollars.” Soldiers to Ukraine in February 2022″.
9 packages of penalties
With the start of the Russian-Ukrainian war on February 24, 2022, Western countries imposed nine severe sanctions packages on Russia, which included more than six thousand penalties in various economic, commercial, banking, military and scientific sectors, in addition to imposing a maximum price of a barrel of Russian crude oil transported by sea at $60. And imposing a price ceiling on Russian oil derivatives at $100 a barrel for higher-priced products such as diesel fuel and gasoline, while the value of lower-quality products was set at $45 a barrel.
Cracks begin to appear in the Russian economy
Economist Ali Hammoudi says in his interview with “Sky News Arabia Economy”: “When the war broke out in Ukraine a year ago, Western countries responded by imposing unprecedented sanctions in order to punish Moscow and intensify pressure on President Vladimir Putin, with the aim of dealing a severe economic blow that would push him to restore Considering his war, the Russian economy weakened as a result, but in return he showed surprising resilience.
He added that with the decline in demand for Russian oil in Europe, Moscow redirected its oil exports to Asia, and the country’s central bank escaped the currency crisis with strict controls on capital and raising interest rates, and military spending supported the industrial sector, while the scramble led to the replacement of Western equipment and technology. to increase investment.
However, Hamoudi indicates that cracks have begun to appear in the Russian economy system despite its flexibility, and these cracks may widen during the next 12 months, as the European Union – which spent more than $100 billion on Russian fossil fuels in 2021 – made great strides in Phase-out of purchases, and the European Union, which significantly reduced its dependence on Russian natural gas last year, officially banned most Russian crude oil imports by sea last December, and enacted a similar ban on refined petroleum products this month, and these measures lead to Already straining Russia’s financial resources.”
The end of the era of “Russia’s huge profits”
And with the Russian government announcing a budget deficit of about 1.761 billion rubles ($23.5 billion) last January, spending rising by 59 percent year on year, and revenue falling by 35 percent, it can be said that the era of huge profits for Russia from the oil and gas market is over, at least for For the foreseeable future, according to Hamoudi, who stressed, “Russia’s bet that China, the second largest economy in the world, will support it at the expense of its trade with the United States has not materialized, because it is the interests that speak in the end and China will not sacrifice about 550 billion dollars annually from its trade with the United States for the sake of Putin’s blue eyes.
The energy crisis.. began in Europe and became global
For his part, the international oil expert, Dr. Mamdouh Salameh, explains to the “Sky News Arabia Economy” website that “the Ukraine conflict has left a strategic economic impact and a huge impact on energy in the world. Russia has so far won the energy war with the West, but the energy crisis that began as a European crisis has been transformed by Ukraine’s crisis has turned into a global energy crisis, with the direction of Russian energy exports shifting from West to East, i.e. from the European Union and Western countries to the Pacific Ocean Basin region.
And the global oil expert adds: “From a strategic point of view, the Ukraine crisis has accelerated the emergence of the Chinese “petroyuan” as a major oil component in the world at the expense of the American “petrodollar”. It has also accelerated the emergence of the Russian ruble and the Indian rupee as two oil currencies. The export of Russian oil and its derivatives and the price ceiling imposed on them all failed to affect Russia’s economy or its revenues from energy exports or the volume of exports. The evidence for this is that Russia’s exports of oil and its derivatives last January amounted to 8.2 million barrels, i. The rate it reached in 2022 is 7.8 million barrels per day.
Expectations of the return of Europe to buy Russian gas
As for the European Union, Salameh explains that the Ukraine conflict has cost more than two trillion dollars, of which $800 billion is in subsidies for the energy bills of the peoples of European countries, financial support and military equipment sent by Europe to Ukraine, in addition to support for industrial economic sectors in the European Union to encourage companies that left the union. European Union due to high energy prices to countries where energy prices are lower.
The international oil expert predicted that the European Union would return within less than two years to buying cheap Russian oil, because the economy of the European Union countries was built since the seventies on cheap Russian gas, and therefore in order for European countries to rebuild their economy, they must import Russian gas, whose price is much lower than the price of Russian gas. liquid gas.
slight shrinkage
For his part, Raed Al-Khader, Head of the Financial Markets Research Department at the Equiti Group, points out that the Institute of International Finance predicted last March that the Russian economy would contract by 15 percent by the end of 2022. However, it appears that the Russian economy shrank during the past year by a much smaller rate. The International Monetary Fund expects the Russian economy to rebound slightly by 0.3 percent in 2023.
Within days of the war, the Russian Central Bank witnessed the freezing of foreign assets worth $300 billion, and in the following weeks and months Western governments moved to block all foreign investment, three-quarters of the Russian financial sector was cut off from the SWIFT payments network, and exports of high-tech components were banned, as well Flights, freight, maintenance and insurance services to Russia have been halted, according to Al-Khidr.
How did the Russian Central Bank deal with the challenges?
Al-Khidr answers this question by saying: “Through capital controls and sharp hikes in interest rates, the Russian Central Bank averted a catastrophic financial crisis in the spring of 2022. Moreover, the remaining financial reserves will provide the government with a cushion for some time to come, as the central bank witnessed unfair sanctions.” It was preceded by the United States and Europe freezing its assets in American territory with the aim of preventing it from using its foreign reserves to support the ruble, and many Russian banks were also prevented from joining the SWIFT system.
Meanwhile, the US Treasury sanctioned two large Russian banks and banned the trading of securities issued in Russia, and this led to the ruble dropping to a record low against the dollar before the currency began to recover again and the Russian Central Bank gradually retreated from the emergency increase in the interest rate by 20 percent. Which he approved in February 2022 after the outbreak of the Ukrainian war, and kept interest rates steady at 7.5 percent since they were last cut last September, after he ended the interest-cutting cycle that lasted for months, according to what the head of the financial market research department at Equiti Group said.
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