Russian Economy Won’t Be Crushed by Sanctions but Will Be Seriously Hurt if They are Maintained for a Long Time, Inozemtsev Says

Paul Goble

            Staunton, Mar. 1 – Western governments are counting on sanctions to dissuade Moscow from continuing its aggression in Ukraine, but, according to Russian economist Vladislav Inozemtsev, “the Russian economy will well survive the trials associated with the war in Ukraine” because of its own internal resources and Russia’s ties with China.

            While the Russian stock market will fall and financial investments will become riskier, he argues, there will not be any default, freezing of deposits or their forced conversion or the introduction of rationing (ridl.io/predely-rossijskoj-ekonomiki/; cf. idelreal.org/a/ekonomist-vladislav-inozemtsev-o-posledstviyah-sanktsiy/31726881.html).

            With the war in Ukraine, Inozemtsev says, Russia’s domestic market “will become even more isolated from the world market: some Western brands will disappear from it, international air carriers will leave, the range of electronics offered will be reduced and payments for foreign trips and Internet transactions will become more complicated.”

            At the same time, rising interest rates will reduce real estate and durable purchases; and inflation for the next several years at least will “significantly exceed 10 percent a year.” As a result, “the economy will stop growing, real incomes will fall,” and this will be limited only by “an increase in one-time payments” by the government.

            The economist concludes: “Since the beginning of the 2010s, Russia has ceased to be to a certain degree a ‘catching up’ country and instead moved into the category of those countries ‘lagging behind.’ The war in Ukraine will both reinforce this transition and increase the lag” between Russia and the West.

            Thus, in the short term, the sanctions will not have the crushing effect that many in the West expect; but in the longer term, they will mean that Russia, whose leader is trying to take geopolitics back to the 19^th century, will have an economy frozen in the 20^th century even as the West looks forward to the 22^nd.

            And that means that the sanctions regime if it is maintained rather than sacrificed for the interests of Western businesses in Russia will have serious consequences over the long term but that in the short and medium term, even this regime will not have the political consequences many think are inevitable.