Yves here. A reader who has been living in Russia for a decade, teaching at what is called a pedagogical university, gave a detailed response to some questions we posed about how Russians are faring under the sanctions. He stressed that the sanctions are fresh and domestic conditions could easily deteriorate, potentially in the classic “gradually, then suddenly” fashion.
He flagged an issue we has pointed out early on: access to car parts. This could become a significant choke point, particularly for delivery trucks and agricultural equipment. However, Russia has started selling oil to Indian in rupees. So one route (admittedly with a lot of frictional costs no doubt attached) had opened up for getting some Western products laundered into Russia. Will Russia be able to make sure that any such purchases go to the highest value uses?
Another area of concern is pharmaceuticals. We didn’t flag this as top priority given that over 80% of the key components and even the actual compound of drugs sold in the US come from China and India. However, there are presumably quite a few specialty medications that are of solely Western origin.
But at least for now, pharmaceutical companies have not pulled out from Russia. From Kaiser Health News:
Even as the war in Ukraine has prompted an exodus of international companies — from fast-food chains and oil producers to luxury retailers — from Russia, U.S. and global drug companies said they would continue manufacturing and selling their products there…
But drugmakers, medical device manufacturers, and health care companies, which are exempted from U.S. and European sanctions, said Russians need access to medicines and medical equipment and contend that international humanitarian law requires they keep supply chains open.
Of course, with the rouble having plunged in value, any medications and devices sold into Russia might be catastrophically expensive.
By Sibir, a reader in Russia
Here’s a quick response to your questions (in italics):
There’s a widespread assumption (even among some readers) that Russians are suffering because sanctions…
First off, I think it’s good that sanctions are perceived (accurately or not) to be devastating since that lessens the pressure to take military action. Economic war is better than nuclear war.
Second, it’s too early to tell at this point what the full effect and ramifications of the sanctions will be.
Another point to always keep in mind (of course you know this, I’m just stressing it): Moscow and St. Petersburg ≠ Russia. (I live in a big industrial city in Siberia, surrounded by small towns and villages.) Economic inequality in Russia is very high, therefore a class and regional analysis is needed whenever discussing effects of these sanctions.
… like shortages of necessities level suffering.
So far, no shortages of necessities, afaict. No general suffering or panic.
They conflate the collapse of the rouble and the shuttering of the stock market as = to the collapse of the economy.
There is no “collapse of the economy” at this point. Obviously the ruble crash means a lot of foreign products will now become super-expensive, and Russians will have to return to buying Russian-made substitutes. (A process which, as you know, already began in earnest after 2014.)
The life-styles (consumption, vacations to Europe etc.) of upper-middle class and elite Russians have changed drastically. There’s no doubt that many wealthy Russians have been hit hard. SWIFT cut-off and Visa/MasterCard cancellation makes it very difficult/impossible for anyone in Russia to get funds from foreign accounts or use foreign-issued credit/debit cards.
As foreign companies leave, air travel cancelled, etc. there will no doubt be folks put out of work (e.g. foreign brand workers, Aeroflot employees, airport workers, tourism industry people, et al.) But I’m sure you’ve read about government actions to keep workers getting paid, and even talk about nationalization.
Is Russia facing a 1998-like default?
… Axios has an updated list of major global businesses across multiple sectors which have abandoned Russia since the start of the invasion…
I personally know some individuals who are worried about continued availability of medicines they rely on. Others are worried about car parts running out. There are no widespread shortages yet, though.
The small band of pro-Western, Europhilic, Russian “liberals” are in state of total shock and psychological collapse, many attempting to flee asap from their long-hated homeland.
See Masha Gessen’s terrifying (and often intellectually dishonest) account:
Thousands of Russians have fled, afraid a new Iron Curtain will fall
I’m not an economist, so I can’t speak to critical imported parts for specific industries. In any case, there does seem to be a widespread popular enthusiasm for import-substitution and economic patriotism, and for a decisive, world-historical re-orientation toward the East.
20% interest rates are hurting mortgage borrowers and I assume a lot of businesses.
Yes, absolutely. Quite a few Russian politicians, analysts, commentators etc. have been attacking Central Bank policies (not a new thing, but getting intense now.) I think we need to see how government responses develop before we can assess the full impact of the higher interest rates.
However, I don’t want to be dismissive.
I agree; that would be a mistake. I’m seeing a lot of probably over-optimistic predictions of both military and economic outcomes. For example, this MMT-type economic analysis:
To me the outcomes of both the war in Ukraine and the economic war on Russia are still uncertain.
On a personal note, let me say the following:
1) Ever since I came here, I’ve noticed a strong Russian fascination with foreign brands, even on products that can easily be produced in Russia, like oatmeal, or candy bars, etc. (and the label “новинка” is put on just about everything, even the most run-of-the- mill product!)
2) This attraction to everything foreign and new is rather superficial; Russians easily revert back to old habits. People I talk to usually just laugh it off when I ask how they feel about losing all these imports–”We’ll just eat our potatoes from the dacha, and drink our homemade kvass! ”
3) Every Russian I ever spoke to has conveyed to me deep and dark memories of the 1990s. Understanding the social and economic devastation that occurred during that period is absolutely indispensable to understanding everything about Russia today. It’s fundamental. I obviously can’t go into all that now, but suffice it say that every Russian family knows what true economic collapse is. And they know they got through it. Russians are resourceful. Russians are survivors. (See attached file with an excerpt from Paul Klebnikov’s book, “Godfather of the Kremlin”―highly recommended.)
Potatoes are no joke:
[1990s]With Russia in a slump far worse than the Great Depression, people tapped an old survival instinct. Amid rumors of crop failure and impending food shortages, millions of city dwellers traveled to the countryside to plant cabbages and potatoes in their garden plots. The arable land just outside Moscow was swarming with people digging and planting. It was back to medieval agriculture. Chubais and Gaidar were proud of the fact that mass starvation had been avoided. But it was avoided not because prices had been liberalized, but because the Russian people had returned to the countryside. It was with a shovel and sack of seed potatoes that Russians escaped starvation in 1992 and 1993. (Klebnikov)
For many Russians, the 1990s will be the benchmark against which the “economic collapse” caused by the current sanctions regime will be measured. If that is true, then it seems unlikely that those sanctions will have the devastating psychological impact that so many in the West are hoping for. Time will tell.
I am thinking now that it’s probably not sanctions that could reverse Russian actions, or foment broad opposition to the Putin administration, but rather military failure in Ukraine. From the very beginning of this “operation”, I have had strong doubts about the end goals and their achievability.00 Death of a Nation