By K Raveendran
Western nations, led by the US, slapped economic sanctions against Russia, targeting its financial system, oil and gas exports, and thousands of oligarchs in the hope that Moscow will be brought down to knees for having invaded Ukraine. In fact, the World Bank, International Monetary Fund, and Organisation for Economic Cooperation and Development all predicted declines of between 2 percent and 4 percent in Russian gross domestic product in 2022.
But contrary to the western hopes, Russia has emerged rather unscathed, according to the results of a survey carried out by global analytical consultancy Gallup. According to the survey, more than two in five Russians (44%) surveyed between August and November last year saw their local economic circumstances getting better, while 29 percent saw them getting worse.
Gallup notes that Russians’ relatively rosy economic outlook is striking given the events of 2022 and the economic uncertainty that came with them. Russia rocked the geopolitical order and became a pariah on the global stage after launching a full-scale invasion of Ukraine in late February. However, this has not translated into worse economic perceptions at the local level. Instead, they improved by four percentage points between 2021 and 2022. And in 2023, the IMF even predicts a small 0.3% growth in the Russian economy despite far-reaching Western sanctions.
Gallup provides two explanations for Russia’s resilient outlook. The first is that sanctions may not be hitting the Russian economy as much as the West and its allies initially hoped. This has been attributed to Russia’s status as a big commodity exporter. The other reason, according to Gallup, is that large economies such as India and China have not only increased their purchases of Russian oil, but they are also making their payments in local currencies. This acts as a way around the removal of Russian banks from the international finance system, SWIFT.
In addition, much of Europe including Germany and Italy remains heavily reliant on Russian gas exports making it difficult to cut back consumption in a more meaningful way. Further, many of Russia’s other neighbours — such as Turkey, Belarus and Kazakhstan, are also increasing trade with Russia in products targeted heavily by Western sanctions.
The net result is that Russia has managed to readjust to sanctions and trade more effectively with other parts of the globe. This has contributed to the fairly optimistic outlook across much of the country. For the first time on record, a majority of people in every region across Russia are now satisfied with their standard of living. Gallup also cited recent reports that President Vladimir Putin is pushing the Bank of Russia to spread more positive economic messages and send the signal that it is on the right path for the years ahead.
Another reason for the buoyant economic perceptions is explained as an effect of rising poll ratings rise at times of national crisis, referred to as a ‘rally ‘round the flag’. Many academics have noted how a leader’s domestic popularity can improve in the face of an external threat such as an international conflict, or indeed a global pandemic.
Gallup data about standards of living and leadership approval in Russia confirm this. Russians’ satisfaction with their standard of living shot up by 15 points last year to 57 percent. Likewise, two-thirds of Russians approved of their leadership in 2022, up from 50 percent the year before. Gallup also measured a rally effect in 2014 when Crimea joined Russia, which in many ways was a precursor to Putin’s later invasion.
Gallup says the rally effect is especially salient in Southern Russia and the North Caucasus. These two regions, both close to the fighting along the eastern border of Ukraine, have seen some of the most rapid increases in satisfaction with standards of living and economic perceptions since the invasion.
Western nations presented a united front following the invasion of Ukraine a year ago. Widespread sanctions undoubtedly hit the Russian economy hard in certain ways, but in other ways Russia has been able to insulate itself and absorb some of the negative effects.
Gallup, however, points out that questions remain as to how long this situation may last. The war in Ukraine shows no sign of abating anytime soon. Over the long term, extensive sanctions may continue to grind down the Russian economy and gradually make it more difficult for Putin to fund his military revanchism. Also, rally effects can abate quickly. Approval of Russian leadership fell consistently for four years in a row after Crimea and the intervention in Syria in 2014 and 2015. Should a similar trend occur in the next few years, the intended consequences of Western sanctions may yet become more apparent.
But as of now, Russia has had the last laugh while the West continues to fret and fume over the Ukraine war with apparently no effective tool to tame a roaring bear. (IPA Service)