Thread by @veigokell

Yale University analysis: sanctions are catastrophically crippling the Russian economy. Contrary to Putin’s illusions that Russia can return to a Soviet-era state of economic selfsufficiency, the Russian economy has
significant papers.ssrn.com/sol3/papers.cf… /1

reliance on western technology and international supply chains – and is thus more vulnerable to external shocks and disruptions. /2

Defeatist headlines arguing that Russia’s economy has bounced back are simply not factual - the facts are that, by any metric and on any level, the Russian economy is reeling. /3

One crucial commodity where – contrary to misleading narratives – Russia is far more dependent on Europe than Europe is on Russia is natural gas.

Putin is not entirely wrong – the present-day Russian economy does maintain some similarities to the Soviet-era economy, but in all the wrong ways. In desperation, Putin has effectively legalized black market and intellectual property infringement.

In short, the picture that emerges of the structure of the modern Russian economy is that of an internally corrupt, western technology-dependent resource behemoth.

Rosstat has ceased the release of timely import data, and Russia no longer releases any subcomponents of trade data as well. Thus, any estimate of actual imports into Russia must be done by using the trade
data of Russia’s trade partners rather than with Russian data sources.

Russian manufacturing across sectors relies extensively on imported components.

Many Russian economists cite the necessity of finding new trade partners and broadening the range of countries from which Russia imports manufactured products, but the reality is there are few potential partners eager to engage in an economic relationship with Russia.

Putin is largely constrained to countries which are allied with him politically – and much weaker economically – reflects the reality that by weaponizing trade, Putin has irrevocably destroyed his credibility as a trade partner in the eyes of many of his erstwhile trade partners.

In short, the drop-off in Russian imports has severely impeded the domestic Russian economy with devastating consequences for domestic consumption and production.

The Russian domestic economy, in many ways, remains somewhat of a black box for many outside observers. Many western analyses are overly reliant on official Rosstat releases, which are whitewashed and cherry-picked to select for the most favorable statistics.

Despite Putin’s bravado and personal conviction, the fact remains that import substitution has not been successful thus far – and Russian innovation lags far behind that of peer countries.

Sanctions work: Russia went so far as to suspend car production safety requirements in domestic automobile manufacturing, and many of the cars being manufactured post-invasion now lack such essentials as airbags and anti-lock brakes.

Even though the state aviation authority Rosaviatsia issued production certificates to Russian companies
authorizing them to make parts for aircraft, the manufacturers are apparently struggling to produce anything beyond minor cabin items such as seats and galley equipment,

Based on Rosstat’s own data releases, Russian gross domestic value added in Q1 2022 fell dramatically across industries, with certain crucial industries such as construction and agriculture value added falling upwards of 50% on a quarter-over-quarter basis.

Beyond Russia’s deteriorating trade position and its struggling domestic economy, Russia’s long-term economic outlook is suffering under the weight of 1) business flight from Russia; 2) capital flight from Russia; and 3) population flight from Russia.

It is impossible to assess the exact number of Russians who have left Russia permanently since the outset of the invasion, but most estimates peg the number as no less than five hundred thousand – with the vast majority
being highly-educated and highly-skilled workers.

Russian imports have largely collapsed, and the country faces stark challenges securing crucial inputs, parts, and technology from hesitant trade partners, leading to widespread supply shortages within its domestic economy.

As a result of the business retreat, Russia has lost companies representing ~40% of its GDP, reversing nearly all of three decades’ worth of foreign investment.

Conclusion: Putin is resorting to patently unsustainable, dramatic fiscal and monetary intervention to smooth over these structural economic weaknesses and Kremlin finances are in much, much more dire straits than conventionally understood.

Conclusion 2: Russian domestic financial markets, as an indicator of both present conditions and future outlook, are the worst performing markets in the entire world this year despite strict capital controls.

Conclusion 3: Looking ahead, there is no path out of economic oblivion for Russia as long as the allied countries remain unified in maintaining and increasing sanctions pressure against Russia.

Conclusin 4: Defeatist headlines arguing that Russia’s economy has bounced back are simply not factual - the facts are that, by any metric and on any level, the Russian economy is reeling, and now is not the time to step on the brakes.