Sanctions don’t work… they say. Sanctioning Gazprom and another 50 or so banks without wavers had an immediate impact. It also came from fertile soil under macro pressure in Russia. 1/ 2/ Inflow of “unfriendly” FX has already been diminishing for months to come, putting pressure on the ruble.

1/ @USTreasury @RosenbergEliz making an important point. Russia's revenues are down, I would say, due to a combination of the EU embargo/cap and lower global prices. home.treasury.gov/news/featured-… 2/ Federal budget is back to a large deficit in April. A deficit of 3.4 trillion for the first four months of 2023—already 17% above the full-year budget target.

1/ Making a 🧵 of threads 🧵 on key takeaways on Russia sanctions, export controls, oil price cap, and Russian economy. 2/ Publication on what is and what is not working on oil price cap/embargo and how it can be made better.

https://twitter.com/elinaribakova/status/1628391879057317890

1/ Russia substantially increased chip imports in 2022, past the pre-war peak. The value of chip imports is up from $1,8 bn recorded for Jan-Sept 2021 to $2,45 bn over the same period in 2022. 2/ China has stepped in to support Russia's access to chips.

1/ Export of Russian oil has picked up significantly in Jan-Sept 2022. What were the contributing factors?

w/@ben_hilgenstock @mironov_fm @itskhoki @TaniaBabina 2/ Russia's export of crude and products is sharply up and behind Russia's large current account surplus.

1/ Semiconductors are essential for Russia's weapons used in Ukraine. This is what happened to the transactions with countries that used to be Russia's top suppliers in 2021. Note not all semiconductors are under sanctions. w/@mironov_fm 2/ New friends that export semiconductors to Russia, top suppliers in 2022.
New top suppliers (by the number of transactions0: China, HK, Estonia (?), and a few other surprising new entrants to the top.

1/ With Russia 🇷🇺 1%-2% of revenues due to lower oil prices (and the oil cap) set at $60, what are other sources of revenues of the Federal budget? The most important revenues are VAT, profit taxes, and excises. 2/ The MinFin lacked creativity forecasting taxes as a constant to GDP. VAT is Russia's second most important tax after oil and gas; it depends on domestic consumption and imports. Profit taxes depend on the domestic economy and dividends, with Gazprom being the largest payer

1/ As the price cap discussion rages, it is good to know the basics of the Russian 🇷🇺 fiscal situation. Let's first unpick the baseline scenario.

Ironic Kremlin says they won't comply with the 65-70$ oil price cap as it seems to be lifted right off Russia's budget. 2/ The oil price cap, if set at this price, will fully water down the EU embargo, providing convenient shipping services to Russia to help it meet its budgetary needs.

Assumptions for oil extraction and exports are optimistic. GDP for 2023 is also likely to be a touch weaker.

1/ Can we trust Russian 🇷🇺data? Saying we cannot use any Russian data is not constructive. We need to find ways to assess economic performance and sanctions’ effectiveness. A thread 🧵on the good, the bad, the ugly, and the data that is no more. 2/ Russia's GDP number collected by Rosstat has always been problematic. Issues related to the deflator, sectoral composition, input from the regions. 1-2pp off before 2022. 2Q2022 is probably arbitrary. Nice comments on the personalities involved here. carnegieendowment.org/politika/87404

1/ I still get questions about Russia's Ruble 🇷🇺 Is appreciation real? Yes. Is it likely to last? No, but it is not the point. The point is Russia is struggling to find alternatives to the US$ that it can lose to sanctions at any moment. A thread🧵 2/ Ruble is no largely determined by Russia's trade balance. Current account surplus ($180bn YTD in Aug.) this year will be enough to rebuild most of the reserves frozen by sanctions (~$300bn)

1/ With a lot of discussion of the oil price cap many forget to think about what it means for Russia's fiscal accounts. Can Russia 🇷🇺afford to wait it out? The short answer is yes. A thread 🧵 2/ The purpose of the oil price cap is to give an exit valve for Russian oil (to bring more Russian oil to the market, not less) at a lower price, as concern was that the EU oil embargo to come on in early 2023 will be too binding. Here are the scenarios.

1/ Lessons learned from #sanctions on Russia🇷🇺. One cannot switch the $1.5 trillion economy to crypto overnight. Russia also hasn't been under pressure to switch. Even if a large share of the banking system is under sanctions, cross-border transactions are still flowing. 2/ Cross-border transactions for trade are still flowing freely. $ 167bn Jan-July in Current Account surplus. Gazprom bank plays a major role, being a de-facto Central Bank for Russia, even if not an effective one as the Ruble is strengthening too much for the budget.

1/ Sanctions on Russia are proving to be porous not only in energy. While self-sanctioning has been an important contributor to sanctions impact, many companies are still sitting it out. @SelfSanctions @JeffSonnenfeld 2/ The reasons are numerous and understandable. Our preliminary analysis suggests the importance of competing moral concerns, flexibility, and demand stability.

1/ Thread 🧵an update on Russia's 🇷🇺BoP accounts in 2q2022 that supports a lot of our expectations: Russia is swimming in cash, imports have contracted, but there are signs of Russia adapting. China and India are buying Russian oil, and Russian banks are accumulating money abroad 2/ 🇷🇺Exports are up 20% in 2q2022. Urals discount might have fallen marginally, Brent was up 64% to $113, and Russia's average Urals was $80 (the Urals was $70 in April based on monthly data). Gas, coal and aluminum prices are all up sharply; we know that.

1/ Great summary by my colleagues for and against an oil price cap. My take is that an embargo is preferable. Cap implementation is challenging as it assumes
1. Russia desperate for cash
2. It can’t divert oil
3. Fields can’t be reopened.

@edwardfishman and @brianoftoole

https://twitter.com/acgeoecon/status/1541545441992626177

2/ An oil embargo might not be politically immediately possible (see how complicated the EU negotiations on the 6th package were), so a cap is a second-best idea. The implementation here will be critical and secondary sanctions on non-aligned counties.

1/ What G-7 should do with an even greater sense of urgency is help Ukraine plug in the $4-$5bn monthly budget gap due to higher defense and social spending and revenue shortfalls.

My trip notes from Kyiv a few weeks ago

https://twitter.com/tashecon/status/1541112293064417280

2/ Ukraine got only $6.8 bn in cash from the international community since the beginning of the war. With the monthly fiscal gap reaching $4.5 in May alone, this is, I am sorry, peanuts.

1/ Gazprom has always been a geopolitical project as opposed to oil (rents to the budget) and metals (money for the oligarchs) sectors.

https://twitter.com/blschmitt/status/1537124515372838912

2/ This is the reason Gazprom has always been taxed much lighter than oil (oil gives up most of its revenues over ~15$ plus oil price).

1/ Russia’s financial system is back to business as usual after a few weeks of severe bank runs (nearly Rub 10 trillion in liquidity withdrawn). Those who though that cutting Russia from financing for a few weeks at the beginning of the war would stop the war have proven naive. 2/ Russia has accumulated more than $100 bn in FX since the beginning of the war. The budget is in RUB 1.6 tr surplus so far. Cutting off Russia for a few weeks from oil with a complete embargo would achieve nothing, but a spike in commodity prices that would hurt global growth.

1/ How does FX flow to Russian authorities from the large current account surplus? A thread 🧵 2/ Russia is enjoying historically high current account surpluses due to high oil and gas and other commodity prices. See what Russia 🇷🇺exports below (5 year average as shares vary a little due to price and volume changes).

1/ Should the @ecb open if not a swap line, then at least a standing repo line with the @NBUkraine_eng? The Euro is the proud 2nd global currency and is the most relevant for the National Bank of Ukraine. The ECB already has repo lines with other non-EUR countries. 2/ Overview of the existing ECB facilities ecb.europa.eu/mopo/implement…).

1/ Important announcement on further Russia sanctions. Key full blocking of Sberbank, further SOE sanctions, no more investments, repayment from frozen FX. Nice ref to our -15 forecast.

US, G7 and EU Impose Severe and Immediate Costs on Russia | ⁦WH whitehouse.gov/briefing-room/… 2/ Sberbank is the largest Russia’s bank, it is where babushkas and dedushkas bank. Originally excluded to show that Russians are not targeted, but the government is. Now we are past this nuisance.