The alleged strength of the ruble, and the increase in Russia's oil and gas revenues, have been used to criticize the sanctions against Moscow. However, do these claims correspond to reality?
Russia's cruel and unjustifiable invasion of Ukraine continues to be a key topic of analysis, studies and conferences not only in the written press, but also by analytical media, blogs and think tanks. In turn, the consequences of this war are setting the diplomatic agenda of the major powers in the short and medium term.
Before the start of this war, US President Joe Biden, in January 2022, mentioned the following: "any Russian move in Ukraine would be seen as an "invasion". Let there be no doubt: if Putin were to make this decision, Russia will pay a heavy price."
This warning was ignored by Moscow, and with the onset of the current conflict in Ukraine, there has been a wave of solidarity with Ukraine, the departure of major multinationals out of Russia, and since the end of February, US, EU, UK, South Korea, Japan, Singapore, and other states have imposed sanctions against Moscow.
The main objective of the current sanctions would be to tailor the sanctions to affect Russia's ability to wage war and to financially hit the top government officials, not the civilian population. To this end, emphasis was placed on cutting off Russia's access to its foreign exchange reserves, limiting imports of key technologies, and taking other restrictive measures.
Following the imposition of the first package of sanctions against Russia at the end of February 2022, in its forecast report updated by the United Nations Conference for Development (UNCTAD), the Russian economy will contract by 7.3% in 2022, and during the first days of the conflict, the Russian ruble lost its value against the US dollar and the euro.
In April 2022, after losing 45% of its value against the dollar in the two weeks following the Russian invasion of Ukraine, the Russian currency, the ruble, has recovered, trading just below its pre-war level. This alleged strengthening of the Russian ruble has been used as an argument to justify the zero impact of sanctions against Russia. Moreover, another argument used to criticize the 2022 sanctions is the increase in Moscow's revenues thanks to gas and crude oil. However, is this argument really true or do the sanctions really work? This article will shed some light on this topic.
In order to understand and answer the above question, some clarifications are necessary.
Russia owns one-fifth of the world's natural gas reserves. Excluding Russia's gas reserves in Asia, Moscow has the third largest gas reserves in Europe, after Norway and Ukraine. Russia also has the eighth largest crude oil reserves on the planet; making it an energy powerhouse. At the same time, Moscow is sensitive to fluctuations in the crude oil market; it needs the price per barrel to be at $60. Russia is highly dependent on these gas exports, crude oil and petroleum products to the tune of 70%. In 2012, where most (83% of gas exports) are directed to the EU.
Graph 1: "When it comes to natural gas, Russia is more dependent on Europe (the EU) than vice versa. Source: https://deliverypdf.ssrn.com/delivery.php?ID=506001013065016026090094087064001123025021068055070082025085093026071122090017003031057122111022009036109112004088013002090066017084012076061121006001065125092072091009075044009084078111070107030067093101069123080065096086030029027093107118091085000007&EXT=pdf&INDEX=TRUE
It is necessary to look back on Russia's recent history after the collapse of the USSR. In 1991, Moscow faced economic collapse. The new government, led by Boris Yeltsin, had to deal with the consequences of the mistakes of Soviet economic policy and transform the entire economy from scratch.
Moscow launched a series of radical reforms designed to implement a new economic reality. The main components of the reforms included the creation of privately owned industrial and commercial enterprises (with foreign and Russian investment) and the privatization of state companies, including gas and oil ones. To encourage privatization, the government issued vouchers to Russian citizens allowing them to purchase shares in the privatized enterprises.
The Russian economic turnaround was fraught with difficulties and was historically unprecedented. Since the model of a centralized, planned economy persisted in Russia for more than 70 years, the transition to a market economy proved more difficult for Russia than for the other Soviet republics in Europe.
Despite the size of Soviet industry, it was very inefficient and costly to maintain. This industrial fabric was oriented towards defense and heavy industrial products, and the workforce did not have the necessary skills to work in a market environment. These factors slowed down the privatization process and many companies, concentrated in heavy industry, remained state-owned.
In turn, the policy of issuing vouchers to Russian citizens benefited only the rulers' friends, the oligarchs. The oligarchs received large chunks of Russian industry for little in return. In particular, Russian enterprises in the natural resources sector were sold at prices far below their market value.
The Yeltsin government eliminated price controls on most items in January 1992. Although this measure had immediate results, in the long run, it stimulated inflation. Inflation would soon become a daily concern for Russians, and political malpractice made the problem worse. In 1995, the Russian government, thanks to loans obtained from the International Monetary Fund (IMF) and revenues from the sale of oil and natural gas, managed to stabilize the Russian economy and reduce inflation.
Moscow continued to borrow large sums of money on domestic and foreign markets while avoiding real structural reforms of the economy. At the same time, most of the economic growth was concentrated in very specific places in the Russian geography. This occurred in: Moscow, St. Petersburg and a handful of other major urban areas; while, other parts of Russia were in crisis.
The weakened Russian state failed to fulfill its basic responsibilities. The legal system, which suffered from a lack of resources and trained personnel and a legal code geared to the new market economy, was on the verge of collapse. Low salaries led to a flight of experienced jurists to the private sector, and corruption in law enforcement and the legal system became widespread. This corruption took its toll on: health care and education.
The point of no return for Yeltsin began in 1998. On the one hand, by failing to establish an effective tax code and collection mechanisms, the government found it increasingly expensive to maintain an artificially fixed ruble exchange rate. As a result, this currency collapsed in 1998, and the government was forced to withhold payments on its debt amid a growing number of bankruptcies. It is worth mentioning that, between 1993 and 1999, the disposable income (disposable income after taxes) of the average Russian declined by 25%.
Moreover, after the failure of the first Chechen war, Yeltsin was under the spotlight, while Vladimir Putin was gaining political weight in the shadows. In 1999, Yeltsin announced his resignation and was replaced by Putin.
In 2000, the new Russian government was faced with three urgent tasks: balancing the state budget, fixing the tax system and re-monetizing public finances, and continuing with structural reforms for the proper functioning of the economy.
Despite domestic opposition, Putin continued with the economic reforms through the Gref program, which was approved from 2000 to 2010 and would change the economic and political situation in Russia.
First, a new tax code was adopted. In 2001, certain taxes were reduced. For example, the previously very high personal income tax rates were replaced by a single marginal tax rate of 13%, and the corporate income tax rate was reduced from 35% to 24% and the value-added tax rate from 20% to 18%. A strict tax regime was established for oil. The impact was actually positive, as tax evasion decreased.
Second, in 2002, the sale of agricultural land was liberalized, clearing the way for the revival of domestic agriculture. Excessive regulation of small and medium-sized enterprises (SMEs) was considered a burden and a serious deregulation effort was made. Putin also wanted to attract foreign investment to Russia to reduce its dependence on Western loans to help finance the renovation and expansion of Russian industry, and exports would be increased by promoting the sale of oil, natural gas, and arms.
Two important steps were also taken in 2004.
On the one hand, the use of International Financial Reporting Standards (IFRS) was gradually introduced, improving the transparency of Russian banking operations. On the other hand, a stabilization fund was created to keep public accounts in order. This fund is calculated considering the price of a barrel of crude oil, and would be used when the price of oil on the international market fell below $60/barrel.
These reforms produced a political stability and economic vitality that had not been seen in the country during the 1990s. One notable indicator is the poverty rate. In 2000, 29% of the Russian population lived below the poverty line, while in 2006, that rate had dropped to 15%. Another example was GDP growth. During the period 1999-2007, Russia's GDP grew by an average of 6.9% per year.
Moscow experienced a boom in foreign trade. During the period 1999-2007, Russian exports grew by nearly 400%, from $75.5 billion to $355.5 billion, and Russian imports increased by more than 450%, from $39.5 billion in 1999 to $223.4 billion in 2007. This allowed Russia to experience a budget surplus, and it paid off part of its foreign debt, thanks to revenues from higher world oil prices.
Despite the promise of becoming less dependent on the West, the EU has been Russia's most important trading partner. In 2007, the EU accounted for 53% of Russian exports, mainly energy, and 43% of Russian imports.
During these years, Foreign Direct Investment increased considerably, where EU countries (2009-2017), European investors owned between 55% and 75% of the total stock. In turn, more and more foreign multinationals started doing business in Russia, prior to the invasion of Ukraine, they were more than 1000, accounting for 40% of Russian GDP ($600 billion in investment), and employing about 1 million people.
Figure 2: Russia's GDP growth (2000-2018). Source: https://helda.helsinki.fi/bof/bitstream/handle/123456789/16548/bpb0120.pdf?sequence=1
Putin also took measures to limit the political and economic power of the oligarchs, especially those who were critical of him. For example, in 2001 Vladimir Gusinsky and Boris Berezovsky, two of Russia's richest men, were stripped of their stakes in electronic media. Another example was in 2003, Mikhail Khodorkovsky, former head of the oil giant Yukos, was arrested and eventually convicted of fraud and tax evasion.
Despite this change, Vladimir Putin facilitated the second wave of oligarchs, close to his circle and loyalists, known as "siloviki". This new elite became wealthy through state contracts. For example, private suppliers in many sectors, such as infrastructure, defense and healthcare, charged the government well above market prices and offered bribes to win key contracts.
Between 2004 and 2006, the Russian government took control of formally privatized companies in certain "strategic" sectors: oil, aviation, power generation equipment, machine building and finance. An example of this was between 2005 and 2007. The Russian executive increased its participation in the oil industry through Gazprom, the state-controlled company that has a monopoly on gas exploration and production in Russia.
These two decisions would weigh on Russia's competitiveness. In addition to this, corruption has hindered Russia's economic transition from an economy highly dependent on raw materials to the export of high value-added products. It should be mentioned that, according to the Corruption Perceptions Index (results are shown on a scale from 0 to 100, where 0 is corrupt), in 2010, Russia scored 21, and in 2020, 30 out of 100.
In 2006, exports of crude oil, natural gas and other fuels accounted for 64.6% of exports, more than in the Soviet period. In the same year, inflation rose by 9.7%, and in 2007 it is estimated to have risen by 9.0%, a rate above the government's target, showing a first warning sign. However, between 2008 and 2009, this period of bonanza would come to a halt.
During the onset of the 2008 crisis, Russian markets plummeted and the value of Russian stocks fell by more than $1 trillion. Russia's foreign exchange reserves fell from $210 billion from their peak to $386 billion, and the ruble weakened by 35% against the U.S. dollar through 2009. The Russian economy emerged from recession in the third quarter of 2009, and in 2011, Russia's candidacy to the World Trade Organization (WTO) was accepted and it became a member within WTO. In addition, according to the World Bank, Russia was considered a high-income country.
The prolonged recession in the EU, Russia's largest trading partner, stagnating oil prices, demographic problems, and the outbreak of tensions with Georgia, then Ukraine, would cause growth not to be the same as it was prior to 2008.
In 2014, the prices of most commodities fell, especially crude oil. This slump was due to: the reduction in global demand, but also due to the emergence of new energy players such as the US, and increased investment in renewable energies. In the same year, the invasion of Crimea and the skirmishes with Ukraine increased tensions between the US, the EU and Russia, and the first sanctions were imposed against Moscow.
Washington, Brussels, among others imposed sanctions. This package included restrictions on individual companies and individuals with close ties to the Russian government, as well as sectoral measures restricting trade in goods related to the defense and energy sectors.
In the short term, the ruble suddenly plummeted due to the sanctions, the fall in the price of crude oil, along with demand for foreign currencies, mainly U.S. dollars and euros. The Central Bank of the Russian Federation, led by Elvira Nabiullina, and the Russian government took measures to bring the situation back under control. Interest rates were raised to 17% and a major refinancing program was announced for large companies with foreign loans.
Photo 1: Central Bank Governor Elvira Nabiullina and Finance Minister Anton Siluanov, two of the main drivers of reforms since mid-2010. Source: https://geohistory.today/2014-crisis-russia-economy/
Inflation rose to almost 15%, and food prices were also hit hard. Russia imported most of its fruit and vegetables from abroad, mostly from the EU. In addition, the falling ruble encouraged Russian farmers to export more produce abroad. At the same time, counter-sanctions aggravated the situation. Moscow adopted sanctions against the countries that had sanctioned it, focusing mainly on food imports. Suddenly, the logistics of Russian food imports had to be completely reconfigured.
To cope, two key lessons were drawn: the importance of reserves (foreign exchange, and gold), balancing the budget, and Moscow began to look to Asia, specifically China.
The first issue was reserves. The Central Bank of Russia increased the volume of reserves. One data can be seen in currencies. The foreign exchange volume would exceed 630 billion US dollars in 2022. As for the composition of currencies (data from June 2021), more than 30% is held in euros, more than 15% in US dollars, 13% in yuan, and more than 20% in gold.
Figure 3: Composition of foreign exchange reserves (June 2021 data). Source: https://www.brookings.edu/blog/up-front/2022/03/03/russias-external-position-does-financial-autarky-protect-against-sanctions/
In turn, much of Russia's financial interactions with the rest of the world take place through entities domiciled in financial centers, and many Russian companies raise funds by issuing debt securities abroad (with subsidiaries domiciled in Ireland, Luxembourg and the Netherlands). At the same time, debt-to-GDP, between 2014-2020, remained below 20%.
Regarding China, both Beijing and Moscow have strengthened their economic, trade and diplomatic ties. In trade, the aforementioned were estimated to reach $100 billion in 2018. China in 2018, accounted for 15.5% of Russia's total trade. Three years later, bilateral trade almost reached $110 billion.
In energy, Western sanctions have also forced Russia to look to China for investment opportunities. The Yamal LNG project in the Russian Arctic would have been difficult, if not impossible, without Chinese support. In addition, several cross-border projects were completed: the two bridges in Russia's Far East and the Power of Siberia pipeline.
However, this cooperation has its limits due to antagonistic geopolitical interests. At the same time, the European Union remains Russia's largest trading partner, responsible for $260 billion (€232 billion) in trade in 2019.
Domestically, for Russia, the 2014 crisis was not followed by a rapid recovery, and real wages declined until 2019. Importantly, crude oil prices remained low as sanctions worsened and investors, both Russian and from the rest of the world, directed their funds elsewhere. Only the Russian agricultural sector was successful in avoiding the impact of sanctions, largely due to the decrease in agricultural imports from the EU. During these years, the Russian economy was not structured, and the bulk of exports would remain unchanged. Moscow maintains only 11 trade agreements (WTO data from 2022), where the bulk are with former ex-Soviet Republics.
Moreover, a February 2020 Levada Center poll revealed that 80% of Russian respondents believe that Russia and the West should be friends and partners. Despite the signing of the Minsk Agreements and, the construction of NordStream2; relations between the EU and Russia have been strained following the illegal invasion and annexation of Crimea. Case in point: European Council President Charles Michel and European Commission President Ursula von der Leyen in 2020 refused to lift sanctions against Russia during the worst period of SARS-CoV-2.
In 2015, the European Commission published a communiqué, describing the fundamentals of a European Energy Union. Part of the objective of this policy was to diversify and secure the EU's gas supply. To this end, emphasis was placed on 4 alternative gas routes and sources. However, by 2020, the phasing out of coal, non-investment in nuclear power, and lack of foresight on the part of the EU meant that in gas 43% of European imports came from Russia.
For Moscow the EU is an important partner. Exports from EU countries to Russia do incorporate a high added value. Specifically, 88% of EU exports to Russia are manufactured goods, as can be seen in Figure 4. To illustrate the importance of Brussels for Moscow; in 2020, the EU was Russia's first trading partner, accounting for 37.3% of the country's total trade in goods.
Figure 4: EU exports to Russia (2014-2021). Source: https://www.elconfidencial.com/economia/2022-01-25/union-europea-derrotada-guerra-comercial-ucrania_3363831/
The tables were turned in February 2022. Russia recognized the areas of the Ukrainian provinces of Donetsk and Luhansk (Dombas) as independent entities, and sent Russian troops. Within days, Putin allowed the invasion of Ukraine; initiating the unjustified war in Ukraine. This conflict not only increased the tension and distrust of the EU states towards Moscow, but has also been a political and energy paradigm shift.
On February 23-24, 2022, coinciding with the first days of the war in Ukraine; the US, UK, Canada, and other states adopted the first sanctions packages against Moscow. It should be noted that Taiwan, the world's largest chip manufacturer, imposed sanctions on Russia. In the case of the EU, the European Council unanimously agreed on the first sanctions against Moscow.
In this first package, restrictions on economic relations with the Dombas areas, limitations on Russia's access to financial and capital markets and services and restrictions on: energy, transport and technology, as well as visa policy were agreed.
At the end of February and beginning of March 2022, Switzerland and Monaco adopted the EU sanctions against Russia. Two new, unparalleled sanctions packages would also be adopted. Transactions with the Central Bank of Russia, overflight of EU airspace would be banned and 7 Russian banks were excluded from the SWIFT system.
I would like to make a small clarification. SWIFT is an essential financial tool making possible a fast and secure communication between different banks. Although, there are alternatives, such as CIPS (China) or in Russia (Mir); these two alternatives rely heavily on SWIFT for cross-border messaging, and their use, except for CIPS, is limited.
This unanimous decision to expel Russia from the SWIFT system has hindered cross-border transactions in Russia's commercial and financial systems, isolating the country economically. At the same time, foreign multinationals began to close their operations, and a brain drain occurred, impacting the Russian economy. To clarify the impact in numbers, more than 1,000 companies ceased or left Russia, representing 40% of Russian GDP ($600 billion in investment), and employing about 1 million people.
According to former Russian Finance Minister Alexei Kudrin, the country's GDP is expected to decline by more than 10% in April 2022, and the Russian PMI (collects information and assesses industry conditions and provides an outlook regarding possible future growth), recorded historic declines in the month of March 2022.
One of the key rumors was the ruble. This currency has appreciated 96% from its March 8, 2022 low to a point slightly above its pre-war level. This rally is due to two factors: Russia's heavy reliance on energy exports, especially to the EU, the positive balance (the bulk of imports are under sanction, while high crude oil and gas prices have helped increase the value of exports) and the intervention of the Russian Central Bank and the Russian government.
Photo 2: view of the headquarters of the Central Bank of Russia. Source: https://www.reuters.com/markets/europe/russian-central-bank-looks-spread-risks-across-banking-sector-expert-magazine-2022-07-27/
To avoid an economic collapse, Russia more than doubled its interest rate from 9.5% to 20%. This measure was intended to alleviate capital flight pressures. The Russian government also imposed a series of capital control policies to prevent the weakening of the ruble. An example of this was in March. On March 1, 2022, Moscow temporarily prevented foreign investors from selling Russian assets. This measure was aimed at preventing the acceleration of the ruble's depreciation and capital flight.
At the same time, Moscow would take advantage of energy dependence, especially from the EU; to avoid ruble depreciation. Russia ordered that any foreign entity importing oil and gas from Russia would have to open a special account in a Russian bank, paying in rubles. These market intervention policies would help in the short term, artificially keeping the value of this currency high. This strength comes at a cost. This strength would threaten to affect the Russian budget, due to the reduction in the value of tax revenues from oil and gas, denominated in dollars.
Before the war, 10,000 trillion dollars were traded in rubles, but during the war, this figure decreased to only 2,000 trillion. Another example at the economic level is inflation. The official CPI (inflation) reached almost 20% in the months following the invasion, and broken down by sector, the situation worsens. Sectors most dependent on foreign supplies have been hit by unprecedented inflation of over 40-60%, such as technology, hospitality services, household appliances and Western automobiles.
Although other players such as Turkey have not imposed sanctions against Russia; Ankara under the Montreaux Convention blocked Russian warships from entering the Black Sea. In addition, both India and China are maintaining a delicate balance, neither for nor against Moscow. Both India, and to a lesser extent China, significantly increased their purchases of Russian crude oil and other energy products at a 20% discount (equivalent to €31.29). However, some Chinese and Indian companies, such as Huawei and Tata, halted their operations in Russia, to avoid being sanctioned by the US, the EU, and other actors.
Between April and July 2022, the European Council agreed on 3 new sanctions packages, including a ban on: coal, crude oil, as well as petroleum products, supplied from Russia to member states, and the purchase, import or transfer of gold originating in Russia.
Currently, as a measure of pressure towards the EU due to the high dependence of Brussels on Russian energy products; Russia received last year about 400 billion euros for oil and gas exports to Europe. This argument is employed as a criticism of the effectiveness of the sanctions. Recently, the Kremlin revealed that total oil and gas revenues more than halved in May from previous months. According to Bloomberg data, provided by the Russian Finance Ministry, showed that oil and gas revenues fell last month to 871 billion rubles (€14,586 million) from 1.81 trillion rubles (€2,929 million) in April 2022.
However, in the short, and especially in the medium and long term, the sanctions have a serious impact on Russia in three areas: energy, economic and financial.
In the energy field, the EU's dependence on Russian gas and crude oil could soon change. The European Union halved its dependence on Russian gas by buying from other suppliers. It is worth mentioning that Brussels reached an agreement with Baku to increase Azeri gas exports to the EU. Another example of diversification has been with Egypt and Israel. The United States now sends more gas than Russia, 13% of total EU supplies. Other players such as Qatar, Algeria, Nigeria, Australia, and significant domestic supply from sources such as the giant Groningen gas field in the Netherlands will change the rules of the game. This shift puts Moscow in a tense situation, as 83% of Russian gas exports go to the EU.
Russia's attempt to pivot towards China in energy will take years to materialize. Currently, there is only one gas pipeline, Power of Siberia I, which is half-operational. This pipeline connects Russian gas fields with China. Beijing has intentionally diversified its LNG supply by turning to preferred and less threatening piped gas partners in Central Asia and the Middle East to avoid high energy dependence on Moscow.
Another effect of the sanctions has been on the economy, especially the collapse of imports, 20% of Russia's GDP. An example of this is the purchase of vehicles. The volume of domestic production of motor vehicles plummeted by 52% year-on-year in March 2022, then by 67% in April 2022 and by 75% in May 2022. In June 2022, only 27,000 cars were sold in all of Russia, compared to 120,000 in February 2022; due to rising prices and lack of supply.
Graph 5: "Russian imports decreased significantly in months after the invasion. Source: https://thedeepdive.ca/sanctions-on-russia-are-working-yale-paper/
Russia, having failed to diversify its economy, faces serious problems in obtaining crucial inputs, parts and technology produced in the West. If sanctions persist in the short term, the impact will be even greater. Russia lacks the technological prowess to manufacture high value-added components and products. For example, Russian tank producer Uralvagonzavod has laid off workers due to supply shortages.
One sector where the impact of sanctions can be seen is aviation. Most of Russia's aircraft fleet is made up of Western airliners, and relies on spare parts from the West. Russian airlines, including state-owned Aeroflot, are dismantling aircraft to secure spare parts they can no longer buy from abroad because of Western sanctions. According to Flightradar24 data, 15% of Aeroflot's fleet is grounded due to the sanctions.
Another example is the automotive sector. Car sales in Russia plummeted 83.5% in May, the Association of European Businesses (AEB) reported on Monday, and new car prices have risen by an average of 50%. Foreign car sales in Russia fell by an average of 95% at major car companies, and sales came to a complete standstill. Avtovaz, Russia's largest automaker, announced another week of layoffs for workers due to a shortage of foreign parts, specifically semiconductors. This lack of key parts will result in new cars produced by Avtovaz lacking key safety features, such as anti-lock braking systems and airbags.
The third and final aspect is financial. Russia's domestic financial markets are the worst performers in the world this year, despite strict capital controls. At par, on the economic side, more than 1,000 companies publicly announcing that they are voluntarily scaling down their operations in Russia; representing 40% of Russia's GDP. There is no exact data, it is estimated that +500 000 Russians (with high academic qualifications) left Russia. Many of them have gone to financial centers such as Dubai, in the Middle East; Turkey, Kazakhstan, Israel and Armenia, mainly.
The most important challenge for Russia is the repayment of debt and reserves. In March 2022, Russian President Vladimir Putin switched to a ruble-only policy in servicing its debts in an attempt to revalue the ruble. This policy did not prevent Russia from defaulting on its international bonds in May 2022.
Of the $600 billion in foreign exchange reserves, $300 billion is frozen and out of reach, with countries allied to the United States, Europe and Japan restricting access. Putin's remaining foreign exchange reserves are dwindling at an alarming rate, having declined by $75 billion since the beginning of the war. At a rate that if continued, these reserves could be depleted in 18 months.
The war and sanctions are hurting Russia more than it portrays. It is still too early to know if the medium to long term impact is sustained and would aggravate Russia's economy. A key factor will be that allied countries (the EU, US, UK, among others) remain united in maintaining and putting pressure on Russia. In addition, India, China and Turkey will be key players in determining Russia's ability to evade sanctions. Another key issue will be the price of energy, specifically gas and crude oil.
The EU should not only continue to reach agreements and finance energy projects with third countries, but also strengthen its energy market. For this, nuclear energy will be important, as well as investments in new gas pipelines, such as MidCat, and the emergence of new energy players within the EU.
The future is uncertain, but Russia's great trump card in Europe may be diluted due to sanctions and Brussels' distrust of the EU. Lack of competitiveness, demographic problems and stagnation in Ukraine could turn Russia into a mere toothless giant bear on a changing international chessboard.
Suggested readings:
Amelin, A., Prokip, A. and Umland, A., 2020. The Forgotten Potential of Ukraine’s Energy Reserves. [online] Harvard International Review. Available at: https://hir.harvard.edu/ukraine-energy-reserves/
Pirchner, H., 2022. Is Russia preparing for a future without Putin? Should we?. [online] The Hill. Available at: https://thehill.com/opinion/international/3487393-is-russia-preparing-for-a-future-without-putin-should-we/
Sonnenfeld, Jeffrey and Tian, Steven and Sokolowski, Franek and Wyrebkowski, Michal and Kasprowicz, Mateusz, Business Retreats and Sanctions Are Crippling the Russian Economy (July 19, 2022). Available at SSRN: https://ssrn.com/abstract=4167193 or http://dx.doi.org/10.2139/ssrn.4167193
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