Why the Russian economy is struggling under sanctions: everything to know

Hello, Opening Bell crew. I’m your host, Phil Rosen.

The Federal Reserve begins its two-day meeting today. Before Wednesday’s rate hike decision, pay attention to my roundup of everything you want to know as the Fed makes its latest policy announcement.

Today, however, I find myself on another front in the history of global markets, especially Russia.

So far this year Russia has withstood the sanctions quite well, initially surprising experts and observers alike. But all his maneuvers to isolate himself from the West amid measures to strangle the Kremlin’s war funding could leave the country in a much worse situation in the long run.

Below, I analyze what economic experts have to say about Russia and its economy six months after the invasion of Ukraine.

Let’s begin.

put in

Russian President Vladimir Putin (L) meets with Foreign Minister Sergei Lavrov at the Bocharov Ruchei state residence in Sochi, March 10, 2014.

REUTERS / Alexei Nikolskyi / RIA Novosti / Kremlin

1. Moscow’s resilience in the face of sanctions surprised analysts earlier this year, but now experts say Russia’s isolation from the West is creating a disaster for its economy.

In retaliation for Western sanctions, Moscow has moved to exclude trading partners in the West, and is instead working exclusively with “friendly” nations who can bear to do business with a pariah state.

Under Vladimir Putin’s leadership, Russia has cut off gas flows to Europe via the Nord Stream 1 pipeline and has sold huge quantities of fuel supplies to China and India, causing EU politicians to accuse Moscow of arm energy. Official customs data showed that China spent a record $ 8.3 billion importing Russian oil, gas and coal products in August.

But the experts told Insider’s Jennifer Sor that, under that challenge, the Russian economy is withering.

“What they propose to do is a recipe for long-term stagnation,” said UC Berkeley economist Yuriy Gorodnichenko to my colleague, making comparisons with other isolated nations such as North Korea, Afghanistan and Cuba.

International Monetary Fund forecast that Russia’s GDP will drop 6% this year, as oil and gas sales accounted for nearly half of its GDP in 2021.

Furthermore, the Russian “boycott” of the dollar – which accounts for 88% of global foreign exchange transactions – means that it limits the markets it can operate with.

“What happens is that [isolationism] reduces the number of products that [Russia] he can buy, “Jay Zagorsky, a market professor at Boston University, told Insider.” He can only buy Indian agricultural products, he can only buy Chinese artifacts, that sort of thing. And when you limit yourself to a particular country, you often end up not getting the highest quality or the best price. ”

In September, Russian marine oil exports hit their lowest level in a year, with discounted crude becoming a less attractive option for Asian customers in another sign of economic calamity.

And once the EU embargo goes into effect in December, the Russian energy sector could be left with 2.2 million more barrels per day of reserve oil to distribute.

How could Russia deal with its economic crisis? What would it take for Russia to get back into the global financial system? E-mail prosen@insider.com or tweet @philrosenn.

In other news:

A trader works on the floor of the New York Stock Exchange (NYSE) at the opening bell on August 5, 2022 on Wall Street in New York City.

ANGELA WEISS / AFP via Getty Images

2. US stock futures fall early Tuesday, as the Fed’s two-day monetary policy meeting is at the forefront of investors’ minds. Meanwhile, cryptocurrencies are also down, with bitcoin trading below $ 19,500. Here are the latest moves in the market.

3. Gain on the bridge: Kingfisher plc, AAR Corp. and Good Energy Group PLC, all reports.

4. This married couple has a 47-unit real estate portfolio worth $ 19 million. They told Insider the exact books that got them on the path to wealth creation – see their four-reading list here.

5. According to Pantheon Macroeconomics, a “deep recession” in the housing market could cause the Fed to slow the pace of rate hikes in November. The firm’s chief economist said a 50 basis point hike is more likely than a 75 basis point move, even though markets are pricing the latter. He said the pain will spread beyond home builders and depress housing-related sales.

6. India has just bought its most expensive liquefied natural gas cargo in history. The sale comes as the Asian country rushes to replace canceled Russian gas supplies, and it’s a sign that India is struggling to close the supply gap now that Germany has seized a Gazprom subsidiary. Here’s what you want to know.

7. The dollar is already close to all-time highs, but it can strengthen further if central banks fail to achieve a soft landing. Only once inflation is on a clear downward path will the currency decline, analysts at BofA said, and this week’s Fed message will play a pivotal role as policymakers prepare for another hike. oversized rates.

8. Goldman Sachs recommended these 26 stocks with sound financials. The firm’s analysts said this batch of high-quality fundamental stocks are set to outperform as beneficiaries of central bank rate hikes. Here is the complete list.

9. An inflation ETF manager beating the market has denied his suggestions for outperformance. According to Neil Azous, CIO of Rareview Capital, the scorching price rise threatens to drive stocks to new lows. He explained four strategies for navigating this volatile and unpredictable market right now.

Brent crude

Market clerk

10. Oil will average $ 100 a barrel next year as demand in China rebounds and declining Russian production keeps supplies limited. This is according to analysts from Bank of America, who wrote on Monday that global markets will remain tense until next year thanks to a variety of factors. Get all the details here.

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Curated by Phil Rosen in New York. (Comments or suggestions? Email prosen@insider.com or tweet @philrosenn).

Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.

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