This article was originally published by Radio Free Europe/Radio Liberty and is reprinted with permission.
Russia’s economy will be hit hard by Western sanctions, but President Vladimir Putin faces no immediate political risk and his government will likely weather the economic fallout, a prominent Russian economist and banker said.
In an interview with RFE/RL’s Russian Service, Andrei Movchan said the war in Ukraine — now in its fourth month — was a powerful drain on the Russian government coffers, as were the punitive sanctions imposed by the West in response.
But he said that high global oil prices would buttress the government’s finances, and that even though the wider Russian economy — and average Russians, in particular — will suffer, that was unlikely to pose a threat to Putin’s rule.
“Predictions about the imminent death of the regime have been made largely by the same people who have been making them for the past 20 years, and these predictions have not changed in any way,” Movchan said in the June 7 interview, speaking from London. “Petrocratic regimes are generally stable. Sanctions pressure rarely changes regimes.”
“Sanctions pressure consolidates regimes, makes them more stable, self-contained, and reactionary,” he said. “The war has indeed now become the means for maintaining hydrocarbon prices. The budget, of course, will suffer, and the Russian economy will have even greater problems in the coming years, comparable to those of the 1990s.”
An economist by training, Movchan was a top executive at two of Russia’s leading independent investment banks during the 1990s and 2000s before launching his own asset management firm.
Russia’s economy is forecast to shrink drastically this year, as Western sanctions cripple the country’s GDP. The World Bank predicts output will shrink 11.2 percent this year, while Russia’s own Central Bank forecasts a drop of 7.5 percent.
The Bank of Finland forecasts a 10 percent decline in GDP, while the Washington-based Institute of International Finance has a dramatically darker forecast, predicting a drop of 15 percent.
Such a decrease would be the sharpest since the early 1990s, when Russia was struggling to make the difficult transition from a state-controlled economy to a free market.
Russia remains heavily reliant on the export of oil and gas, revenues from which have bolstered its finances and stymied Western efforts to restrain Moscow economically.
The European Union foreign affairs chief has estimated that oil exports alone yield $1 billion a day for Russia.
Movchan said that whatever economic pain Russia feels is likely to be felt most acutely by average citizens.
“Of course, the losers from this war, despite these [high oil] prices, are the ordinary people of Russia who had little access to the export of hydrocarbons before — and now it will be much less.
“For the elites, the balance of the current account of foreign exchange transactions is really important, and it will be maintained quite stably,” he said of an important indicator of economic health. That “will allow the elites to rule, satisfy their needs, and control the power bloc” — a reference to the security, law enforcement, and military agencies that hold oversized influence on government policy.
“Stability of the type seen in Iran, Venezuela, North Korea: that’s what Russia is now entering into,” he said.
Asked about the likelihood of substantive political change as a result of the sanctions, Movchan predicted there would be little.
“Sanctions certainly have an economic effect, but they really do not lead to a serious change in foreign and domestic policy and to a change in power,” he said.
