What is the Russian economy facing?

The deteriorating geopolitical situation, growing sanctions against Russia, falling oil prices, weakening of the national currency. The risks for the Russian economy grow every month. Opinions about further developments in the economy differ. Russian ex-Minister for Finance Alexey Kudrin believes that unfavourable factors in the future will provoke a two-year recession in Russia.

Concerning the risks to the Russian economy, experts point out low activity on the Russian financial market, high ruble volatility, unfavourable investment climate in the country, failures of the Central Bank to keep inflation low. The main highlights for economists are the falling oil prices and new anti-Russian sanctions.

Ivan Grachyov, the head of the Duma committee for energy, assumes that the cause of falling oil prices is a conspiracy of certain players on the oil market, there are no other impartial reasons for that: "The world economy grows, thus the need for oil grows, although maybe in different volumes." In his words, political risks in Iraq and Libya remain high, adding the political risks in Russia to them: "Sanctions are used as a threat, then our oil will not be purchased. In this aspect, I see no player maintaining the reduction of oil prices. I think we need to look closely at the one who has recently changed the volumes of sales, the one involved in the conspiracy, in crude terms."

Regarding the influence of further developments on the Russian economy, Grachyov says that oil prices will generally remain stable, and the Russian budget will generally run a surplus until the end of the year: "As of today, the surplus of the federal budget is about a trillion rubles. There is huge cash that has not really been used, including in infrastructure. Until the end of the year, I will not believe in any stories about a budget deficit. Consequently, there are no threats to the Russian economy, no threats to economic growth, there is absolutely no need to raise taxes."

Speaking of western sanctions and their influence, Alexander Gushchin, deputy head of the RSUH Sub-Department for the Near Abroad, notes that their main impact is on the Russian elite, their implementation is an attempt to break the Russian elite: "No wonder the sanctions target certain important banks, the banking and the oil sectors, the sectors that have direct influence on the existence of the Russian elite, its economic competitive potential and own economic condition. That is the main consideration."

The expert reminds that anti-Russian sanctions were imposed by Ukraine too, although they have less impact on the Russian economy than the Western ones. "The Ukrainian policy is obviously anti-Russian now. To a great extent, economic ties between Ukraine and Russia have faced such a reduction. They suffered a blow in many sectors. Ukraine is just developing its image as a victim in the eyes of the European Union, the U.S. and the Western public opinion, and such a policy to elevate Ukraine's victim status, being pursued by the Ukrainian authorities, will continue in the near future," explains Alexander Gushchin.

Settlement of conflicts and disputes will take a lot of time, and implementation of additional sanctions against the Russian economy cannot be ruled out. In this case, the Russian government will have to stimulate domestic consumer demand and develop financial ties with new partners, expecting no speedy restoration of old relations, adjusting to the new reality.