[Applause] six days ago Russia's Vladimir Putin sought to shake the very foundations of the Free World these sanctions will take a heavy toll on the Russian economy and on the Kremlin warning major American companies pulling business out of Russia suddenly an exodus across Russia's borders essentially all these Financial measures send the Russian economy into reverse just about immediately over a year ago Putin launched the largest European land War since World War II despite his inability to secure a quick Victory and despite Russia being slapped with the most comprehensive sanctions imposed on a major power in nearly a century the Russian economy has defied All Odds and exceeded even the most optimistic predictions while the rest of the world expected Russia to be crippled the economy only shrunk by measly 2.1 percent even more shockingly it is expected to return to growth this year and could even outpace the United Kingdom and Germany inflation did increase but it wasn't as dramatic compared to the European Union When taking into account historical Trends meanwhile unemployment is at an all-time low the Russian currency the ruble took a huge hit initially but quickly bounced back to eight-year highs just months after the invasion began to top it all off in 2022 Russia has experienced its largest inflow of Revenue and its law largest Trade Surplus since its formation From the Ashes of the Communist Soviet Union this financial support has given Putin all the resources he needs to continue fueling his bloody military conquest despite the Western World conducting what amounts to a full-scale economic war in response it's hard to Fathom how Russia's economy has not only survived but seemingly thrived amidst the turmoil some wonder if Putin has crafted a blueprint for other nations with territorial aspirations to follow or if this is all just an economic Mirage that will soon fade away yet the roots of this issue dates back well before conflict in Ukraine well before Putin came to power and well before the Russian State we know of today even existed Russia's ability to Stave off collapse and continue fighting today and in the future lay not in the current state of affairs but embedded within the fundamental traits it inherited from the Soviet Union the precarious path of reform in which it developed and the delicate political economy Putin has carefully crafted over the last 22 years after all armed conflicts are frequently determined by economic power while the intricate interplay between history and politics plays a crucial role in shaping a nation's economy and how it responds in times of Crisis so what exactly is going on why has Russia's economy not collapsed despite Russia having not collapsed the U.S economy has been building toward implosion look no further than svb one of the largest banks in the U.S which made Global headlines when they collapsed literally overnight just days ago the disaster didn't just affect Banks but the entire stock market which saw its worst losses of the year as a result it shows why especially in 2022 you can have all your eggs in one basket so when considering your choices let's take a cue from the world's best investors according to a recent groundbreaking study by Ernst young 8 in 10 ultra high net worth individuals invest in Alternatives outside of stocks things like real estate gold and private Equity but Bank of America's investment head recommends one specific High performing alternative to rescue your cash Fine Art don't believe me last year our Prices rose an average of 29 and Masterworks the sponsor of this video delivered an an unbelievable 10 35 in 14 to its investors with its last three art sales see with Masterworks diversifying your portfolio with paintings from Legends like Banksy and Picasso only takes a few clicks now with 650 000 Plus members Masterworks offerings can sell out in hours not days but you can get Priority Access right now at the link in the description [Music] by the late 1960s the Soviet Union found itself in a precarious situation despite Decades of impressive economic growth which in just 40 years had transformed the country from a backwards Agricultural Society into an industrial Behemoth capable of defeating Germany in World War II and launching the first man and satellite into space the economy was beginning to stagnate the government led by totalitarian Communist Regime in which all industry every price for every good every salary and the exact input and outputs of materials and goods was set by the state proved wildly successful in growing the economy by simply shifting millions of peasants from inefficient farming communities to highly productive heavy Industries however once the citizens were already working in factories the system proved incapable of squeezing out extra productivity from them this stemmed from an underlying lack of incentives for citizens to work harder more efficiently or to innovate after all why do more if you wouldn't be paid more and if it was nearly impossible to be fired while later reforms tried to implement wage scales to improve incentives when workers went to buy Goods they often could not do so as shortages came to define the Soviet system while variety and quality of goods remained subpar the fundamental reforms that would have improved the productivity of the economy never came to fruition as it would have necessitated a diminishment of government power and thus would have risked toppling the entire regime instead the government embarked on a gargantuan plan to develop the Soviet Union's vast and inhospitable Siberian and Arctic regions tens of millions of people would be forced to build new infrastructure erect new towns and cities from nothing and eventually to man The many new minds and most critically the sprawling new gas in oil fields despite the heavy cost of doing so this proved to be highly profitable and it could not have come at a more opportune time as war broke out in the Middle East leading the major oil producing Nations to embargo the Western World the first oil crisis saw the global price of energy Skyrocket by six-fold over just seven years the Soviet Union now selling its vast supply of oil to its capitalist Rivals quickly became flooded in money and spurred on further expansion of its oil production capabilities by the 1980s it was now the largest producer of oil in the world and every year hundreds of billions of dollars started pouring in this Revenue enabled the Soviet Union to do four very important things the first was it allowed for large Imports of food and consumer goods to satisfy a population becoming ever more envious of their Western European counterparts the second was that it was able to continue financing its enormous military thirdly it used its own oil production to massively subsidize its innovation industries by artificially dropping the cost of energy at 95 percent less than the global average yet most importantly the Soviet leaders used its oil revenues to import Advanced Western machinery and equipment in the hopes that this would boost the productivity base of its factories which in turn would revive economic growth in essence the Soviet Union was using oil exports to patch up the fundamental flaws with its economy but in the process it became overly Reliant upon a single resource yet even as this proved successful for a period of time underlying productivity continued to erode while its military burden grew larger as it struggled to keep up with the west and embarked on a costly invasion of Afghanistan meanwhile its import Bill continued to climb as the economy grew more complex and its citizens demanded better consumer goods as a result the economy entered a prolonged period that was referred to by its citizens as a great stagnation all of these mounting pressures came to the Forefront in 1986 when oil prices plummeted by nearly 70 percent due to Saudi Arabia dramatically increasing their own oil production Soviet oil revenues which it had been using to prop up the rest of the economy plummeted by almost 75 percent this all but forced new leader Mikhail Gorbachev to implement major new reforms yet these reforms proved too much for the system as they led to a dramatic unraveling of the highly centralized State apparatus and the Planned economy eventually culminating in the collapse of the Soviet Union along with 14 other states the Russian Federation was born from its ashes on Christmas Day 1991 with Boris Yeltsin as its leader in the aftermath reformers aspired to transform Russia into a typical Western Nation characterized by Democratic Values a capitalist economy and eventually elevated standards of living however achieving this feat was akin to mending a ship while it's already sailing in the middle of the ocean despite the horrific atrocities that occurred under the Soviet Union the magnitude of suffering Russians would endure from its collapse cannot be overstated never mind it being the largest geopolitical and economic shift in human history but all of a sudden the highly controlled and intricate system that governed nearly every aspect of its citizens lives disintegrated almost overnight the Russian people were left in a state of uncertainty about what would come next if they still had jobs and if they would be able to buy food tomorrow at the same time its new leaders had to contend with building new institutions from scratch while grappling with impossible debt obligations a catastrophic recession hyperinflation in the near total collapse of tax revenue not only did the state have almost no Financial Resources to work with but it also had to contend with a huge number of separate political factions fighting for control over economic assets and political power many former Soviet ciders started spontaneously in illegally seizing factories for themselves while other Industries which employed Millions fell idle due to the soviet's complex Supply chains in management structure simply ceasing to function amidst this backdrop the reformers had three key goals to Institute a democratic political system that would replace the authoritarian one-party rule build a new state identity From the Ashes of the Soviet Union and establish a capitalist economic system to replace the planned economy in an effort to achieve all of this in a sort of shock therapy they implemented Savage cuts to government spending from reducing the size and wages of military and police to cutting almost all subsidies to Industries this was hoped to not only balance the government's spending bill but to also Force the hugely inefficient Soviet Industries to reorganize and reform to be profitable and more productive to liberalize the economy the government tore down barriers to in International Trade legalized private businesses to be set up and trade freely in dismantled price controls on some 90 percent of consumer goods in theory all of these rapid reforms would inflict necessary but temporary pain ultimately leading to a better functioning economy at the same time the rapid decentralization of economic activity would reduce former Soviet Elites power as they wanted nothing more than to retain the Privileges they once enjoyed in practice the burden on the citizens was catastrophic in the first month of price controls being lifted inflation Rose 225 percent and ultimately two thousand percent from 1991 to 1995. 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sprang up everywhere stocked with never before seen Western goods yet most couldn't afford them as Decades of savings were wiped out instantly by inflation the significant defunding of the police and military security apparatus gave rise to a giant wave of crime and violence in which Russia would go on to have a similar homicide rate to cartel ridden Mexico and Colombia giant Industries no longer receiving subsidies started mass layoffs and or failed to pay workers unemployment once nearly zero percent albeit because of inefficient government mandates Rose to over 15 percent which does not even capture those not being paid or forced to work part-time in some total the entire economy contracted by 50 percent which is double the decline experienced by the United States during the Great Depression millions of Russians fled the nation while those that stayed stopped having as many children alcoholism rates already had to begin with became endemic as life expectancy for men dropped to just 57 years lower than it was in the 1950s under Joseph Stalin but what truly scarred Russia's long-term economic Outlook was the complete botched privatization of State owned assets as the problem of who should get what coupled with a weak government proved to just be too big of a problem to solve after 74 years in which the state largely owned every single Factory every single business and every single store who exactly do you give ownership to initially reformers came up with a plan to allow management and workers to buy shares in their place of work at the same time privatization vouchers were given to all citizens that could be used to get partial ownership in companies and or be freely traded reformers branded this as the people's capitalism unfortunately what really happened was far from it amid the economic and political chaos in a now weakened State Enterprise managers either just took the factories for themselves or forced their employees to give up their shares while other large industries were given to powerful Elites in return for political support or bribes in the most high profile case amid Yale him being convinced that he would lose the upcoming election to the still influential Communist Party he allowed the most powerful businessmen in the country to stay claim to Russia's largest and most profitable Industries in return for support against the Communists instantly these businessmen became the richest and most influential people in all of Russia if not the world and with electoral fraud Yeltsin barely retained the presidency in 1996 for the Russian people this was hard to stomach after Decades of supposedly working for the common good in the most resource-rich Nation on Earth the vast majority of citizens had nothing to show for it while a handful of men now controlled a vast portion of the riches however underlying reforms did start to show improvements to the system a new flourishing class of entrepreneurs emerged inflation started to recede as production of pricey Goods Rose chronic shortages came to an end and many inefficient Industries reorganized to become more efficient however this process was severely curtailed as the government started to roll back on certain reforms under mounting political and social pressure in an effort to keep unemployment from rising any higher credit and subsidies were rolled out to struggling Industries not only did this embolden many Industries to continue operating inefficiently as they did under the Soviet Union but when combined with many Enterprises proving Adept at evading taxes the government found itself unable to balance revenues and expenditures to make up for the growing deficit the government started issuing huge amounts of high interest short-term bonds along with a costly and unpopular Ward to put down Chechen Independence Fighters the government's debts started to grow rapidly then in 1997 the Asian financial crisis quickly spread to developing countries and in the process plummeted oil prices as a result the government defaulted on its domestic debts in private Industries defaulted on their foreign debts GDP and the ruble collapsed and as confidence was lost in Russia's banking system huge amounts of cash fled the country by the end of the decade despite Russians having lived through the atrocities of the Soviet Union the 1990s proved for many to be the bleakest period of their lives Russia was now dominated by big businesses that didn't pay taxes and abused legal and illegal methods to stomp down on small and emerging new companies corruption ran rampant among the now weakened government while organized crime terrorized the Russian people this along with weak property rights and a poor business environment kept investment at critically low levels as profits from businesses fled the country to buy luxury yachts and property in Europe or were hidden away in offshore bank accounts as the New Millennium in elections approached the possibility of the Communists returning to power loomed large dimming hopes of economic reforms that would fix the country's economic woes that quickly changed when a little-known ex-kgb agent named Vladimir Putin came along Putin was appointed prime minister on the same day the second Chechen war broke out amid a more successful military campaign against them and a surprising return to economic growth Putin quickly became the most popular politician in Russia as such in a dramatic scene Yeltsin resigned from the presidency on December 31st 1999 placing Putin as acting president in Paving the way for a landslide victory in the election just three months later documented in this Millennium Manifesto Putin decried the fact that Russia had become the poorest nation in Europe in which a decade of strong growth would be needed to place it on par with Portugal and Spain hardly Rich Nations among Europe as is he proposed a comprehensive agenda that included an aggressive campaign against Crime a more assertive central government to tackle Russia's disorderly regions and big businesses and a drive for more investment in global integration he like many Russian meters before him also pointed to the states still over Reliance on energy exports as a call to diversify the economy indeed the sudden growth that coincided with Putin taking office was the result of a massive spike in oil prices caused by China's monstrous economic growth and insatiable demand for Commodities with political popularity big business having been crippled from the Asian financial crisis and a significant rise in oil revenues Putin utilized his window of opportunity to unleash his plans to rebuild a strong central government provoking fear among reformists that he would roll back many of the economic freedoms obtained in the previous decade he started by re-establishing central control by redrawing Russia's regions and placing loyalists in charge while at the same time a new bankruptcy law was used to take on Russia's two most powerful businessmen ultimately stripping them of their assets including the two most important Independent Media groups Putin the then held a lavish barbecue outside Moscow with the rest of the powerful business owners implicitly threatening that if they stayed out of politics and paid their taxes they would be allowed to keep ownership of their companies at the same time the government reasserted ownership of gas prom the gas industry Behemoth that descended directly from the Soviet Ministry of gas altogether Putin sent a powerful message about the rebalancing of power between the state and private business along with this a new 13 flat tax was instituted and with booming oil production and prices coupled with big businesses now paying taxes Russia saw its first year of budget surplus some of the Surplus was used to reform Antiquated public utilities while archaic land laws were modernized meanwhile the expansion of Central Power and a major offensive against Crime restored a sense of stability for the Russian people and investors along with this larger sub cities in support were given to large Industries which slowly decreased unemployment yet a key characteristic of Putin's economic strategy was an adherence to prudent monetary and fiscal policy from the late 1990s to 2007 foreign debts shrank from 131 billion dollars to just 40 billion that was just 3 percent of GDP the healthiest among the top 20 largest economies in the world meanwhile a new stabilization fund along with the Central Bank soaked up excess oil revenues eventually amassing into an impressive War chest of cash to use in times of crisis with all of these factors combined the Russian economy started booming growing by on average 7.2 percent a year during Putin's first seven years in power although a majority of that growth funneled to just a tiny minority of business owners and while most big business owners played by Putin's rules there was one exception Mikhail cordorkowski who had acquired yukos a large Oil Company when Yeltsin sold it off for political support he then turned yukos from an inefficient company into a wildly profitable Enterprise in the process becoming the richest man in Russia he did not heed Putin's threats and continued to talk openly of his political aspirations paid off Parliament members to favor laws that benefited yukos exposed corruption among Putin's government and was actively and talks to sell off Russia's largest oil fields to the american-based Exxon Mobil in a stunning move Putin ordered authorities to arrest korkowski for tax fraud in which he was found guilty stripped of his businesses and sent to prison for 10 years yukos was then merged with the state-owned rosnift which quickly became Russia's largest oil company this high-profile case which attracted International attention masked a much larger effort by the government to retake controls of sectors it deemed as strategically important a including military and nuclear power manufacturing and vast portions of the profitable natural resource extraction sector meanwhile thousands of small to medium-sized Enterprises began to be ransacked by the government itself or by corrupt state officials for personal gain soon either by representation on company boards direct ownership or by implicit threat the government came to dominate a huge number of Industries eventually becoming the single most important entity in the economy representing 70 percent of economic activity by 2015. Putin's carefully crafted political economic system started to look much more like Soviet central control than a modern market-based democratic system and can be simplified into three sectors sector a includes industries that are internationally competitive and bring in a vast majority of money equaling some 85 percent of export revenues this sector is entirely dominated by the government and includes oil gas Mining and large agricultural companies as well as military and nuclear manufacturing sector B is represented by non-competitive industries that rely on government subsidies credit and or loss to prevent competition they are geared towards selling to the domestic population and include the car industry shipbuilding and social groups reliant on the government poor income namely civil servants and pensioners this sector which supports a vast majority of Russians is therefore directly reliant on the government redistributing revenues from sector a this means the survivability of these companies are not Reliant upon innovating nor improving efficiency but improving their importance to the government whether that be providing consumer goods or employing lots of people in essence the government uses revenues mainly from oil and gas to keep people working and in doing so gains political support from the general population and business owners sector C operates without government intervention and includes retail construction and many small businesses the government does not deem strategically important this sector does not generate much tax revenue but also does not need government support to survive being left to their own this is a sector that can spur on productivity gains and Innovation yet continually weak property rights stifles investment and or discourages altogether new businesses from emerging after all why invest in a new venture or expand your company if it can be seized by corrupt state officials as a result this sector remains small and largely insignificant this entire system was carefully crafted to cement political power for Putin and other Elites while also catering to a wide range of competing interests control of sector a gives the government direct access to the major sources of revenue while keeping the most powerful businessmen in alignment with the state 8. an inefficient sector B that relies
upon the government gives millions of people employment and in doing so generates political support for Putin meanwhile the strong and more centralized state is able to crack down on crime and intervene in times of crisis with its massive war chest of cash as far as the average citizen is concerned this system has worked as quality of life has substantially improved since the Bleak 1990s life expectancy is now much higher inflation has stayed modest while unemployment and crime have stayed relatively low even though the economy has grown wildly unequal life was simply better than it was Prior yet fundamentally Putin's economy carries on the legacies of the Soviet Union's flaws productivity and Innovation remains painfully stagnant and as such wages perpetually lack behind workers European counterparts just like the Soviet Union many Industries rely on technical Imports and financing from the West including Advanced Machinery oil extraction methods and complex components like microchips meanwhile the economy itself is almost entirely dependent on the price of oil when oil prices are high the economy booms and profits from sector a trickle to the rest of the economy when prices are low the economy enters severe recessions while growth slowed after 2008 the economy was still largely stable this all started to change in 2014 when Russian foreign policy took a sharp turn as Ukraine's pro-russian president Victoria nikovich was ousted in 2014 heavily armed separatists along with Russian troops took control of Crimea which was soon after illegally annexed by Russia at the same time Russia started supplying separatists and carrying out military operations in the donbos region as this was a gross violation of international law Europe and the United States slapped Russia with economic sanctions ranging from freezing Russian Elites assets Banning the sale of key technical components and weapons prohibiting Western involvement in new energy projects and most critically restricting loans to strategic sectors of the Russian economy along with falling oil prices the Russian economy entered a severe recession Russian politics quickly became embroiled in trying to find a way to sanction proof the economy in a so-called Fortress Russia policy to attempt this Russian industry started producing banned opponents or finding other sources from Asia an alternative to National payments was rolled out while a huge drive to expand and modernize the military saw expenditure rise from 3.8 percent to 5.5 percent of GDP far outpacing the spending rates seen in Europe and even the U.S the government and private companies started to further shed external debts while the Central Bank sold off its reserves of U.S dollars in favor of Chinese and
European currencies at the same time a greater emphasis was placed on increasing Russia's Financial War chest which was aided by Energy prices recovering and the government cutting Social spending by 2021 Russia had over 600 billion dollars worth of reserves to use in case of emergency all of these efforts to build a fortress-russian economy and Putin's 22 years of cementing political and economic power would be put to the test when in early 2022 he launched his so-called special military operation in Ukraine on February 24 2022 Russian troops and tanks rolled across Ukrainian border while missiles fired indiscriminately raining down on strategic Targets in civilian cities alike it didn't take long for the West to strike back with the harshest and most comprehensive sanctions in almost a century amounting to a full-on economic War targeted measures crippled the trade of badly needed materials and complex components meanwhile Russia's Central Bank had more than 60 percent of its reserves Frozen by Western institutions and eventually Russia was cut off from Swift the International Bank messaging system which in a globalized world was seen as a kill shot straight to the heart of the Russian economy the general consensus being blasted from experts economists and the media foretold of Russia's impending economic collapse forecasts ranged from a complete collapse of Russia's Financial system to a catastrophic shrinking of 15 percent of its P by Year's End Western sanctions in theory were designed to Russia as follows the sharp negative external shocks to trade in the financial sector would see a huge outflow of money from Russia immediately causing the ruble to collapse in inflation to spike in a panic and to preserve savings a critical mass of Russians would then try to pull money out of their bank accounts causing a banking crisis an ensuing decrease in credit demand and access to critical Imports would force Industries to shut down leading to further inflation and unemployment state revenues would dwindle forcing a contraction of spending leading to a further decline in economic activity the result would be a breakdown in Russia's economy rendering Putin incapable of financing a war while contending with mass social unrest which in turn would hopefully lead to a retreat from Ukraine initially signs pointed to this being a potential reality 205 50 billion dollars worth of capital which is equal in value to 14 percent of Russia's GDP poured out of the country while the ruble collapsed by over 50 percent airline prices more than doubled as hundreds of thousands of wealthy and educated workers fled the nation while everybody else tried to take money out of their Banks and protests erupted meanwhile almost all International corporations pulled out of the country including McDonald's whose opening 32 years ago in Moscow symbolized just how much the Soviet Union was changing its departure from Russia in 2022 marked a new era of Rapid change to the Russian economy yet a year on Russia is still engaging in a Fierce and protracted War while sanctions have historically never been capable of stopping conflict Russia's economy appeared to have surpassed every single gloomy prediction by the end of 2022 GDP barely shrank inflation increased but by much less than expected and unemployment reached all-time lows while the state has become stuffed with cash all of this is a byproduct of quick action by the Russian state in years of preparation to stop initial panic in the financial sector interest rates were massively raised to send a message that they were serious about tackling inflation which not only curtailed a run on banks but even encouraged Russians who had taken money out of their Banks during the pandemic to deposit it back in meanwhile the state introduced further Aid in subsidies to companies and Banks to keep investment levels up as the ruble collapsed the government banned foreign currency from being exported and forced 80 percent of any profits made by companies selling overseas to buy back rubles in combination with a sharp drop in Imports the ruble bounced back to hit eight year highs in essence the government through various control mechanisms had artificially raised the value of the ruble by increasing demand in reducing Supply even as over half of Russia's War chest was frozen by Western institutions it still had 300 billion dollars left to work with to intervene in the economy and coupled with Russia's very low foreign debts Banks and companies were not as reliant on Western financing as they had been prior these proactive measures and preparations were able to blunt the mechanisms behind a financial crisis from occurring while restoring some semblance of stability and confidence to the Russian people yet most critically to all of this Putin had correctly calculated that despite Russia's over-reliance on energy exports Europe had become equally Reliant upon Russian energy Imports in 2021 Europe imported a Titanic 155 billion cubic meters of natural gas 108 billion tons of crude oil 91 million tons of petroleum products and 51.4 million tons of coal from Russia while Nations pledged to reduce their imports from Russia the logistical and financial strains behind quickly finding alternative sources proved easier said than done and yet at the very same time the geopolitical and economic uncertainty that such a large War caused in combination with a surge in demand from economies reopening after the pandemic saw oil and gas prices hit 11-year highs while the total volume of energy exports from Russia did decline in 2022 Russia saw its largest gush of oil and gas revenues in its history at 230 billion dollars or 34 percent more than the year prior total commodity export revenues reached 580 billion dollars or 40 more than its 10-year average and when combined with a drop in Imports Russia recorded a trade surplus between January and September of 198 billion dollars or more than double the a previous record in 2008 gas prom alone paid 5 trillion rubles in taxes or more than half the total government spending on the war and security thus far instead of having to cut back on spending the government has dramatically increased subsidies to sector B and ramped up military spending in effect Russia has used the proceeds of its oil and gas sales to Europe to continue its brutal campaign in Ukraine While most European countries have by now shifted large portions of their energy Imports away from Russia trade with non-western countries has boomed particularly with India turkey and China who are more than happy to not only soak up discounted energy Imports but also provide Russia with now banned Western components technology and Industrial inputs at the same time Central Asian countries such as Kyrgyzstan Armenia and Georgia have been used as bypasses to sanctions as European goods are bought by middlemen in the country who then reselled to Russia which has kept many factories running as usual meanwhile gigantic so-called Shadow fleets of oil tankers are using non-western ships Logistics and financing to keep Russian exports flowing the war has also brought a boom to the military industrial complex with some factories running 24 hours a day while other new Industries have emerged to replace previously imported goods and services so with only a small hit to GDP record profits a nearly full War chest of cash and eager new trading partners and supply lines does this mean Putin has really constructed an economy impervious to sanctions one that will be capable of funding the war indefinitely and one that will continue to prop up Russia as a major power for the foreseeable future the answer in the long run is almost certainly no while headline statistics for 2022 Point toward Russia's economic resilience all they do is mask a truly Bleak future outlook for Russia to start we must take into account that going into 2022 without the war the Russian economy was set to grow by four percent meaning that 2.1 percent contraction has set Russia's economy back six percent from where it could have been while undoubtedly the war itself continued sanctions in a gradual normalization of oil prices will zap growth going forward indeed it is likely that Russia's GDP won't return to its 2021 level for five years while its 2022 potential GDP won't be reached until 2032 and while certain sectors of the economy have managed to stay afloat other more vulnerable Industries such as car manufacturing have seen their production plummet by 80 percent not only does this highlight certain sectors continue Reliance on Western parts and microchips but it also shows a real erosion of citizens buying power other Industries such as military manufacturing which soared and provided employment does not actually improve the economy or its people after all artillery shells and tank production contribute to GDP yet can't be consumed by the Russian people nor does it improve the economy's productive capabilities and while domestic substitutions and imports replace Western Equipment and machines they're of poor quality and or Price which will inevitably mean a production in productivity yet what must worry Putin the most in the short term is the fact that a year on most European nations have been able to move away from their Russian energy dependence enabling the first round of significant measures to undermine Russia's ability to finance the war in December 2022 Western Nations implemented a sixty dollar price cap on Russian crew crude oil this not only limits the amount of money Russia can make from its energy sales to the west but it also bans Western companies from financing shipping and ensuring seaborne oil exports above 60 dollars a barrel this is incredibly crucial as Western institutions dominate Global oil Logistics and financing meaning even if oil is being exported to non-western Nations if they are to use Western companies to help they must cooperate with the price cap meanwhile outside of the West there are very few companies capable of putting up the needed capital and or stomaching the insurance risks associated with Wong Voyage oil transport even if Russia uses Shadow fleets and manages to get non-western companies to facilitate exports the price cap gives other oil importing Nations a greater hand at negotiating prices indeed China India and turkey have been buying Russian oil at steep discounts by January 2 2023 Russian oil was selling at 38 dollars a barrel or half the international price from other nations meanwhile oil sales to non-european nations are also more expensive because of longer voyages meaning less profit at the same time due to Europe now having found alternative sources a complete Banning of oil and refined products went into effect in February 2023 even though this ban does not Encompass natural gas exports Putin during the winter started throttling gas supplies in a bid to Blackmail countries supplying Aid to Ukraine and when combined with the clandestine bombing of the nordstream pipeline gas exports now stand at just 20 percent their 2021 level this has not only accelerated a shift away from Russian gas but due to cutbacks on the use of gas and a warm winter Europe's reserves stand at more than 80 percent capacity meaning they will have enough supplies to avoid fuel shortages until at least 20 25 enabling them to fully wean off Russian gas in time meanwhile the building of new pipelines and other infrastructure to sell to Asia will take five plus years be expensive and be inhibited from lack of access to Western Technologies not to mention India and China have comparably small demands for refined petroleum products therefore today and going forward even if oil and gas prices rise Russia's ability to profit from exports has been greatly diminished which as we know will have a catastrophic Rippling effect for the rest of the economy and limit the amount of resources that can be diverted toward the military and sector B this has already started to occur gas exports are now at their lowest level since the collapse of the Soviet Union Russian oil is selling at almost a third their Peak prices in May 2022 meanwhile military spending has had to rise significantly in the face of a stalling war effort while non-oil sector government revenues have fallen by 20 percent indeed immediately after the price cap went into effect in a single month in January Russia experienced a budget deficit of 23.6 billion dollars in reaction the government has had to start aggressively taking out expensive domestic debts and dipping into its reserves of cash while it's not a good practice to extrapolate data out this far Russia is currently on track to exhaust its entire reserves of cash in just one to four years while Putin still has the revenue and resources to continue the war in the short term it is starting to become much more costly meanwhile massive cuts to social spending a continued erosion of citizens buying power and a war that is becoming more domestically unpopular every day means political and social instability will start to rapidly accelerate while the war for Putin thus far has been rather unsuccessful he has greatly succeeded at accelerating long-standing forces against the Russian economy me even if miraculously the war stops overnight and sanctions are lifted the 50-year-long trade cycle of selling oil to Europe in return for technology to boost productivity is likely to be either completely severed or at least greatly reduced meanwhile as the world inevitably switches away from fossil fuels Russia's major Revenue stream will slowly become less profitable yet the fundamental structure of the economy Putin created is not geared toward the Innovation required to diversify away from energy exports but most dangerous to Russia's long-term economic Outlook is the war's contribution to degrading Russia's long-standing demographic issues ever since the collapse of the Soviet Union Russia's population has steadily declined due to Falling fertility rates an increase in death in citizens emigrating away this was already going to be an issue as the number of retirees and those needing government support would start to outnumber the working population but with the combination of potentially hundreds of thousands of men being wounded or killed on the battlefield and hundreds of thousands of specifically working age in educated people leaving the country coupled with the inevitable decrease of fertility due to economic hardship this has dramatically accelerated Russia's demographic decline indeed the number of births in April 2022 was the lowest level seen in Russia since Hitler's Army was at the doorstep to Moscow at its current rate Russia's population could shrink by over 16 percent in the next 50 years meanwhile the most educated and skilled workers who since 2014 have been increasingly leaving the country are now doing so in massive hordes in fact it is speculated that since the War Began over 100 000 I.T Specialists have fled the nation in a so-called brain drain businesses are already having to cope with labor shortages Putin has therefore rendered Russia's future population to be smaller less educated more financially strained and ultimately poorer and less powerful ever since the Soviet Union started to exploit its vast oil and gas reserves Russia has been reliant on its Revenue to prop up the rest of the economy despite reformers efforts the sheer magnitude of Social and economic Misery the collapse of the Soviet Union caused propagated Russia's flawed transition into a normal Western Nation Putin was able to fix many issues and finally lead Russia to growth yet at the same time he perpetuated critical long-running flaws that stifled a diversification of the economy increases the productivity and ultimately the Russian people's quality of life in return He cemented political power for himself and the elites that surround him Russia was already facing a bleak economic future as the world inevitably shifts away from fossil fuels and its struggles to cope with a shrinking in older population while his economy has weathered the first year of his attempt to brutally conquer Ukraine he has inexorably sped up his nation's fate Into Obscurity Putin often espouses that the collapse of the Soviet Union was the greatest geopolitical catastrophe of the 20th century he will look back to his war in Ukraine as the worst geopolitical catastrophe of the 21st [Music] foreign [Music]
2023-03-27