Donations
Veridica.md
After Russia’s invasion of Ukraine, Western leaders took swift action, imposing waves of economic sanctions aimed at destabilizing the Russian economy. This indirect approach was seen as a means to prevent further escalation while pushing Moscow to reconsider its policies. Targeting Russia’s access to key markets, these sanctions aimed to choke economic growth and destabilize its financial systems. However, nearly two years into the conflict, the expected chaos has not materialized, largely due to Russia’s strategic pivot in trade, with India and China playing crucial roles in filling the gaps left by the West’s retreat.
The decision to employ sanctions as a primary tool was based on historical precedents. Throughout the 20th century and into the present, sanctions proved an effective measure against nations like Iran, Iraq, Venezuela, and North Korea. In these cases, while regime change was rarely achieved solely through economic restrictions, they did succeed in pushing the respective governments to limit their militaristic ambitions and adopt a more restrained posture. Yet Russia’s case appears unique, given its vast geography, significant economic size, and the dependency of surrounding economies on its resources. These factors complicate the effects of sanctions and have led to a mixed set of results.
Russia’s economic resilience in the face of sanctions is largely attributable to its quick adaptation and strategic realignment of trade flows. Initially, sanctions were applied in sectors where the West had strong leverage—areas where Russian exports, like timber, could theoretically be substituted with minimal inconvenience. Yet as the conflict persisted, Western nations found themselves dealing with the significant costs of sanctioning Russia in areas like energy, where alternatives proved expensive and difficult to source.
This progression has led to sanctions that hurt Western economies as much as Russia’s, and in some cases, even more. Europe, which had been reliant on Russian natural gas, has faced price hikes and inflationary pressures from rerouting energy sources. In certain sectors, such as aluminum, nickel, and uranium, Russia remains a critical supplier, with replacements difficult to secure. Even as the West curbs some imports, China and India have stepped in, proving that alternative markets can reduce the intended impact of these restrictions.
The Eastern Pivot: India and China’s Critical Roles
Historically, Russia has maintained close relations with both India and China, and the Ukraine conflict has only deepened these ties. For Russia, the economic pressure from the West presented a unique opportunity to reestablish its trade partnerships and seek new allies. China and India, with their vast markets and strategic autonomy, were natural fits. These countries not only provided large-scale markets for Russian goods, but they also operated with a degree of independence from Western influence, which allowed them to sidestep or ignore certain sanctions.
China has capitalized on this pivot, establishing itself as the dominant supplier for many of Russia’s imported goods. By 2023, Chinese exports to Russia had surged to $111.1 billion, marking a 60% increase from pre-war levels. Russian exports to China also increased by a similar rate, from $78.1 billion in 2021 to $128.5 billion in 2023. This mutual growth reflects the significant shift in Russia’s trading patterns, but the balance of trade continuing to favor Moscow.
Indian exports to Russia grew modestly, while Russian exports to India soared from $8.7 billion in 2021 to a staggering $67.1 billion in 2023—a sevenfold increase. This boom largely resulted from discounted energy imports, as India took advantage of Russia’s need to offload oil amid Western restrictions. Payments for this oil are often settled in Indian rupees, a novel workaround that highlights the flexibility of this partnership. Yet this approach has brought its own challenges for Russia, as accumulating large reserves of rupees presents limited options for practical use.
By diversifying trade flows, Russia has managed to avoid a steep drop in exports and, through reduced imports, has even strengthened its positive trade balance. However, the partnerships with China and India have also highlighted serious challenges. In the case of China, Russia has become significantly and visibly dependent on this major partner, despite attempts to balance trade relations.
Meanwhile, India presents its own set of difficulties. Due to a sharp increase in oil exports to India, Russia now holds billions of dollars in rupees—funds that remain effectively frozen within India’s economy. The Indian government has suggested these rupee reserves be reinvested locally, such as in India’s stock market or for purchasing Indian goods. Yet converting this currency to a more liquid form has proven difficult, even through intermediaries in the Gulf States. The complex relations between India and China further limit Moscow’s ability to swap rupees for the more practical Chinese yuan, leaving Russia constrained in how it can access and utilize these assets. Therefore, today Russia is trying to use settlements through gold, cryptocurrencies and mutual offset schemes when supplying goods to India.
Russia survived the sanctions, but it became vulnerable on the long term
Statistics tell a story of profound change in Russia’s trade landscape. Russia’s total trade with China and India has seen exponential growth since 2021, with China now accounting for 32% of Russia’s total exports, up from 16%, and 53% of its imports, compared to 23% in 2021. India’s share of Russian exports has also surged, rising from a modest 2% in 2021 to 16% in 2023. This transformation underscores how Russia has shifted away from Western markets, focusing instead on Eastern economies that have proven more amenable to trade continuity.
The resulting changes have helped Russia to maintain a trade surplus, even as Western sanctions forced it to reduce imports from Europe and the United States. However, the gains from this shift are tempered by the long-term dependencies that Moscow now faces.
While Western sanctions have created economic hurdles, they have not delivered the decisive blow that many expected. Russia’s reorientation towards China and India has enabled it to keep its economy afloat and even grow in some sectors, despite the intended isolation. However, this shift is not without significant trade-offs. Moscow’s reliance on these two Eastern giants has introduced a complex set of dependencies that may leave Russia vulnerable in the long run.
The lesson for the West is clear: economic sanctions alone are unlikely to drive swift political change in Russia, especially when the sanctioned country can pivot to alternative markets. This situation also serves as a striking reminder of the multipolar nature of today’s global trade, where even economic giants like the U.S. and the EU can no longer unilaterally set the rules for other major players such as India and China.
---copie-image.webp)
