Sanctions On Russia Will Cripple The Economy

[shakespear]

Just back from Russia and it was obvious that the sanctions were having a negative impact on the economy at large.  While these might not seem to affect the daily life of Russians yet, they certainly will have serious impact in the coming weeks and months.

Most of my friends in the restaurant business have already felt the impact of price increases on wholesale food prices and the negative impact on margins. 

Generally speaking the overall impact of the sanctions will be a lower rate of growth, low rate of investment, higher interest rates and a weaker rouble.  The most serious will be the severing of all Russian companies from EU capital markets. 

Consider the following -

1)  Russian tank & railcar maker UralVagonZavod has suspended joint projects with Catepillar and Bombardier due to the difficulty of obtaining funding capital from the west

Overall, look for things to get MUCH worse in Russia before they get better.

2)  Rosneft (worlds largest publicly traded oil company) announced Friday that it was going to fire up to 25% of their employees beginning October.

3)  last year when i visited Russia, it was 30pyb = $1.  This year it was 36.5pyb = $1  That is over 20% annual inflation rate. 

[mhr7]

Good article.

What type of Russia do we hope to see a decade from now? Despite Putin's aggressive use of force and blustery propaganda, Russia is a country in decline. Putin's illiberal strategy of looking East while waging unconventional war on the West will turn Russia into China's gas station while cutting off its economy from the Western capital, technology, and contacts that it needs.

http://www.cnbc.com/id/101980671#.

[Anteros]

Please correct the title.  I believe it should read:  Sanctions on Russia Will Cripple The Economy.

[B.B.]

Please correct the title.  I believe it should read:  Sanctions on Russia Will Cripple The Economy.

Done.

B/B

[Isthmus]

Good article.

What type of Russia do we hope to see a decade from now? Despite Putin's aggressive use of force and blustery propaganda, Russia is a country in decline. Putin's illiberal strategy of looking East while waging unconventional war on the West will turn Russia into China's gas station while cutting off its economy from the Western capital, technology, and contacts that it needs.

http://www.cnbc.com/id/101980671#.

You get this type of disconnect when you have a 'Cold War' fossil in power who doesn't actually understand some of the unfolding dynamics in the world and what might possibly occur in the near future. It is hard to think about what 2026 might look like when your head is still stuck in 1986 

[andrewfi]

Shakespear, old chap, I know you just returned from your annual pilgrimage and all but I noticed a slip of the keyboard in your post above that would tend to mislead those who read no further than your post.

Rosneft is NOT going to cut up to 25% of its staff as you suggested.

There was a story reported by Kommersant that Rosneft was thinking about cutting 20 to 25% of head office staff, very different, I am sure that you'd agree to your claim of an across the board cut of 25%. Bear in mind that it is now a year since the takeover of TNK-BP and thus a head count reduction would be on the cards by now anyway.

This is confirmed by a report from AFP who reported the story, a company spokesman said that optimisation, including head count reduction was on the cards.

Overall, finances are simply not an issue, funding is being arranged with EU lenders in anticipation of further sanctions silliness and the Russian government has already announced that they will provide funding as required for expansion.

I did not bother to fact check the rest, I leave that to you, however, given that you are, as I recall, now an investor in the Russian restaurant business you were probably advised before investing that restaurants, clubs and bars are very sensitive (probably over sensitive) to perceptions of economic woes. People stop going out before anything bad happens and start going out again only after good news is flowing again.

I recall back in my Helsinki days one could gauge popular sentiment about the economy simply by looking at the queues to get into clubs and bars. Queues could disappear for almost no reason, and certainly not any real hardship, just bad economic news could do it. Of course such spending is always going to be the first to go, it is the ultimate in disposable income expenditure.

For sure some businesses will have difficulties but others will be seeing an upturn as well. Swings and roundabouts.

===================

mhr7, you might want to check a dictionary. Decline does not mean what you obviously think it does. In dollar terms disposable income, in Russia, has grown by around 700% since the year 2000. I am sure that the US or Canada would be happy to have an economy in such a state of decline!

How would YOUR life be in such a situation , seven times as much money in your pocket to fund your hobbies and diversions, to start your own business and invest in your own future. It'd be great if things were so good for you, wouldn't it?

The problem is that when you are so poorly acquainted with the facts you make it easy to be lied to, you make of yourself a victim. You can do better for yourself.

[WestCoast]

Probably just announcing the possibility of layoffs to make the financial aid package from the Kremlin more palatable. Giving $40 billion in aid won't make the Kremlin popular so they'll have to justify it somehow. Blame the sanctions and give $40 billion to Rosneft to help the Russian people. 

http://www.reuters.com/article/2014/09/08/us-russia-rosneft-finance-idUSKBN0H30DP20140908

[mhr7]

mhr7, you might want to check a dictionary. Decline does not mean what you obviously think it does. In dollar terms disposable income, in Russia, has grown by around 700% since the year 2000. I am sure that the US or Canada would be happy to have an economy in such a state of decline!

I didn't give any definitions and this article doesn't address the past. How is the economy doing now? Still growing by leaps and bounds? Was all that growth distributed evenly?

[Larry]

I recall back in my Helsinki days one could gauge popular sentiment about the economy simply by looking at the queues to get into clubs and bars. Queues could disappear for almost no reason, and certainly not any real hardship, just bad economic news could do it. Of course such spending is always going to be the first to go, it is the ultimate in disposable income expenditure.

This puts me in mind of the hot waitress economic indicator:

The hotter the waitresses, the weaker the economy. In flush times, there is a robust market for hotness. Selling everything from condos to premium vodka is enhanced by proximity to pretty young people (of both sexes) who get paid for providing this service. That leaves more-punishing work, like waiting tables, to those with less striking genetic gifts. But not anymore.

A waitress at one Lower East Side club described to me what happened there: “They slowly let the boys go, then the less attractive girls, and then these hot girls appeared out of nowhere. All in the hope of bringing in more business. The managers even admitted it. These hot girls that once thrived on the generosity of their friends in the scene for hookups—hosting events, marketing brands, modeling—are now hunting for work.” A Soho restaurateur I know recently received applications from “a couple of classic Eastern European fembots. Once upon a time, these ladies must’ve made $1,500 a night lap dancing. At my place, they’re not going to make that in a week.”

This is more than just a real time indicator of our financial health, according to Lindgren. It's a leading indicator, predicting future performance of our economy. You'll recall that lots of people think unemployment may not be a lagging indicator this time around. But hotness is even more likely than employment to be an indicator because the hotness market is more flexible than the normal employment market.

http://www.businessinsider.com/the-hot-waitress-economic-indicator-2009-8#ixzz3Cm01Pak8

Eastern European fembots.  I love that.

[Danchik]

Last month I celebrated my 10 year anniversary in Moscow (11 years total in Russia) and I thought I'd give my impressions on what's going on recently.

Let me first start by saying, not much has changed as of now so all you haters who would love to see Russia fail will just have to wait and see. And to all the haters who would love to see Russia fail, go yourself because whether or not you agree with what the government is doing, there are still good, honest, hard-working people trying to live as normal a life as possible without having to worry if they're pleasing America's, or the West's agenda.

I don't know, as no one does, what the future will bring. Maybe tighter sanctions will create problems in the long run, or cooler heads will prevail and things will get back to normal. There's is no question in my mind the American government will continue to do it's best to prevent Russia from developing itself further, unless it's done under US terms.

Nevertheless, here are some thoughts concerning this thread:

The ruble has been fluctuating since I arrived here 10 years ago. To put what is happening to the ruble now in perspective we can look back at Russia circa 2008 during the global crisis. Oil had reached an all time high of around $147 a barrel and the ruble was somewhere around 23 and change (both figures are off the top of my head, so you Google twits can verify this, but I'm sure I'm right there with these figures).

In August of 2008 Russia also "invaded" Georgia and oil dropped to about $50 a barrel in a heartbeat from its July high of $147, further driving down the ruble. The ruble went from 23+ to 30 in a matter of weeks. I remember exchanging rubles to dollars around that time and it cost me about 10% (I literally lost a $1000 exchanging $10000) because I waited an extra 2 days to make the transaction. That's how fast the ruble was moving back then. That is close to a 30% increase in a matter of a couple of months.

Now let's journey back in time to the 1998 crash in Russia where the ruble moved from 6 to 26 in a matter of days. Over a 400% devaluation and it became progressively worse over time that year. I won't even get into how desperate that time was with regard to almost anything relative to employment and the prospect of any kind future.

Now fast forward to today. In 2013 the ruble was trading at 30 only a year ago, yes, and had jumped to 36 well before any sanction was in place, or the shit had it the fan in Ukraine. The Russian economy had been headed south and most pundits were talking about little if any growth predicted in 2014 (around 1-2% growth is what I read at the time) and a possible recession for Russia, and it took about a year for the ruble to drop 22%. In the last month alone, the ruble had gained 12% of what it lost back on hopes of an end to the Ukraine crisis , only to see it dip back down to its original loss with the sanctions looming because an end seems out of the question at pesent.

If you take this in comparison to 2008 and 1998, you can see that things are not as bad as they seem to the majority of people. IOW, we'd seen this movie before and this sequel just isn't as bad as the first 2 entries.

Now, as Andrew rightly pointed out, businesses go through cycles, and it's no different in Russia. The restaurant business for example, is getting hit from different sides; food sanctions being one of them, and the new ban on smoking being another, just as damaging influence IMO. I remember going to one of my favorite hangs a month after the smoking ban went into effect, and was shocked that the place had less than 50% of its normal clientele there that night. I remember something similar happening in America when the smoking ban went into affect there. The restaurants had to adjust; they will in Russia also.

Now, I can safely say the sanctions have had little effect on everyday life in Moscow as of this posting. Most people go about their business normally. The one difference is at supermarkets where the selection of food has noticeably shrunk. This doesn't mean people aren't a little nervous about the current situation, but again, a little perspective.

This is a delicate balance because Russia is fast becoming the biggest consumer market in Europe, if it is not already. Consumer confidence is still strong here, and Russians are different in that if they want something, they buy it regardless of how much it cost, or their personal financial situation (unlike Americans for instance, who tend to hoard their money when things get tough financially). Russians are becoming much better at understanding the correlation between quality and price, and not only how to but at the right time, but bargain hunt as effectively as Westerners. However, consumer spending is still strong in Russia, especially in Moscow. Go to any shopping center and you will find it packed with customers; always a good sign.

The central bank just announced that they will finally let the ruble float, which will probably send it southward as well - at first. It wouldn't surprise me if the ruble actually goes to 40, but I don't see this as a long term trait, and think the ruble will eventually stabilize.

While the restaurant business is suffering, most businesses are operating pretty much as normal.

As far as Rosneft is concerned, my friend just got hired on there as an accountant. My other contacts there (and I have many) tell me than it's business as usual now, but yes, things could change and some cuts could happen in the future if things between Russia and the West continue to deteriorate.

I also spend a lot of time inside the business community and talk to many people in businesses both big and small, and things are OK given the circumstances. As usual, all the bluster is much ado about nothing, at least at the moment. I can tell you without a doubt that things were much worse in 2008 where I saw bustling multinationals become ghost towns overnight and it wasn't unusual to see places that employed 1000's cut their payrolls down to hundreds. What is happening now is nowhere near what happened then.

Lastly, it would be naïve to think that Russia doesn't have problems, but I can think of a few 1st world industrial countries that are doing far worse, and have bigger problems than Russia.
 

[MrMann]

Go to any shopping center and you will find it packed with customers; always a good sign.

Uncomfortably so in my experience! I'm mild-mannered but I was on the verge of trolley rage the last time I was in Auchan.

I'm not doubting your observations, but according to Vedomosti footfall was down 23% in August. Of course that's not the same as sales although retailers do seem to having a tougher time than previously.

[Danchik]

Again, keeping things in perspective, the sanctions have had an impact. And Russians have changed a bit, not only in the way they spend money, but on what they spend money on. I think this also has a year to year affect on regular shopping norms.

Talking to some of the people here, they tell me that some things have been held up in customs for dubious reasons, or that once available products are no longer in stock and replacements are slow in coming. Obviously a byproduct of the sanctions to a certain extent.

It goes both ways as the Russian government has made it harder to get certain things from Europe here, things separate from the ban (school uniforms for example). Yes, the sanctions have caused a problem, no doubt. But as of now, in the grand scheme of things, not much has changed.

The naked eye can only see how many people are at a certain place. It's still impossible to know who's buying what or not, and why. The article also suggested that many were waiting for what has recently become the September sale season over the last couple of years and that sales have since stabilized this year. Did I mention that my last trip to a mall was Thursday the 12th of September?

Just another example of an ever increasing savvy consumer.  And as the article (and I) has stated, Russians have changed their buying habits, and part of that recent change is being more cautious when times warrant.

[AkMike]

More thoughts along these lines...

Putin Seeks Solitude Amid Russia's Perfect Storm
Geopolitical Diary
Tuesday, October 7, 2014 - 19:15

Russian President Vladimir Putin celebrated his 62nd birthday Tuesday in a peculiar fashion: by himself in the Siberian forests. For the past few days, Putin's spokesman, Dmitri Peskov, has brushed off journalists' questions about why the president decided not to celebrate his birthday in Moscow or do other work as he has in previous years. This is just another odd piece to an increasingly complex puzzle surrounding the stability and future of the Russian president and his government.
Current Instabilities

Russia is in the eye of the perfect storm. Though the crisis with Ukraine has been reduced to a simmer, Russia has seen a strategic reversal in its critical borderland. In addition, the crisis moved the West to enact sanctions on Russia and loosen many financial and economic ties to the country. Now the Kremlin is in the midst of an economic crisis that is every bit as serious as the Ukraine situation. In the past two days, Russia's central bank used $1.6 billion of its currency reserves to shore up the Russian ruble. Since the start of 2014, the central bank has injected $51 billion in currency reserves to keep the currency stable. The Russian economy is projecting flat growth for 2014, while foreign investment into Russia has fallen by 50 percent. The Kremlin may have $630 billion in its reserves, but these funds are being used quickly in an attempt to fill the cracks.

Concerns over Russia's financial stability have erupted into public battles between the various Kremlin factions. On Tuesday, Russian Finance Minister Anton Siluanov, a key figure in the liberal economic clans, publicly called on Putin to cut Russia's ambitious defense spending program. Russia is set to start a 10-year, $770 billion defense rearmament program in 2015. Siluanov reportedly rejected the plan during recent budget drafts in September, prompting Putin to move decision-making on defense spending under his office and away from the Cabinet.

What is a Geopolitical Diary? George Friedman Explains.

While Siluanov's argument against defense spending is financial, Putin also has to consider the security and political ramifications of such a decision. Russia's continued struggles in its borderlands will require a robust military. Moreover, Putin is using the defense budget to appease Russia's various security and defense circles.
The Rise and Fall of Russian Leaders

Though Putin has ruled Russia for 15 years in a centralized and autocratic fashion, like any other leader he must balance various factions within the country. His ability to manipulate the various political clans is what brought him to power. The lack of that ability is what caused the downfall of Boris Yeltsin in the 1990s, and many leaders before him. Yeltsin was unable to manage the competition between his own loyalists, the more liberal circles of economists and the security and defense circles. Yeltsin wildly shifted policies in order to retain a grip on power, such as his economic shock policies and the restructuring of the Federal Security Services. Such erratic moves contributed to the Russian economic crash, the breakdown of the security services and the erosion of Russia's military as it fought a savage war in the North Caucasus.

Yeltsin's stumbling enabled Putin's rise to power. Putin understood that a Russian leader could rule only as long as he could balance the competing groups. Putin is a former KGB agent, tying him into the security circles, while his knowledge of Russia's need for Western technologies gives him an understanding of the more liberal economists. In his first years in power, Putin divided Russia's assets and tools of power between the clans, keeping them in constant competition and positioning himself as the ultimate arbitrator.

The problem now is that the clan system has begun to crumble. The security circles are being blamed for failures in Ukraine, while the liberal economic circles are being blamed for the sour economy. Many personalities and groups are putting their own positions (and financial revenues) before the betterment of the state. Putin continues to try to maintain balance, as seen in the recent weeks of budget debates between the liberals and security circles. But Putin's 15 years of success at balancing the clans came during times of rebuilding and resurging for Russia. Now, Putin is attempting to find balance from a position of weakness.

Putin's grasp on power is not easy to gauge from outside the Kremlin. The decision for new leadership is made within the Kremlin walls, not among the people. Previous Russian leaders, from Nikita Khrushchev to Leonid Brezhnev to Yeltsin, were removed or pushed aside by the ones closest to them. Thus, it seems fitting that the current Russian leader chose to celebrate his birthday far from the Kremlin and its clans.


http://www.stratfor.com/geopolitical-diary/putin-seeks-solitude-amid-russias-perfect-storm#axzz3FinYOY85

[AkMike]

The head of Russia's largest bank, Sberbank, Herman Gref, himself a former economy minister, warned that Russia could end up collapsing like the Soviet Union.
By Max Delany | AFP

Some senior Russian officials have sounded increasingly dire warnings over the country's perilous economic situation but President Vladimir Putin has shown little sign of relenting over Ukraine in a bid to ease the economic woe.
Economy Minister Alexei Ulyukayev last week warned that the combination of high inflation and feeble growth created an "explosive situation."

Russia's already battered economy will struggle to recover from the fallout of the crisis in Ukraine as uncertainty looks set to drag down growth around the former Soviet Union, the IMF warned on Oct. 7.

https://uk.finance.yahoo.com/news/battered-russian-economy-faces-more-144642869.html

[leslied]

The effect of US trade sanctions is minute as there total annual trade value was about $5-6 billion.  If this halved to $3 billion neither the US or Russia would notice.  That is pocket change...

The effect trade sanctions on Europe is much more severe.  Putin has always said that trade sanctions cut both ways.  It appears that these trade sanctions are now tipping continental Europe into a "triple dip" recession.  See this article -

http://news.yahoo.com/german-french-trade-data-hit-falling-exports-083943558.html

Europe has "shot it's bolt" on trade sanctions, but Russia has held back from further escalation.  IMHO Russia is waiting for mid-winter when the "gas weapon" has maximum effect.

Come December Ukraine will have no choice but to steal the gas flowing through its pipelines to Europe.  Russia will use this as a pretext for shutting off ALL gas supply running through Ukraine.  The effect on Europe will be devastating.  Expect a whole heap of back tracking by European leaders.  Cancellation of nearly all the current trade sanctions imposed by Europe will be part of Putin's price for switching on the gas supply...

[NS1]

The effect of US trade sanctions is minute as there total annual trade value was about $5-6 billion.  If this halved to $3 billion neither the US or Russia would notice.  That is pocket change...

The effect trade sanctions on Europe is much more severe.  Putin has always said that trade sanctions cut both ways.  It appears that these trade sanctions are now tipping continental Europe into a "triple dip" recession.  See this article -

http://news.yahoo.com/german-french-trade-data-hit-falling-exports-083943558.html

Europe has "shot it's bolt" on trade sanctions, but Russia has held back from further escalation.  IMHO Russia is waiting for mid-winter when the "gas weapon" has maximum effect.

Come December Ukraine will have no choice but to steal the gas flowing through its pipelines to Europe.  Russia will use this as a pretext for shutting off ALL gas supply running through Ukraine.  The effect on Europe will be devastating.  Expect a whole heap of back tracking by European leaders.  Cancellation of nearly all the current trade sanctions imposed by Europe will be part of Putin's price for switching on the gas supply...

If Putin tries to black mail the EU by shutting gas off in winter.
I would bet, it will backfire on him.
They will find alternate source of energy, so it could never happen again.

[MrMann]

Europe wouldn't be able to find an alternative source of energy overnight.

It wouldn't be in Russia's interests to switch off the gas to Europe in winter. Aside from the cost to the already fragile Russian economy the political fallout would be significant.

A few days ago state media outlets were reporting on a suggestion that Gazprom was looking at ways to ensure that the gas issue is resolved, including using some of Ukraine's debt to pay for the transit costs to Europe. Medvedev seems to be a relatively moderate voice on this issue.

http://rbth.co.uk/business/2014/10/06/gazprom_proposes_to_pay_for_gas_transit_with_ukrainian_debt_40375.html

http://rt.com/business/193568-gas-ukraine-compromise-medvedev/

http://en.ria.ru/world/20141006/193723585/Russian-PM-Medvedev-Urges-Compromise-on-Gas-Dispute-With-Ukraine.html

[leslied]

If Putin tries to black mail the EU by shutting gas off in winter.
I would bet, it will backfire on him.
They will find alternate source of energy, so it could never happen again.

It will take Europe at least 10 years to build alternatives to Russian gas.  There is no quick fix to this trade dependency.  I also think that Russia will use this threat to force a resolution before it actually uses it.

Medvedev is Putin's glove puppet.  He is playing good guy at the moment but like all marionettes he dances to his masters wishes.

[NS1]

If Putin tries to black mail the EU by shutting gas off in winter.
I would bet, it will backfire on him.
They will find alternate source of energy, so it could never happen again.

It will take Europe at least 10 years to build alternatives to Russian gas.  There is no quick fix to this trade dependency.  I also think that Russia will use this threat to force a resolution before it actually uses it.

Medvedev is Putin's glove puppet.  He is playing good guy at the moment but like all marionettes he dances to his masters wishes.

Your right, which makes longer term affects on Russia.
I agree both sides will play the political side more, to try and end
sanctions for both, maybe a little more give and take.
Nobody can really afford this.

[leslied]

Your right, which makes longer term affects on Russia.
I agree both sides will play the political side more, to try and end
sanctions for both, maybe a little more give and take.
Nobody can really afford this.

Agreed.  These sanctions are bad for both sides.  They also do nothing to help Ukraine.

[Isthmus]

Switching off the gas valves is the proverbial cutting off the nose to spite the face. I mean what does Russia produce of value in the global economy other than extract natural resources? What do they actually live off in the global economy?

Their industrial/technological capacity is so atrophied that they need France to build them aircraft carriers! 

Europe did invest in storage infrastructure and LNG terminals after the last Kremlin induced supply shock so that it is less vulnerable than last time. Another Kremlin supply shock will kill Russia as a realistic, reliable source for a generation or two. The Kremlin better factor that in when they want to play games that could potentially smash their economy to smithereens.

[yankee]

Another Kremlin supply shock will kill Russia as a realistic, reliable source for a generation or two. The Kremlin better factor that in when they want to play games that could potentially smash their economy to smithereens.

If I read your statement correctly you are implying that the EU and US can impose sanctions to try and cripple the Russian economy with impunity.  If Russia responds with  their own sanctions (like GAS for example) this will kill Russia as a realistic, reliable source for a generation or two.

This is really dumb logic.

[Manny]

The effect of US trade sanctions is minute as there total annual trade value was about $5-6 billion.  If this halved to $3 billion neither the US or Russia would notice.  That is pocket change...

The effect trade sanctions on Europe is much more severe.  Putin has always said that trade sanctions cut both ways.  It appears that these trade sanctions are now tipping continental Europe into a "triple dip" recession.  See this article -

http://news.yahoo.com/german-french-trade-data-hit-falling-exports-083943558.html

Europe has "shot it's bolt" on trade sanctions, but Russia has held back from further escalation.  IMHO Russia is waiting for mid-winter when the "gas weapon" has maximum effect.

Come December Ukraine will have no choice but to steal the gas flowing through its pipelines to Europe.  Russia will use this as a pretext for shutting off ALL gas supply running through Ukraine.  The effect on Europe will be devastating.  Expect a whole heap of back tracking by European leaders.  Cancellation of nearly all the current trade sanctions imposed by Europe will be part of Putin's price for switching on the gas supply...

Exactly this. Putin will have the last laugh here, sanctions will be cancelled and then Europe will look to who had the dumb idea in the first place.

[andrewfi]

Gazprom and the Russian government have made it clear that they have no intention of breaking sales and supply contracts, not from their side. There's all sorts of reasons to not do so. But if customers insist on breaking their contracts then the supplier might choose to agree that the contract has been broken by the buyer and cease supply prior to re-negotiating a new contract.

As for the economy as a whole, while the accelerated fall in value of the ruble was a concern and addressed by the Central Bank there's good evidence that the ruble was over valued. The currency has been on a consistent trajectory for many months, a year or so before the current silliness, interrupted only by a short blip in February of this year. In 2015 the ruble will become  fully convertible currency moving away from its currently managed 'dirty float' to a full floating currency, that is why the ruble has been allowed, encouraged even, to fall to its true value now rather than after the full float takes over.

The suggestion is that the currency against the dollar may now be slightly undervalued, having overshot slightly. Which might explain the choice to intervene. How can one understand that the ruble was overvalued? Inflation. You see inflation is a reflection of the value of the currency, its price if you will. If a currency is over valued then national prices will rise until the currency has been devalued to its 'correct' price. The same effect occurs in the exchange rate, another reflect of the currency's 'price'.
Thus we can understand that, unless the decline continues for an extended period, that there is no problem here. If the 'correct or market sustainable price has been reached then inflation will start to fall as well.

Of course a declining ruble has advantages, for example, Russia imports fewer consumer goods from the rest of the world than most other advanced economies, that's because Russia has a very robust (believe it or not) manufacturing base and can substitute many manufactures with local goods, but that base suffers from low productivity per dollar of inputs. As the dollar becomes relatively more expensive then the relative productivity per dollar of input goes up and local manufacturers move into profit at the same ruble prices, thus they become more competitive than potential imports from other countries such as China. This seems to be quite noticeable in the manufacture of clothing.

Also, the relative profit per unit of energy exported increases because the hydrocarbons in the ground cost very little to extract per unit, on a marginal cost basis, but their price in rubles is actually going up meaning more profit for the country. Also, because Russian energy is relatively cheap anyway, they mop up extra sales in comparison to more expensive producers. Oddly enough this benefit applies even is, as is suspected, the US and Saudis are conspiring to push the cost of oil down.
Access to credit has been pointed out as an issue affecting Russia, but not so much, in truth. You see Russia runs a balanced account in respect of its budget and has a huge amount of reserves of currencies of all reserve denominations plus a LOT of rubles stashed away. If necessary, and this has already been made clear, Russia will lend to Russian capital investment projects. Most countries could not do this but Russia can and will even make a profit from it because they can almost certainly obtain a better rate of return from such investment than they could from investing in the global markets with their current almost invisible rates of return.

Lastly, for this post at least, the issue of 'capital flight' this is something of an invention of western media and their handlers. It is normal for money to leave a country and to be replaced by other money. However what has been happening is that all forms of money leaving Russia, for whatever reason, have been allocated, incorrectly by western 'analysts' to the heading 'capital flight'. So, all money leaving the country for foreign investment, all purchases of currency by Russian tourists, all banking transactions between Russian banks and their foreign branches, all purchases have been lumped into the heading. IN truth in the current account the only money that should be labelled as 'capital flight' comes under a heading of 'errors and omissions' or similar and is a pretty small amount.

The reality is that import substitution of foodstuffs as a result of sanctions against the west will have had a one off hit on inflation but those prices will tend to fall anyway. Most of the effects upon Russia of sanctions upon them are, as the Russians have said, in fact, a stimulus to the economy. There is now a move toward sustainable autarky in some areas of the economy and given Russians unusual degree of vertical integration from energy and raw materials up to value added consumer goods there's no worry that they can not attain over a short time productivity increases independent of the dollar valuation of the ruble that become globally competitive manufactures.

If the US was faced with a similar set of issues to Russia could they react with equanimity? Not a chance, the manufacturing base does not exist, the vertical integration does not exist, the financial structure does not exist and the will of the people, almost certainly, does not exist. That's probably why it is easy for foreign (western) commentators to come up with these stories, because they might actually believe them due to their own cultural bias - they know the US (and EU) could not withstand what is going on in Russia and so they assume that Russia can not either. 

[Manny]