Putin Ally 'Surprised' Russia's Economy Didn't 'Collapse' Amid Sanctions

Billionaire businessman Oleg Deripaska, described as Vladimir Putin's "favorite oligarch" has been surprised by Russia's resilience to sanctions imposed since Moscow's full-scale invasion of Ukraine.

Despite Deripaska's view, one financial expert told Newsweek that, while Russia's economy may not have fallen "off a cliff," it was "on a downward slope."

Since the war started in February 2022, sanctions including freezing some foreign exchange reserves and cutting it off from the SWIFT (Society for Worldwide Interbank Financial Telecommunication) banking system, have sought to isolate Russia from the world economy. The U.S. has imposed more than 2,700 sanctions, more than any other country, according to the Atlantic Council's database.

But Deripaska, founder of aluminum company Rusal who is himself sanctioned by the U.S. and the EU, touted how Moscow had developed new trade ties with the global south and increased investment in domestic production, while the private sector has proved to be robust.

"Yes, there is war spending and all this kind of subsidies and government support but still it's a surprisingly low slowdown," he told the Financial Times in an interview published on Tuesday. "The private economy found its way to operate."

"I was surprised that private business would be so flexible," he told the publication, "I was more or less sure that up to 30 per cent of the economy would collapse, but it was way less," he said.

Deripaska has changed his view of the Russian economy considerably over the last six months. Bloomberg reported how he told the Krasnoyarsk Economic Forum in Siberia in March that Russia "will need foreign investors" and that "there will be no money" in 2024.

The oligarch's shift in sentiment appears to mark a growing confidence among Russia's elite that the country had handled the sanctions, the FT reported. Deripaska told the outlet he had "always doubted" the effectiveness of sanctions which involved "weaponizing the financial system as a kind of tool to negotiate."

Deripaska, who is worth an estimated $2.3 billion according to Forbes, dismissed the sanctions as a "instrument of the 19th century" which he did not believe "would be efficient in the 21st century."

Amid a huge increase in government and defense spending, Finance Minister Anton Siluanov said last month he expects the Russian economy to grow by at least 2.5 percent this year, although the International Monetary Fund (IMF) put its prediction at a more conservative 1.5 percent. The IMF predicts the U.S. economy to grow by 1.8 percent and the U.K. by only 0.4 percent in 2023.

Deripaska said that Russia had benefited from increased Kremlin investment in industry and an increase in capacity of state enterprises, partly to support the war effort.

Meanwhile, Russian media have reported how trade with China has increased by around a third in the first eight months of 2023 while trade with India tripled in the first half of the year to $33 billion. Russia has also since succeeded in avoiding G7 sanctions on the vast majority of its oil exports.

Deripaska told the FT that in the global south there were plenty of countries which wanted access to Russia products and that "they need Russian resources, Russian solutions, trade with Russia."

Chris Weafer, chief executive officer of strategic consultants Macro Advisory Ltd, told Newsweek sanctions blocking the import of technology and services are making it difficult for some industries to source components and the exit of Western companies "will clearly and negatively affect the economy."

But this is "more of a slow degradation than a crisis," said Weafer, who has been reporting on Russia's economy since 1998.

Russia has been adapting to sanctions since its annexation of Crimea in 2014 and had localized many key parts of the economy, including food supply, said Weafer.

The country has also diversified its export partnerships, especially for oil and food, while Russia's Central Bank prepared the financial system and weeded out weak or bad banks between 2014 and 2021.

Neither the Russian economy nor the country fell off a cliff in 2022/23 as many had hoped, Weafer said. "But it is on a downward slope," he said. "For now, the gradient is relatively gentle."

"Whether it levels off, rises, or falls more steeply will depend on how long the most damaging sanctions last, whether Russia is successful in replacing components and skills lost due to sanctions and whether the expanding cooperation with China, Iran, India, and others will lead to alternatives to Western technology."

"It is too early to say just yet," he added, "both the optimists and the pessimists have plenty to point to in support of their stance."