The Russian economy, which has been subjected to economic sanctions since the beginning of the war in Ukraine, is about to complete its second year under these sanctions, while trying to consolidate its own bloc in global politics and make breakthroughs in the field of dedolarization. The BRICS, which encourages the use of national currencies instead of the dollar in trade, may reach 10 members in 2024, creating new areas of movement for the Russian economy under sanctions.
With this in mind, the Ankara Center for Crisis and Policy Studies (ANKASAM) presents the views of Associate Professor Alexander Settles from the Warrington College of Business at the University of Florida to assess the future of the Russian economy under Western sanctions.
1. How does the expansion of BRICS affect the Russian economy’s global scope of action?
The BRICS collection of countries was an artificial construction to begin with, as the five countries have historically had rather limited trade and need to be within established political blocs. The initial idea was to create a symbolic counterweight to the G7. The addition of Saudi Arabia, Iran, Ethiopia, Egypt, Argentina, and UAE continues the initial idea of the BRICS grouping in bringing together large emerging markets to discuss economic and foreign policy. All of these countries have trade relationships with China, but these countries do not have significant trade relationships. The meetings will be interesting but substantial changes in trade and investment policy would need to be adopted to bring these countries closer together.
2. How does Russia’s use of national currencies in its trade, especially with China, affect the US dollar globally?
Russia’s use of other national currencies for foreign trade will have limited to no effect on the US dollar’s use as the global currency for settling international transactions. The shift away from US dollars will increase the cost of trade between Russia and China. Both the ruble and the yuan are government-managed currencies, so both currencies have liquidity issues in the international financial markets.
3. What does Russia’s GDP growth of 3% in 2023 after a 2.1% contraction in 2022 show us?
The demand for oil and gas from Russia continues, and Russia has been able to restructure its economy to manage targeted sanctions. The growth in 2023 indicates that the economic reforms from 2000 to 2014 did bear significant fruit in terms of building a globally competitive Russian economy. Russia has been able to rapidly adopt an import substitution policy and replace goods and services provided by Western firms. Russia also was able to pivot its global supply change to China. The Russian government and firms have demonstrated expert sanction busting and avoidance skills. As long as there is a market for Russian oil and gas, the Russian economy should be stable or grow.
4. How is the Russian economy’s trade with the CIS and post-Soviet countries affected by Western sanctions?
From initial data, Georgia, Armenia, and Azerbaijan are important transit countries for Russian firms in their activities to avoid Russian sanctions. EU members Hungary and Poland are concerned about the effect of targeted sanctions on Russian firms and individuals due to the role of Russian energy sources in their economies. Hungary’s Victor Orban has made concerted EU action difficult. Russia continues to be a market for Eastern European manufactured goods but the Russian invasion of Ukraine in 2014 has led Eastern European countries to turn to their partners in the EU and West.
Assoc. Prof. Alexander Settles
Dr. Settles is a Clinical Associate Professor of Entrepreneurship and International Business in the Department of Management at the Warrington College of Business, University of Florida. Previously he was an Assistant Professor of Professional Practice and an Instructor in the Department of Management and Global Business at Rutgers Business School, an Instructor at Nevada State College, a Professor of Corporate Governance and Strategic Management and the Deputy Director of the Corporate Governance Center at the National Research University Higher School of Economics in Moscow, Russia, and Assistant Policy Scientist at the University of Delaware. During the 2005-2006 academic year Dr. Settles was a Fulbright Scholar in Russia. Dr. Settles’ research focuses on three areas: the role that non-market forces shape the international process of firms, emerging market multinationals and management practices in emerging market firms with a specialization in Russian firms, and entrepreneurship education practices and development of entrepreneurial intent of university students.
