April 22, 2024

the West must not lose its nerve

Russia’s GDP figures are a red herring. A labour shortage and capacity constraints have fueled overheating, pushing interest rates to 16pc, while what remains of the consumption economy atrophies. The liquid assets of the National Wealth Fund have fallen from 6.6pc to 2.7pc of GDP since the war began.

IMF chief Kristalina Georgieva, who grew up under Communism in Bulgaria, said the deformed economy is looking ever more like the Soviet system, dysfunctional and brittle behind the façade. “I actually think that the Russian economy is in for very tough times,” she said.

Three of five of the most-read stories in the Russian version of the Moscow Times last Friday were about shortages. One quoted Mobius Technologies and others flagging an acute lack of spare parts for hard drives, controllers, motherboards, and data storage.

The reserve of spares built up at the beginning of the war is exhausted. Components are trading at prohibitive prices.

A second story was about the lack of engines for shipbuilding. A third was about “empty shelves” in supermarkets, partly because Turkish and Chinese banks have been blocking payments from Russia.

A Vedomosti article quoted Russian businessmen lamenting that they can no longer clear transactions in yuan through Chinese banks – including the Big Four state banks – due to stringent audits to comply with tighter US sanctions.

Payments were stopped regardless of whether or not they were in dollars, and even when using the Russian SPFS and Chinese CIPS systems, intended to circumvent Western control of the SWIFT nexus. The Sino-Russian treaty of “friendship without limits” does in fact have limits.

Banks in Dubai are closing the accounts of Russians with “opaque” sources of funding, fearing the long arm of the US Treasury.

The EU is drawing up plans to sanction companies in China, India, Turkey, Sri Linka, Serbia, Thailand, and Kazakhstan for helping the Kremlin to circumvent curbs on dual use technology.

Russia will find ways to evade the latest curbs. But it cannot switch easily to semiconductors from China because its systems are configured for US chips, which must be bought at a stiff premium on the black market.

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