'Greetings' From Reagan Era Conveyed To Russian Economy

• 12.02.2024, 10:25

Arabs are pushing Russia out of the oil market, and the country's economy is under threat.

Russia is showing economic growth, but the nominal growth figures are fuelled by insane weapons production costs. In the long term, this economic model puts Russia at great risk, writes BBC economic commentator Faisal Islam.

Last week, the International Monetary Fund (IMF) said the Russian economy is resilient to sanctions, raising its growth forecast for this year from 1.1 per cent to 2.6 per cent. This performance has been achieved through the military mobilisation of the economy, with military spending accounting for up to 40% of the budget, the same level as in the late Soviet Union.

To a large extent, the Russian economy is saved by the low effectiveness of oil sanctions. Russian oil production remains at 9.5 million barrels per day, only slightly below pre-war levels. Russia circumvented the sanctions by buying a "shadow fleet" of hundreds of tankers that now carry oil to India and China.

However, experts say demand for oil and gas will peak this year, so Gulf rivals will start producing more, pushing Russia out of the market.

In addition, the production of tanks and shells, which are irretrievably lost in Ukraine, although they add numbers to the statistical indicators of GDP growth, in practice they are an unproductive part of the economy. Therefore, in the long term, the Russian economy is only losing.

"Russia's military economy cannot support the long-term perspective, but it has bought the country extra time," the columnist notes.

The author also focuses on the brain drain from Russia and the Kremlin's increasing dependence on China.