The NBU explained how the sanctions affect the economy of the Russian Federation: the scheme

Russian propagandists appeal to Iran's experience and talk about the impossibility of arresting reserves.

< p>«Even if today there are no mass defaults or protests of the unemployed, they provoke a serious «motor» in high offices: Rostov rabbit breeders, Cherepovets metallurgists, unions of grain traders, etc. make it clear that the usual way of life of a calm, rich economy has been disrupted and it is moving towards collapse, said Vitaliy Shapran, a member of the NBU Council, reports the Chronicle.info.

When will the war end?

Probably, this is now the most frequent question that people around me want to hear the answer to. The question is complex and, apart from the military plane, the answer to it lies in the plane of geopolitics, diplomacy, economics and finance. Of course, here the palm belongs to military analysts, but the plane of the economy and finance against the backdrop of a boom in anti-Russian sanctions may push the Russian Federation to end the war. Of course, if you know where and how to push.

Theory of sanctions

Russian propaganda likes to talk about sanctions «of the collective West». In fact, Japan, South Korea, Taiwan and Singapore have actively joined the sanctions, i.е. not only Western countries, so hereinafter I would call the entire set of sanctions not «sanctions of the collective West», but «sanctions of civilized countries».

To correctly analyze the effect from sanctions and monitor them, I would divide them into several areas:

The  main sanctions I would include trade sanctions and restrictions on raising capital. Trade sanctions are designed to cut off revenue streams, incl. from the sale of hydrocarbons. Restrictions on attracting capital are aimed at reducing capital investment and are usually accompanied by a blow to the importation of high technologies into the country, which come into the economy along with direct investment.

Blocking sanctions would include the freezing of assets and, of course, personal sanctions against officials and oligarchs. The freezing of the assets of the National Wealth Fund and the gold reserves of the Central Bank of the Russian Federation is a very strong blow that irritates the authorities of the Russian Federation. Personal sanctions against state officials and oligarchs reinforce blocking measures and create a personal interest in them to lift sanctions as soon as possible. The main role of blocking sanctions is to cancel the ability to use previously accumulated reserves, so that it would be impossible to literally «sit out» sanctions.

To amplifiers of the main sanctions I would include:

— a ban on insurance and reinsurance of risks from the Russian Federation. It is very cool to stop any investment projects, especially large ones, and also stop or slow down foreign trade;

— restrictions on monetary settlements of residents of the Russian Federation, including the import of foreign currency in cash, to meet the demand for savings and settlements, which slows down both foreign economic activity, as well as the import of capital.

— a ban on the provision of transport services, such as air transportation, railway transportation, can indirectly stop all business processes that require personal meetings or quality transport services.

Sanctions fight

Ukrainian society, as a rule, expects «terrible sanctions» from civilized countries, which are not just sanctions, but an «axe», chopping the entire economy of the Russian Federation into cabbage. These are emotions. Let's not forget about geopolitics and economic diplomacy. The tasks of the EU, the US and other countries are to stop the bloody war in the center of Europe, but at the same time not to forget about their citizens. This is very clearly seen in the example of trade sanctions. As soon as a food crisis loomed on the horizon, the United States immediately lifted sanctions on fertilizers from the Russian Federation and imposed sanctions on high-tech companies from the Russian Federation, including their management. Optimizing trade sanctions is a perfectly normal process.

The civilized countries are now preparing to inflict the main blow on the Russian export of hydrocarbons. Already in April, oil revenues will fall by 20-25%, this effect may be enhanced by the actions of the United States, which announced its readiness to print its oil reserve. The Russian Federation actively advertised agreements on oil supplies to India, but the agreement has not yet been signed, Russian oil itself now costs about $86 per barrel, while India wants a discount from this price of $35, i.e. the price of the long-term contract will be about $50 per barrel.

It is also very problematic to replace European buyers in the gas market. Putin's ultimatum «gas for rubles» turned out to be a schematic piece of shit. Companies were offered to open accounts in the EU with Gazprombank and convert euros into rubles on them, and then transfer them to Gazprom's ruble accounts. Russia was simply afraid that Gazprom's euro accounts would be arrested, just as the foreign exchange reserves of the Central Bank of the Russian Federation and part of the money of the NWF were arrested. I don't know if EU companies will agree to the «im. Putin», but it will not have any impact on the foreign exchange market, because there is no difference: whether the buyer himself changes 100% of the contractual payment from euros to rubles or Gazprom does it. True, under the current currency regulation in the Russian Federation, if Gazprom needs currency, then it will have to pay a 12% commission on the received rubles in order to buy such currency.

But Gazprom cannot refuse to sell gas to the EU, from the word at all. In 2020-2021 gas supplies to the EU + other non-EU countries in the region + Turkey fluctuated around the 200 bcm mark. meters. In 2021, the Russian Federation exported about 48 billion cubic meters to China. meters, and the extension of the gas pipeline to Mongolia was handed over for design work only in February 2022. Snatch 130-170 billion cubic meters. meters of gas from the EU pipe Russia will not be able to only for the reason that they have nowhere to go. In addition to the fact that the PRC does not need such a volume, the average cost of gas for the PRC in 2021 was $159 per 1,000 cubic meters, and for the EU — about $300-350 under long contracts. Those. the same volumes will be sold to China at a price 2-2.5 times lower than in the EU, and Gazprom's revenue will accordingly lose weight by 2 times.

Now imagine the situation: the EU is not ready to abandon Russian volumes of supplies, there will be nothing to replace them, and the Russian Federation cannot but sell to the EU, since this will hit the country's budget and China is not an alternative either in terms of price or volume. Why did V. Putin get the idea that private German companies will not be afraid that their accounts in euros or rubles will not be arrested at the time of transactions against the frozen gold reserves of the Central Bank of the Russian Federation? In my opinion, such companies are even more in danger than Gazprom, because a little more than a month ago, official representatives of the Russian Federation lied that the Russian Federation was not going to attack Ukraine.

No matter how the issue of payment is resolved, the main thing is that consumption gas of the Russian Federation and Russian oil has decreased, and such a decrease is predicted in 2022 and 2023. A decrease in the cost of oil and gas against the backdrop of falling sales volumes will lead to a drop in revenues of the federal budget of the Russian Federation.

Damage mechanics 1. Interest rate risk and trade embargo

Blocking and reinforcing sanctions have caused significant damage to the balance of the federal budget. After the Central Bank of the Russian Federation raised the rate to 20%, it turned out that about 40% (by volume) of loans issued in the Russian Federation were issued at a floating rate pegged to the Central Bank rate. At the same time, the growth of rates from 12-15% to 30-35% was called a market trend. Mass campaigns to Mishustin and the State Duma gave only one effect — the understanding that compensation from the increase in the Central Bank rate will increase federal budget spending.

The second problem is the growth of unemployment due to the withdrawal of companies from civilized countries from the market. This problem will make itself known widely by mid-May — early June. The presence of such a time lag is due to the fact that, according to Russian laws, laid-off personnel must be paid a salary for another 1-2 months, and 3 months in advance to report an incomplete working week. Automobile plants GAZ, VAZ, KAMAZ have already informed their workers about future employment problems. A deplorable situation has also already developed in the aviation industry. In addition, tensions are expected to increase in the banking sector and in the insurance segment.

The logic here is clear, trade sanctions deprive large state monopolies of a significant part of their income, while auxiliary sanctions hit the budget costs. Will the sanctions be able to push Gazprom back to the distant 90s, when the company itself was unprofitable? It already depends on the company's strategy, which «writes Putin». For example, in a report on his impudent decree on the need to pay for gas in rubles, Germany announced the possible nationalization of the subsidiaries of Gazprom and Rosneft in the EU. The loss of even a part of European gas traffic with high prices may well lead to unprofitable operation of Gazprom in 2022.

2. Organization of holes in the federal budget and balance of payments

No less curious is the question of how sanctions affect the federal budget of the Russian Federation. At the end of 2021, the dependence of Russian budget revenues on the sale of hydrocarbons was 65% (including the tax factor). Those. a 25-30% decline in oil and gas revenues will lead to a shock decline in federal budget revenues by about 20-25%. Given that the budget surplus of the Russian Federation was about 5%, the Ministry of Finance will face an acute issue already somewhere in August 2022 — the issue of new loans and the sequestration of the existing budget. And if we take into account that there is already a long queue for Prime Minister Mishustin for preferential credit rates and tax breaks, industry injections into aviation, import substitution, etc., then a drop in revenues from oil and gas sales by 25-30% should be enough to unbalance the federal budget at a tangible level.

The second point is the effect of sanctions on the balance of payments of the Russian Federation. According to the results of a successful year for the Russian Federation in 2021, the balance of payments surplus amounted to $120 billion, and the trade balance surplus was $186 billion. The capital outflow from the financial account in 2021 was about $72 billion. A drop in export earnings from the sale of oil and gas by 25-30% will cause the trade balance to sink by $50-60 billion, but it will still remain positive (about $120-130 billion). And this is where the fun begins.

Russia's external debt is $481.7 billion, of which direct public debt is less than $60 billion. Those. more than 420 billion dollars were borrowed by state-owned Gazproms, Rosneft and, of course, private traders (oligarchy). Approximately 150 billion of this amount must be repaid by private companies in 2022 or in connection with the maturity of bonds, loans and other obligations or ahead of schedule under offers. Those. a capital outflow of $150 billion from the Russian Federation is quite possible, especially with the departure of foreign companies. At the same time, an outflow of $150 billion means for the Russian Federation that the balance of payments will become negative already in 2022.

The deficit, according to my estimates, will be about 20-30 billion dollars, even taking into account the decrease in imports. It can be covered by the balance of gold reserves of the Central Bank of the Russian Federation through the sale of gold. However, I think that the financial authorities of the Russian Federation have already calculated this option and therefore advised Putin to sign, at first glance, a rather silly decree, where it is allowed to repay foreign debts in rubles. The idea is correct, but it was not accepted in the West, since a change in the payment currency means an actual default. The default leads to the fact that private and foreign companies will be forced to pay off their obligations in live currency, and new obligations will not be able to take on. Those. debt capital moves out of the Russian Federation in only one direction: following the Russian warship, even despite Putin's decree.

The United States left a small loophole to the Russian Ministry of Finance until May 25 in the form of the ability to pay off debts in rubles at the expense of frozen reserves, but this affected only the public debt, and only until May 25. Private businessmen, on the other hand, do not always manage to pay off external debts, even if they are allowed by a special commission under the Ministry of Finance: they simply do not get payments if the borrower's beneficiary is on the sanctions list.

3. Destruction of the stock market

After March 3, when it became clear that trading in Russian depositary receipts does not make sense and most of them still strive for a price of 1 cent per receipt, trading in share receipts was stopped. Already at the end of March, the Ministry of Economy of the Russian Federation came up with an initiative to convert depositary receipts into shares and «return them to their homeland», i.e. to the Moscow stock exchange. Thus, the Russian authorities destroyed the liquidity centers for Russian issuers in London and Frankfurt, and destroyed not only the ability to raise capital through large international exchanges, but also the ability to influence the assessment of the market value of Russian companies by foreigners. Later it became clear why they did it, as if indulging themselves in the sanctions of the West.

When the Moscow Exchange opened in the third decade of March, private traders found that their trading applications were not working. On the second working day of the exchange, the applications started working, but by the trading volume of 26 billion rubles (usually about 500 billion), it was clear that something strange was happening on the market. Then it became clear that the stock prices were simply drawn by the big players. For example, one of the issuers, which produces fertilizers and which was exempted from US sanctions, fell in price on the day of the release.

It turns out that the government of the Russian Federation has de facto removed Russian issuers from major European stock exchanges, and the Moscow Exchange has become the only place where prices are now determined (drawn). This was done with one goal: to prevent a sharp drop in real securities prices from moving into the balance sheets of conventional and investment banks. After all, after that, a massive stream of defaults in the banking sector would begin, and the NWF would seriously lose weight. However, the Central Bank of the Russian Federation allowed credit institutions not to publish their financial statements for some time, effectively classifying them. However, the market cannot be deceived, and a blacklist of 50 banks is already walking around it, with only half a year left to live.

The resulting work of the sanctions mechanism

Sanctions of civilized countries are already affecting the Russian economy. At a minimum, they led to the destruction of the established structure of industry markets and made it impossible to liquidate the effects of trade and capital market sanctions at the expense of previously accumulated reserves.

The economic authorities of the Russian Federation resist and try to delay the inevitable. The effect of the crisis on the employment market, as well as the impact of interest rate and credit risk on the banking sector and borrowers, takes time — it has a delayed effect, which will become visible within 6-9 months. Therefore, the sanctions now may seem insufficiently effective. But believe me, they are very effective. And even if today there are no mass defaults or protests of the unemployed, they provoke a serious «propulsion» in high offices: Rostov rabbit breeders, Cherepovets metallurgists, unions of grain traders, etc. make it clear that the usual way of life of a calm, wealthy economy is disrupted and it is moving towards collapse.

Therefore all that the authorities of the Russian Federation are doing now is trying to delay the economic catastrophe, hoping to wear out Ukraine with a war. Maybe they would have been able to do it if not for two factors:

• Huge volumes of seized assets of the Russian Federation in civilized countries
• Economic damage to the global economy from the war in Ukraine , which affected relatively neutral countries.

Putin's global collapse

If you think that the biggest risk from a war in Ukraine is an increase in energy prices in the region (mainly for the EU), then you are deeply mistaken. Three hundred companies were forced to leave their business in the Russian Federation, some did it, simply leaving all the equipment in the Russian Federation. For such structures, the realized risk in relation to the invested capital has reached 100%.

The second most important risk for the region is the food crisis. Turkey and Israel were the largest buyers of wheat from the Russian Federation. Ukraine actively supplied flour to Africa. The blocking of Ukrainian ports has already led to an increase in the cost of bread in Cameroon by 40%. Ukraine and the Russian Federation produce 30% of the world's wheat reserves, 20% of corn, and 75% to 80% of the world's sunflower oil reserves. Now 94 vessels with food are blocked in the ports of Ukraine. The restructuring of logistics for export to the Baltic and Black Sea regions through the ports of Romania takes time. But the reduction of 15-17% of sown areas in Ukraine cannot be overcome by logistics. World Food Program chief David Beasley has already said the war in Ukraine is creating a catastrophe affecting local agriculture and global food and grain supplies not seen since World War II. Ukraine itself is not in danger of starvation, but the countries of Africa may well feel an acute shortage of food, they already feel the rise in prices.

The riots in Ecuador also make you think. So, the recent rebellion of farmers was associated with a fall in banana prices due to the impossibility of delivering them to the Russian Federation due to sanctions. Russia buys 20% of the total banana crop in Ecuador. The lack of container traffic stopped purchases. I think that there will be a dozen more surprises like with Ecuador, when a business that has nothing to do with Ukraine loses revenue, products, time and money.

In general, 3-4 dozen countries may suffer from Putin's adventure. Those who may suffer the most have already formally or informally offered their countries as a platform for peace talks. Quite strong Turkish or Israeli diplomacy can play a decisive role in the negotiations. But you need to be aware that they are very interested in preventing the food crisis in our region from growing.

Conclusions

So, sanctions are working and working well. Initially, they were not thought out and arose in a chaotic way, as evidenced by their subsequent optimization. Nevertheless, the entire set of sanctions is reasonable and aimed at suppressing Russian exports, technological imports, depriving Russian companies of the opportunity to raise capital in foreign currency, etc.

Having survived the exchange rate of 200 rubles per dollar, the Russian Federation still did not realize that this was only the first sanctions strike that worked on human psychology and the tendency of the population of post-Soviet countries to panic purchases for future use.

Next, we will see how May 2022the risk of a sharp decline in business activity and an increase in unemployment begins to materialize. Local authorities in the Russian Federation are already ready to offer vacancies for janitors, electricians or plumbers to professional sellers of complex equipment for builders, mining companies or refrigeration equipment. Let's see what happens.

Roughly in August it will be possible to feel how the quality of loan portfolios in banks begins to fall sharply, and interest rate risk turns into credit risk. By then, the oil embargo and capital flight will have made themselves felt.

By the end of the year sanctions will have a direct impact on the balance of payments and the federal budget of the Russian Federation. Most likely, in September the RF Ministry of Finance will have to admit that the budget needs a capital sequestration. If the balance of payments still has a chance to somehow be supported by bans on the export of capital from the Central Bank, then the budget in this situation remains a very weak point of Putin's economy.

The issue of money remains a very weak point for the Russian Federation . The war in Ukraine was planned for 3-7 days. All that has happened since then is unplanned spending, which must now be financed from a budget with declining revenues.

Therefore, Putin does not have much money for the war with Ukraine. This can be seen both from the data on noticeable salary delays in Crimea (even for military personnel), and from the way the Russian military reluctantly take the corpses of their colleagues: after all, for each corpse, his relatives need to pay about 15 million rubles, and this, given the already existing losses in 17600 people, is about 3.2 billion dollars at the exchange rate.

Moreover, Putin cannot spend everything on a war in Ukraine; there are still issues of Karabakh, Abkhazia, the Kuril Islands, and again the issue of Polish Koenigsberg has arisen. There are also older, almost forgotten stories. For example, «Chinese Crimea» — 64 villages on the border with the PRC and the Republic of Tuva, which ceased to be controversial for the PRC in 1991 after the signing of an agreement with the Russian Federation. And who knows how China will look at such a treaty after all these events.

That is why Moscow is in dire need of money now. They need not only to fight against sanctions and resist states that do not want a food crisis in the European region, but also to somehow restore the losses suffered by their military in Ukraine. Losses in equipment, in missiles and other weapons. Today, within the vast territory of the Russian Federation, the mobility and combat effectiveness of its army are greatly undermined.

In the public speeches of Putin, Lavrov and other officials, it is felt thatthe most painful and unexpected sanction is precisely the freezing of the gold and foreign exchange reserves of the Central Bank of the Russian Federation< /strong>. The depreciation of the dollar from 200 to 100 rubles cost the Russian Federation almost 40 billion dollars, which means that the Central Bank has about 150-160 billion dollars left, of which 135 billion is not very liquid gold due to the sanctions.