Last year, I argued that Russia’s economy will collapse and will take a road similar to Venezuela in terms of its economic and political fate. Russia’s Venezuela scenario is unfolding right now and it’s still in its early stages. Here is a list of reasons why.
1. The economy has crashed
The Russian economy has shrunk by 2.7% last year despite raking in record revenues of $80 billion on gas sales. Revenues from gas sales are set to be as much as 50% lower this year as Russia has lost most of its European clients and sales while the price of gas has crashed. The economy is battered by a number of facts namely, a massive war effort which is depleting state resources, a massive reduction in labour supply with immigration and war casualties, a massive amount of sanctions by the West which cut off Russia completely from the US Dollar and the Western financial system, and basically a lack of US Dollars. The usual problems apply such as rampant corruption and widespread and outright criminality in politics and widespread incompetence in state entities.
2. Russia has lost the gas war
Russia tried to force the West into an energy war so as to put pressure on it to give up its support for Ukraine, but this war ended backfiring badly for Russia as the West quickly replaced Russian gas with other sources while the price of gas crashed. Russia is trying to find new clients for its gas but projected pipelines are still on paper and it needs massive amounts of capital to implement them.
3. The Rouble is crashing
Long lines of Russians waiting to cash out their money from their bank are becoming common. The Rouble held its value last year as Russia still managed to manage to recoup foreign currency by selling oil and gas while prices for these commodities were going up, but most importantly, Russia implemented capital controls at home preventing capital outflow and banning the sale of the Russian Rouble. Now, the Russian Rouble is crashing.
4. Russia has lost a lot of people to immigration and war and is to lose much more
So far, Russia has experienced a massive exodus of people from the country and nearly 200,000 casualties in its war against Ukraine. Last year it has been estimated that at least 700,000 people fled Russia. The next wave of immigrants includes poorer people than their previous cohorts who will be leaving the country once the economic situation turns dire.
5. Russia doesn’t have good economic prospects
Russia’s biggest trading partner is China and its most popular foreign currency is the Yuan. Russia is starved of Dollars and Euros and foreign direct investment in general. Russia’s exports for this year are looking to be much less than average. Poverty in Russia is increasing and it is set to increase.
6. Political crises will accelerate the economic implosion
Russia has entered a downward spiral and the fall down will accelerate as economic crises bring forth a series of political crises which continue to exacerbate the economic spiral downwards. It’s a vicious cycle of doom which will see the Russian economic and political establishment as we know it to collapse. State entities like Gazprom will turn into rust.
Excellent analysis Mark. Sow it to our brilliant minister of finance,!!!
It’s unfortunately correct but a very scary scenario. This venezuela 2.0 has the largest stockpile of nuclear weopens. We have already been through this when USSR collapsed.
The situation is interesting to say the least. Before Russia invaded Ukraine we had three major global players – the U.S., China and Russia. 3 players is too much. Russia opted to self implode – it was pretty much obvious that the West would pounce on the opportunity of getting involved in a proxy war to eliminate one of the major players. This also resulted in other benefits: getting rid of old military stock, ramping up the military industrial machine. War is big business. China is waiting for Russia to reach a point of oblivion before it moves on Taiwan. That’s the big one. If they can gain control of the semiconductor industry in Taiwan it will put them way ahead of the competition. What about the EU? Lots of in-fighting isn’t going to help. Being eternally dependent on the U.S. and China is not the solution either. Interesting if not depressing times ahead.