casualtiger2
Regular
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joined Apr 2022
The fallout from the sanctions on Russia—it’s happening. The fall is coming.
The new Chevrolet Grant recently rolled off the assembly line at the Automotive plant. According to their press release, they’re leaning into some extra bells and whistles—think color-matched door panels, heated mirrors, and electric adjustments. The factory over in Tolyati actually shut down after Ford pulled out of the country due to sanctions, eventually handing the keys over to the Russian government.
Media outlets are claiming that Vladimir Putin's Russia can thrive without the West—even with all those sanctions in place. Honestly? The PR spin is just ignoring everything missing from their latest Chevrolet—things like anti-lock brakes, airbags, seatbelt pretensioners, electronic stability control, or even an emergency call system.
That 1.6-liter naturally aspirated engine pumping out 90 HP? Yeah, it doesn't even touch the EPA Tier 3 standards anymore—it’s basically stuck in 1996 territory, barely meeting EPA Tier 1 levels. To make matters worse, the government actually lowered the testing requirements just so they could get the car registered. Typical. When Ali Grant says a car is "multimedia ready"—it’s really just a fancy, polite way of saying you’re going to have to install your own radio.
One guy is out here building Potemkin villages.
The Russian government and their statistical agencies have gone extremely limited with the economic data they actually release. Since Switzerland is basically viewed as an enemy state in Russia now, half their websites are impossible to even access. "You just can't rely on the handful of figures that still trickle out," says Marcus Keupp, a lecturer at West Point. Most of the numbers are being manipulated—it’s the classic Soviet playbook—building Potemkin villages to hide the reality.
Subscription despite Western sanctions—so, why is the ruble holding up so strong?
Some people look at a massive trade surplus and a strong currency as proof that international sanctions aren't doing a thing. Honestly? They couldn't be more wrong. Sure, Russia is still pulling in huge amounts of cash from oil and gas exports—which are barely touched by sanctions—but the real issue is that actually getting things *into* the country has become a nightmare because of them.
The drop in import tariff revenue tells you everything you need to know about how sanctions are actually working—they were down 43 percent in April compared to last year. If you look at export data from 54 different countries—which accounted for roughly 90 percent of all Russian imports back in 2021—the scale of the problem becomes pretty obvious. Since the invasion of Ukraine, exports from countries that signed onto the sanctions have plummeted by an average of 60 percent, according to the Peterson Institute.
It’s interesting, though—exports from other countries that aren't even part of the sanctions have also dropped by 40 percent. Apparently, they either don't want to, or just can't, fill the void left behind by the Western sanctions.
Even Chinese exports to Russia have tanked—down 38 percent compared to the second half of last year—despite Xi Jinping’s big claims that cooperation with Putin "has no limits." The tariffs aren't what's driving this slump—I mean, total Chinese exports only dipped by about 8 percent.
It looks like a lot of Chinese exporters aren't willing to risk their relationship with the US just to help bypass sanctions. Even Apple’s rival, Huawei—which is already on a US blacklist—has pulled back its operations in Russia. Even China's own Unionpay, which was supposed to step in with credit cards to replace Mastercard and Visa in Russia, is refusing to work with sanctioned Russian banks.
The pandemic proved that missing just one tiny component can grind an entire assembly line to a halt. Honestly, the current struggles within Russian industry shouldn't come as any shock to anyone. Take the new Ford F-150—it’s basically a perfect example of what's actually happening on the ground in Russia right now, and just how much damage those sanctions are really doing.
Putin is dreaming about replacing imports.
Even in the oil and gas industry, Russia relies heavily on Western tech. Major players like Shell, BP, and ExxonMobil have already announced their exits—walking away from joint ventures with Gazprom and Rosneft and turning their backs on projects worth billions. Basically, we’re looking at a massive shortage of tech, gear, and actual experts needed for production and refineries. Long term—this is going to tank energy revenues.
Nowatek—the biggest private energy player in the game—is about to wrap up its first LNG plant. But here’s the kicker: without the right technical gear from the West, they're basically stuck. They can't even get their second facility off the ground, which is currently sitting at only 40 percent completion.
Russia has been running an import substitution strategy for years now—basically trying to swap out foreign goods for their own stuff so they don't have to rely on anyone else. That’s just an old Russian dream—something Putin has been pushing incredibly hard. But let's be real—Russian industry has never exactly been anyone's crowning achievement."That's just how it is," says Marcus Keupp.
That Czech tractor has gone full Russian.
There have been cases where Western products ended up getting slapped with Russian labels. Take that Czech Zetor Forterra 135 tractor—as noted by Russian historian Kamil Galeev. Basically, a factory over there just bought the complete kits, put them together, and sold them off as if they were homegrown Russian tractors.
Public staging has always been a massive part of Russian history. Marcus Keupp said it best: "The Tsars did it, then the Soviets, and now it's Putin. A lot of people in the West are actually impressed by it—but you have to look behind the curtain to see what’s really going on."
The fallout is only just starting to surface. "Right now, you're mostly just surviving on whatever you've got left—but every single day gets harder. Every day, some little part of you just stops working, and there’s no replacement coming," says Keupp. — It’s a slow-motion collapse.
Companies that can't keep production lines moving because they're short on parts—it's a mess—are basically forcing their workers onto reduced hours or even mandatory furloughs.Just like what happened with the Chevrolet back in May—some companies are either cutting pay or just freezing it altogether.
Real wages are tanking.
Real wages in Russia are taking a hit thanks to skyrocketing inflation—we saw annual inflation climb past 17 percent in May. Back in April, they already dropped by 7.2 percent. The national Center for Strategic Studies is predicting that unemployment rates are going to take a serious dive across most of the country by the end of 2022.
Production shutdowns, shrinking real wages, and a bleak job market are absolutely killing consumer spending. In May, washing machine sales tanked—down 60 percent compared to the same month last year. Even worse, car sales plummeted by 84 percent.
Look at how much consumption has dropped—just check the sales tax revenue. In April, it was only half as much as it was this time last year.
Between a sudden drop in sales tax and customs revenue combined with skyrocketing expenses, the federal budget hit a deficit this April. It’s basically made the Treasury way too dependent on oil and gas taxes and fees—it's getting a bit sketchy. Their share of total revenue spiked to a record 63 percent—compared to just 28 percent back in 2020 and 36 percent in 2021.
If you want to support an economy and a population struggling with high inflation, the government basically has to bankroll massive relief packages. According to Treasury Secretary Anton Siluanov, they’re burning through about $160 billion this year—based on pre-war exchange rates—to keep things afloat. That's roughly 8 trillion rubles.
That’s the backstory behind why they scrapped that dividend for the state-owned gas giant—the first time something like this has happened since 1998. The company was actually looking to dish out a record-breaking dividend, but the government stepped in on Thursday and used its majority vote to shut it down. Turns out, they’re desperate for cash—they need the money, especially with those looming tax hikes hitting the energy sector.
Sanctions don't end wars.
Subscription fees are still climbing—even with billions pouring in from oil and gas. Honestly, it’s no wonder Russia is staring down a national bankruptcy.
On Monday, Russia paid off its foreign sovereign bonds for the first time since the Bolshevik Revolution back in 1917. Honestly, I don't see much of a short-term impact—the country is basically locked out of international capital markets anyway thanks to all those sanctions, and they aren't exactly sweating credit lines given how much they're raking in from energy prices. But long-term? That’s a different story entirely.
"That’s just how sanctions work—they hit the target economy hard with massive costs. But give them some time; they're going to need it to get back on their feet," says Marcus Keupp.
There’s also been some recent skepticism regarding sanctions—mostly because people seem to have these totally unrealistic expectations about how much they actually dent Russia's war machine. "The idea that sanctions alone would just end the war has always been a flawed assumption," says Keupp. "If this conflict wraps up, it'll be for purely military reasons."
The whole point of these sanctions is to cut Russia off from the modern global economy. And honestly? It worked. According to Keupp, the long-term fallout for Russia is going to be massive. Even the headline above the latest economic report in Thursday's Wall Street Journal puts it bluntly: "The fall is underway."
