Amidst heavy sanctions, the Russian economy appears to be resilient, this article briefly explores the more unorthodox approaches the Kremlin is employing to finance its offensive in Ukraine.
IS G.O.D. THE ANSWER?
GOLD: MULTI-PURPOSE METAL
Gold is regarded as a safe-haven asset in times of turbulence and held in vast quantities by central banks. Gold is one of the most important reserve assets and acts as a hedge against inflation and currency risk. Other commodities such as precious stones also hold value, but gold is king. Gold also shares an inverse relationship with the US dollar, a stronger dollar usually drives gold prices down. Russia has the 5th largest gold reserves and is second largest goldproducing country in the world with reserves of around 2333 Tons, Russia uses gold to evade sanctions and alongside China has been fervently buying gold supposedly to derail the dollar. But Gold is multipurpose and is easier to swap for other currencies ensuring trade is still profitable despite a weak Ruble and could possibly be used to prop up the Ruble.
Wagner – The Russian mercenary group central to the conflict in Ukraine has also “earned” over $2 bn worth of gold in Africa. This includes countries like Sudan, Mali, Central African Republic, Libya. To combat Russian Gold usage, the London bullion Market association (Global OTC/Gold regulator) has banned the usage/sale of Russian gold. However, this is easily countered by melting the gold down and removing any identifiable markings etc. Russia continues to use/buy and sell gold, but the Ruble remains very weak most likely because Moscow wishes it to remain so.
Another G to consider is gas, of which Russia is the second largest producer in the world, in the earlier stages of the war Moscow began squeezing Europe of gas. Causing widespread inflation and driving energy prices up. In the UK this is has been one of the driving forces behind “the cost-of-living crisis” with the government in 2023 banning the import of Russian gas and consequently having to introduce policies to help curb the increasing impact on working/middle-class families in the winter. However, Moscow’s strategy seems to have failed after share of pipeline gas flows from Russia to Europe have fallen from 40% in 2021 to 8% in 2023. This week Russia has banned gasoline exports to supposedly offset demand amid Ukrainian drone attacks on refineries
OIL: BLACK GOLD
Oil is used in almost everything from fuelling ships and cars to driving entire economies and wars! Russia is the third largest crude oil producer (12.7%) and 2nd largest exporter (11.8%) globally. It also accounts roughly between 13-16% of Russia’s GDP. The war in Ukraine prompted a skyrise in crude oil prices with Brent crude reaching almost $130 dollars per barrel (the highest since 2008) in March 2022 due to fears of tightening supply. As Saudi Arabia (fellow OPEC member) signalled increasing production, prices eased alongside these sanctions plus a price cap on Russian oil exports forced Russia to sell their oil at discounted prices primarily to China, Turkey and India cooling prices and reducing volatility in markets. Brent crude oil is around $81 today with Goldman Sachs forecasting Brent’s 2024 peak to reach $87 despite the ongoing conflict in the Middle East and severe supply chain disruptions in the Red Sea. Russian oil output in 2024 is expected to remain steady with 10.6 MN barrels produced daily according to OPEC, but Russia will reduce its daily bpd by 500,000 to align with OPEC supply restrictions. Russia doesn’t necessarily need to import oil to assist with its war effort and is fairly self-sufficient in regard to oil.
D FOR DRUGS
A more unconventional aspect not explored regularly is state related actors’ roles in drug trafficking and production., Despite Russia’s strict laws, the state sponsored mercenary group Wagner seems to not be following these laws with reports emerging of its involvement in the smuggling of Captagon (Party drug of the gulf) from Syria (production sites) through Libya. These illicit networks in Africa and the Middle East are believed to be helping prop up Russia’s invasion of Ukraine (Wagner mercenaries get paid). The war in Ukraine is also redirecting even more drug trafficking through the Balkan region of Albania, Montenegro and Kosovo away from Ukraine where the military presence has disrupted these networks.
CONFLICT STATS
Conflict stats are skewed due the lack of reliable data, but it is estimated that:
-Over 10,000 Ukrainian civilians have died.
- Over 31,000 Ukrainian soldiers have died.
- Over 315,000 Russian soldiers injured or killed.
-Over $230Bn of aid has been sent to Ukraine
-Over $160Bn of damages to Ukrainian infrastructure
RECENT DEVELOPMENTS
-European commission chief Leyen calls for seized Russian asset profits to be used to purchase weapons for Ukraine.
-Putin threatens nuclear war as NATO expands.
-Russia loses 12 warplanes in 12 days.
Supposedly leaked Russian nuclear strike plans against Chinese invasion. (Divide and Rule?