What Russia's economic resilience means for the war in Ukraine

Since the Russian invasion of Ukraine nearly a year ago, attempts have been made to clobber its economy.

Russian businesses have been cut off from vast tracts of the Western world. Its oligarchs have been sanctioned and had their yachts seized. And yet, by almost every measure the Russian economy has weathered the last year much better than almost anyone expected.

"There are clearly signs of a slowdown in the Russian economy," said Desjardins principal economist Marc Desormeaux. "But things are not quite as bad as feared when this conflict erupted."

Beyond the staggering human cost of the war, the economic toll is also adding up. Russia is spending trillions of dollars to fund its military, kept afloat by the oil and gas sector, but without the huge surplus it was used to.

While President Vladimir Putin is crowing about Russia's resilience, some economists are forecasting a shrinking economy to come, squeezing its ability to keep the war machine running. 

Before the Ukraine invasion of Feb. 24, 2022, Russia provided 40 per cent of Europe's natural gas. It sold about 25 per cent of Europe's oil as well.

As the European market closed off, Russia scrambled to find new markets. 

"This was a major [question] at the start of this conflict, would Russia be cut off from the global economy?" Desormeaux told CBC News.

"So rather than sending a lot of oil to the E.U. much of it is being sent to India, to China, to Turkey and to other trading partners."

Those new trading partners demanded some heavy discounts from Russia. 

But combined with a sharp increase in energy prices, the new markets allowed Russia's economy to keep a solid footing. 

"Thus, even though Moscow needs to heavily discount the price of its crude oil on the global market, its energy sector is still providing windfall revenues for the government to deploy in its war efforts given the break-even price of oil production is relatively low," wrote BMO's senior economist Art Woo after Russia posted its third quarter GDP results last fall.

"The truth of the matter is that [the Russian economy] is holding up much better than many originally thought after it was hit with an array of sanctions," Woo wrote.

Still, economic activity slowed sharply. The Russian economy officially fell into a recession last fall. In the third quarter alone, GDP shrank four per cent year over year.