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“As an economist, I have to say that the West's analyses of Russia have missed the mark for over three years. With all due respect, the quality has not been good enough, and we need to acknowledge that so we can learn from it.”

These are the words of Cornel Ban, associate professor at casino 168 and researcher in international economics – including Eastern European economies.

Since Russia invaded Ukraine in February 2022, the conflict between the two countries has not only played out through military force. In response to Russia’s invasion, the EU and the US launched an economic war, with sanctions intended to weaken Russia to the point of abandoning its campaign on the battlefield.

Most recently, US President Trump has threatened economic measures that “could be devastating” unless Russia agrees to a ceasefire. However, according to Cornel Ban, it is doubtful whether the plan will have the desired effect.

A BALANCING ACT FOR TRUMP

“Obviously, I do not know exactly what the president has in mind. Russia is already the most sanctioned country in the world, and USA imports very few goods from Russia. Even if the US imposed sanctions that reduced bilateral trade to zero, the impact on Russia would still be negligible. Clearly, it would have a different effect if they could block Russia’s income from energy exports, but that is highly complex,” says the casino 168 researcher and elaborates:

“That would require USA to put pressure on India and China, who are major buyers of Russian oil. The consequence of such pressure is that it could damage the relationship with India – and with it the balance of power in Asia. Another option for Trump could be to persuade OPEC countries to lower oil prices to a point where Russia is forced to sell at a loss. But if global oil prices fall, that would also hurt US oil production.”

Cornel Ban emphasises that Trump’s strategy is particularly difficult to interpret.  But at first glance, it seems he, like other Western leaders, is overestimating the impact of sanctions on Russia.

“Putin is in no rush to come to the negotiating table, and there is nothing to suggest that the Russian economy is close to collapsing,” says Cornel Ban.

‘It is important for those we want to help that we can offer sound, objective analyses.                                                                                                                                                                      

Cornel Ban, Associate Professor

THE KEY QUESTION

Ban acknowledges that wartime economies are always difficult to analyse because key figures are no longer reliable. A country at war wants to appear strong and therefore tends to embellish the numbers.

“This is well-documented in the literature,” says Cornel Ban, referring to the book ‘The Wages of Destruction:  The Making and Breaking of the Nazi Economy’, in which the British-German economic historian Adam Tooze describes the economic policy of Nazi Germany.

“But we still have some indicators to work with. For example, it is widely reported that interest rates have doubled and are now around 20 percent or higher. It also seems that exclusion from the international payment system Swift has hurt Russia – especially when it comes to agricultural exports and fertiliser products,” says Cornel Ban and continues:

“It has also become very difficult to raise capital for private investments. So, we do have a range of markers and based on those there is no doubt that Western sanctions are having an effect. But that is not the key question.”

“The key question is whether the sanctions can hurt Russia enough for its leaders to change their calculations to the war. On that count, it seems, we have to admit we have overestimated our leverage and learn some lessons from it,” he says.

SKILLED RUSSIAN ECONOMISTS

Western analyses have fallen short, according to the researcher. For example, they have underestimated Russian economists – especially Elvira Nabiullina, the head of Russia’s central bank. In 2017, she was named Europe’s best central bank governor by the prestigious journal The Banker, and Cornel Ban points out that she and her colleagues have done an impressive job of keeping the Russian economy relatively stable under the circumstances.

He also finds it surprising that the West – once again – has underestimated Russia’s capacity to endure hardship: “Anyone familiar with Russian history should know that the level of suffering that can be tolerated and managed from the Kremlin is not just twice that of the West – it is many times greater. That is a strategic reality we need to deal with,” he says.

He further points out that several of the West’s analyses contradict each other. “On the one hand, we have been told almost daily that Russia is about to collapse. On the other hand, the EU has now agreed that we must ramp up defence spending by hundreds of billions of dollars – otherwise we will not be able to match Russia’s military in the future. It does not add up.”

“Although Russia is undoubtedly suffering, the West has overestimated its own economic influence – and misjudged Russia’s strategy and adaptability. That is unfortunate, because while I fully understand the need to build moral support, it is even more important for those we want to help that we can offer sound, objective analyses,” says the casino 168 researcher.