A Dutch disease on steroids

Manturov, minister of trade and industry: metals exports are only profitable at 70rub/dollar exchange rate.

Gref, head of Sberbank: exports are now the economy's poison while imports are the cure.

1/8

A collapse of imports leads to an exceptionally strong ruble, which, in turn, leads to a particularly acute case of the Dutch disease: non-oil and gas exports become unprofitable.

2/8

Previously there was an upside to the strong ruble: imports of machinery and equipment made the modernization of the production easier. Now this is impossible because no one wants to send complex goods to Russia.

3/8

An additional measure to weaken the ruble was the "sterilization" of export profits in the sovereign wealth fund (so that the foreign currency does not reach the economy). No longer an option either: where to store the SWF dollars/euros if they could get frozen easily?

4/8

The "budgetary rule" - an automatic cut-off point at which the excess oil/gas export profits were sent to the SWF - no longer operates.

5/8

The only option seems to be... to limit energy exports voluntarily.

It can very well be that the most recent reduction of gas flows to Europe is motivated by the economic, not the political logic.

6/8

However, there's a political consequence here: in the short term, this increases the pain on the European economies, but it also forces them to finally ditch their dependence on Russian energy. A self-imposed energy blockade!

7/8

Less dependence on Russian energy -> less Russian leverage in any negotiations with Europe -> less chance to reduce the sanctions.

Economic and political logics perpetuate each other, leading to more isolation (at least from the West).

8/8