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A four-story house in the Swiss resort town of Davos. On the red balcony, there are writings such as ‘India’s largest economy Maharashtra’ and ‘Welcome to Maharashtra’. The building was purchased by the Indian state of Maharashtra in line with the World Economic Forum (WEF), also known as the Davos Forum, which is held here every year. Until last year, the name of this house was ‘Russian House’. Maxim Oreshkin, who serves as Russian economy and trade minister and serves as an advisor to President Vladimir Putin, and Sibur, a chemical company in which Gennady Timchenko, a close ally of Putin, has a stake, bought the building and has been running it since 2018. But after Russia invaded Ukraine, the house’s fortunes changed. At a breakfast meeting held in this building on the 19th, Ukrainian President Volodymyr Zelensky had a conversation with American (CNN) host Perid Zukaria. In another room, Ukraine’s deputy prime minister met with US tech firm Palantir to praise data software for helping it stand up to Russian forces.

The war that Russia waged will be a year next month. What the international community has done to counter Putin’s Russia, which has rekindled outdated imperialist ambitions to attack its neighbors and commit war crimes, is to give Ukraine weapons or money to buy them, and to sanction Russia. Aid to Ukraine has not been consistent or prompt, and sanctions against Russia have had little effect ‘so far’. Numerically, the Russian economy has not collapsed as the West intended. Last year, there was a forecast that GDP would decrease by 8-10%, but in reality it only contracted by 3-4%. Russia had been under sanctions for a long time even before the war, and had developed a self-sufficient system to some extent. State-owned enterprises and major banks have stress-tested against international payments, foreign accounts being blocked and supply cuts. According to statistics, Chinese cars accounted for a third of the Russian car market, which Western companies did not step on. It’s just that the brands have changed, such as Stars Coffee taking the place of Starbucks, but there are still stocks on grocery store shelves and “life goes on.” This was largely due to the rise in energy prices caused by the war. Russia earned $164.2 billion (about 203.1 trillion won) from January to November last year, up 30 percent from the same period last year. But what if the war is prolonged? Gazprom made a record net profit of 2.5 trillion rubles (approximately 44.7 trillion won) in the first half of last year, and the state took half of it. However, there is an analysis that the profit in the second half would have been close to zero. Oil prices are down. Brent crude soared to $140 per barrel in Europe in March of last year right after the outbreak of war, but halved to $70 at the end of the year. In addition, seven major countries (G7), the European Union (EU), and Australia have created an ‘oil price ceiling’ since December of last year, saying that they would not pay more than $60 per barrel. Two weeks later, Russian Finance Minister Anton Siluanov feared that money from oil and gas would fall by 24% this year and that the budget deficit could rise more than the 2% of GDP initially expected. According to an analysis by the Wilson Center, a private U.S. think tank, every $10 per barrel drop in oil price reduces Russian government revenue by 1 trillion rubles. The value of the ruble has collapsed and inflationary pressures have increased. Right before the war, interest rates in Russia were 20%. The central bank had been cutting rates throughout last year, but stopped cutting them in October as inflation fears grew. The ruble is likely to fall again this year. The cost of war is rising. Last year, the Russian government’s total spending exceeded 30 trillion rubles (about 540 trillion won), more than originally planned. Military spending was set at 3.5 trillion rubles, but it seems to have exceeded it. If finances are insufficient, there are ways to borrow money from the sovereign wealth fund and loans. These are the two measures that the finance minister has mentioned. However, even if the size of the sovereign wealth fund is large, it is not a fire amount. Of the money spent by the government last year, 2 trillion rubles was borrowed from sovereign wealth funds, and most of it, 1.5 trillion rubles, leaked out during the month of the end of the year. In addition to raising taxes on Gazprom, the government also raised dividends from state-owned enterprises such as Sverbank and Rosneft and pulled over the people’s pension funds. Still, the lack of funds for the war was made up for by issuing bonds. Last year, it sold government bonds and raised more than 3 trillion rubles, most of which was made in the fourth quarter. As the number of floating rate bonds is increased to make financing easier, the ratio is approaching 40%. According to the Putin government’s three-year fiscal plan, total spending this year is similar to last year, but the money has changed. The security sector budget was 24% of the budget last year, but this year it has increased to 33%. The ‘secret budget’, which appears to be added to the cost of the war, also increased from 16% to 22.4%. There is also news that some regions are treating conscripts as volunteers in order to reduce the cost of equipment for mobilized soldiers. Although the Russian government insists that industrial production fell almost flat last year, it did so by interpolating arms production and military spending. Car production fell by almost half. There is also an analysis that the GDP decreased by 0.5% because 300,000 people between the ages of 22 and 50 were taken to war. It is said that between 500,000 and 1 million people left Russia after the war began, and the loss of labor and brain drain will have a greater impact in the long run. Russians are about to face the political responsibility of not stopping Putin’s war with the punishment of economic stagnation. To borrow a phrase, “the world economy no longer needs Russia”. In 2021, 83% of Russian gas went to Europe, with about half of federal government revenue coming from there. Russia, at least in the energy sector, has an important place in the global supply chain. It’s different now. Europe relied on Russia for 40-45% of its gas supply, but that share fell to 7-8% last year. Putin held energy hostage and tried to tame Europe, but Europe did not freeze this winter.

Between 2016 and 2021, Europeans used, on average, 17.5% of the gas in storage during a month and a half of winter. According to the US Wilson Center, in the first winter after the war in Ukraine, the amount of gas used from storage fell by 12.5%. Europe took the faster path to green energy, and Russia abandoned the European market on its own. Even in the oil market, Russia has become ‘B’. India, China and Turkey bought Russian oil as much as Europe did not buy it last year. These countries import more than $30 per barrel cheaper than Brent. Russia’s Ural oil price is said to be $50 per barrel, but it actually trades at $38, half the price of Brent. Russia’s position continues to shrink. Russians are getting used to the reality of economic isolation, and the world is learning that an ‘economy without Russia’ is possible.