RAS experts warned about three vulnerabilities of the Russian economy using the example of Iran

Specialists from the Institute of Economics of the Russian Academy of Sciences, Natalia Smorodinskaya and Daniil Katukov, used the experience of Iran to analyze the passage of the sanctions crisis by an oil-exporting country and identified three vulnerabilities of the Russian economy under conditions of restrictions. Experts named dependence on alternative partners, the inability to escape from raw material specialization, as well as currency devaluation and inflation as pressing problems.

Published in the December issue of the magazine “Bulletin of the Institute of Economics of the Russian Academy of Sciences” The article states that the imposition of sanctions on Iran in 2011 instantly undermined the country’s oil industry, budget and economy. At the same time, Russia, which found itself in a similar situation in 2022, was able to postpone the development of the sanctions crisis and earn foreign exchange surpluses, the authors of the article note. However, already in 2023, the Russian economy was faced with a number of negative consequences that had previously affected Iran, although not on such a scale, experts emphasize.

Ms. Smorodinskaya and Mr. Katukov, having analyzed the Iranian experience, identified several “difficult to solve” problems that may face Russia as a commodity-based economy when it has to go through “the most problematic, stressful phase of the sanctions crisis.” At the same time, experts point out that the specifics of the Russian situation do not allow “to draw clear long-term parallels” with Iran, since it has been living under sanctions for decades.

Among the three main problems of the “economy of resistance” to sanctions, experts named:

• dependence on alternative partners;

Experts noted that building ties with alternative partners against the backdrop of sanctions restrictions does not insure the country against the loss of current and future income. Russia’s Eastern partners, according to the authors of the article, can only partially compensate for the breakdown of ties with Western ones.

• the inability to escape from “raw materials specialization”;

Due to technological limitations, import substitution is becoming regressive. In most sectors, it is carried out on the basis of outdated technologies, through reverse engineering and parallel imports. At the same time, limited external demand is combined with narrow internal demand, which does not allow the business to achieve economies of scale.

• currency devaluation and inflation;

Proper circumvention of sanctions does not save the economy from depreciation of the national currency and high inflation, experts emphasized. In their opinion, inflation will be caused by structural imbalances – in particular, a compression of exports, a sanctioned increase in costs, and a lack of hard currency to pay for Western imports. It is impossible to cope with such inflation by tightening monetary policy; structural problems must first be eliminated, the authors of the article warn.

Until February 22, 2022, Iran was the world leader in the number of companies and individuals under sanctions. However, after the outbreak of hostilities in Ukraine and subsequent restrictive measures by Western countries, Russia became the world leader in the number of persons under sanctions. From the Sanctions Tracking Database Castellum.ai It follows that from February 2022 to October 2023, 15.2 thousand sanctions were imposed against Russia, and before the start of the Russian-Ukrainian conflict – only 2.7 thousand.