JPMorgan’s Tingting Ge says trade diversion to China is “technically feasible” but would be limited by capacity, transportation costs and geopolitical concerns.
“Concerns about the risks of secondary sanctions will also reduce the incentive for China to significantly increase imports from Russia and play a re-export role,” she said. “We expect little diversion to take place.”
Nevertheless, even if Western sanctions do not collapse the Kremlin’s economy, they will undoubtedly impoverish the Russians.
North Korea’s per capita GDP is estimated to be one-twentieth that of its highly Westernized and open neighbor South Korea, making it the poorest country in Asia. Before the pandemic, tougher sanctions backed by China and Russia in response to missile tests had caused North Korea to shrink sharply.
Iranians also felt the pressure of sanctions after Donald Trump withdrew the United States from the 2015 multilateral nuclear deal with Tehran: World Bank data suggests GDP per capita in Iran fell by 56% between 2017 and 2020.
James Nixey, director of the Russia and Eurasia program at Chatham House, said: “These sanctions are worse than Iran – they are more comprehensive. Russia is even more isolated than Iran was. These sanctions are absolutely unprecedented in terms of their effect on a large economy, it’s almost hard to fathom.”
As Moscow braces for long-term economic isolation, lessons from Iran, North Korea and Venezuela suggest that the cost of such a strategy will fall on ordinary Russians.
How Russia’s isolation could affect other countries
The isolation of Russia, the world’s 11th economy, affects more than one country. Thirty years of post-Cold War integration means others rely on its resources and workers.
Some economies will suffer, but those more politically aligned with the Kremlin could spy a slight silver lining.
Berlin has established close political and economic ties with Russia. About a third of its gas and oil needs come from Moscow, giving the Kremlin vital power. This is compounded by Germany’s national energy policy decisions such as the closure of nuclear power plants.
Berlin currently plans to halve energy imports by summer and end them altogether by 2024. An immediate shutdown, by either country, would likely trigger a recession.
Italy depends on Russia for 40% of its gas imports and is also exposed via its banking system.
While many financiers of Western nations reduced their ties with Moscow after the capture of Crimea, Rome did not follow suit. Data from the Bank for International Settlements shows the country’s lenders had about $25 billion in exposure to Russia at the end of last year.
The twin energy and financial risks indicate that Italy could face industrial, domestic and banking pressure as it tries to move away from Russia.
The former Soviet neighbor, Kazakhstan, is economically and politically dependent on Russia. Moscow aided the ruling elite by sending troops to quell protests in January, when the vast majority of Kazakhstan’s grain imports come from its northern neighbor.
The sanctions could cause problems for Kazakh businesses, with cross-border links coming under scrutiny.
But the country could benefit if Russia loses other trading partners, seeking to do more trade with the few that remain. It could also mean access to imports at a knockdown price for friendlier states.
“Russia is desperately looking for every possible trading partner it can find,” James Nixey told Chatham House.
As a tool of Putin’s invasion and subject to sanctions itself, the Belarusian economy is suffering. The rating agency Standard and Poor’s warned of “the growing risks to the economy, balance of payments and financial stability following the imposition of severe international sanctions, which stem from its involvement in the Russian military intervention against Ukraine”.
But its reward could be even more favorable support from Moscow. “Belarus is dependent on Russian subsidies on its energy imports,” says Nixey.
Moscow’s loans to Minsk have been eased, with more generous terms, and its dependence on cheap Russian energy could be strengthened as Western countries pull out.