Russia’s economy could spiral into a depression under an EU oil embargo. An energy analyst breaks down why Moscow won’t be able to rely on China and India to fill the gap.
Russia’s economy is on the ropes and relies on oil and gas exports to keep the country afloat. The European Union, which buys 30% of Russian oil and 40% of Russian gas exports, has threatened to cut off this crucial revenue stream in response to Moscow’s actions in Ukraine. If that happens, the Russian economy could spiral into an even deeper depression than it’s already headed into.
One key question is whether China or India — neither of which were among the 11 countries that backed the sanctions — would be able to fill the gap left by Europe. Thomas Grieder, head of energy research at IHS Economics and Country Risk, says that Moscow wouldn’t be able to rely on those countries for help.
Russia could be in severe economic pain if the European Union goes through an oil embargo against it. But the country’s leadership doesn’t seem to be rattled by Western sanctions or isn’t showing it. Russian President Vladimir Putin has repeatedly dismissed sanctions as ineffective and said that facing a recession, Russia will find alternative markets, such as China and India.
But so far, all we’ve seen is “symbolic gestures” from Chinese state-owned companies in the energy sector, says Yelena Kolchina, head of oil and gas research at VTB Bank in Moscow. "We don’t see any real contracts or deals with Russian producers,” she tells Quartz. “So I think Russia will not be able to replace Europe with China or India.”
Despite massive oil and gas reserves, Russia’s economy is already struggling under the weight of previous Western sanctions imposed after the country annexed Crimea from Ukraine earlier this year. The economy is continuously slowing due to weak domestic demand and a lack of exports outside of energy resources. The government expects the gross domestic product to shrink by 0.8% this year, but the Central Bank estimates it could fall by 1.5%. VTB Bank expects a 1% contraction.
