Putin’s Fear of an Economic Crisis Offers Sanctions Leverage for the West

Nobody knows what Russian President Vladimir Putin hoped to achieve when he started a nine -hour trip from Moscow to Alaska to meet US President Donald Trump last month. But it is a safe bet that he was looking forward to avoiding additional sanctions on the Russian economy that Trump has been mysteriously threatened several times – and may get comfortable from the current sanctions or even some profitable US investment deals.

Putin has all reasons to search for a lifeline for the Russian economy. In recent weeks, a wave of signs has shown the economy that has been equipped in Russia, which proves sanctions to be at a turning point. For the first time since the beginning of the war, the non -military economic activity was contracting, and bankers put plans to overcome a financial crisis, and energy companies are concerned about the loss of their largest customers in oil exports transported in the sea.

Nobody knows what Russian President Vladimir Putin hoped to achieve when he started a nine -hour trip from Moscow to Alaska to meet US President Donald Trump last month. But it is a safe bet that he was looking forward to avoiding additional sanctions on the Russian economy that Trump has been mysteriously threatened several times – and may get comfortable from the current sanctions or even some profitable US investment deals.

Putin has all reasons to search for a lifeline for the Russian economy. In recent weeks, a wave of signs has shown the economy that has been equipped in Russia, which proves sanctions to be at a turning point. For the first time since the beginning of the war, the non -military economic activity was contracting, and bankers put plans to overcome a financial crisis, and energy companies are concerned about the loss of their largest customers in oil exports transported in the sea.

Putin’s intensive economic problems have important effects on Western policy makers, as they start negotiating with Moscow on the future of Ukraine. Unlike the impression that the Russian leader tries to do, the time is far from being by his side. In fact, economic pressure remains the best influence of Ukraine supporters over the Kremlin. It remains to see whether Europe and the United States will choose to play the economic that still have their arms.

Understanding the real state of the Russian economy requires some serious. It is usually incredible to look at official growth statistics, which tend to undergo frequent reviews. However, the latest version of GDP does not contain interesting Nagit: the economy survived by a small difference of technical recession (it is known as two consecutive quarterly from the gross domestic product) in the second quarter, with the growth reported by 0.1 percent only after a decrease of 0.6 percent in the first quarter in the first quarter since the beginning of the war. Abstract the prosperous military sector, the rest of the Russian economy in a recession.

A quick look at the auto sector emphasizes the inner state of the civil economy. Usually, a reliable indicator of the mood of the families, new car sales decreased by almost 30 percent during the first half of the year compared to the same period last year – a sure sign of a problem in demand for consumer. The shrinkage of commercial activity exceeds car manufacturers. In July, the S&G Global Procurement Index for Russian Manufacturing – which tracks companies’ orders from their suppliers and where anything less than 50 indicates a shrinkage – in just 47 years, the lowest reading since March 2022.

The problems faced by families and companies are now threatening to spread to the Russian banking sector, and it is a particularly disturbing sign of Moscow. The rate of non -payment of all loans to individuals (such as mortgages, car loans and credit cards) increases rapidly, as it increased by 32 percent in VTB, the second largest bank in Russia, since the beginning of this year. The total delinquency rates are still low, but they are deceptive: in Russia, families who are struggling to pay loans are often negotiated with a period of grace with their banks instead of failure to pay.

Infection can soon spread to real estate. In May, the Russian Central Bank warned that the risk of a real estate accident had reached its highest level since the Foundation began to monitor it for nearly 10 years. The Central Bank has a good reason for anxiety about the potential explosion of the housing bubble. In the year until July, real estate prices for new homes increased by about a quarter in central Moscow, nearly three times of inflation during the same period – raising fears that such height could be unnecessary. In parallel, Russian families contracted for a record for 26 years. In the Russian context, the payment of loans extending over such conditions that have not been heard before is a certain mark on the high debt and financial pressure.

Bankers also worry about the loan of the shaky companies, and they tell Bloomberg They discussed rescue options with the Russian government. The central bank reported that 13 out of 78 Russian companies are not a bank that cannot serve their debts – more than twice the number from last year. The central bank expects to add two additional companies to that list later this year. It is unlikely that interest rates from the current 18 percent will decrease amid constantly high inflation, it is difficult to imagine how companies can serve the debts of services and stay on their feet.

With the presence of families and companies in the Financial Strait, VTB witnessed a decrease in the net interest income of about half in the first half of this year by the previous year. It is possible that this data is the alarm bells in the Kremlin, because Russian policy makers no longer have a lot of financial amount to redraw banks. Another process such is with a large price. In 2017, re -drawing three small banks – otkritie, B & N, and Promsvyazbank – more than $ 24 billion, about half of the current size of the remaining liquid reserves of the National Welfare Fund. Print money is not an option because it will increase fuel enlargement. Moreover, just hints that the Russian banking sector can pass an approximate correction that will be a public relations disaster in Moscow: such a position will lead to undermining the Kremlin’s account that Western sanctions have no bite.

The latest penalties from Trump Salvos on the third countries are also anxious about the Kremlin. In August, the Trump administration imposed an additional 25 percent tariff on India to punish the country for its purchases of Russian oil. Since European countries were reduced by Russian oil imports starting in 2022, India has become the largest buyer of Russian oil shipments transported in the sea. Indian oil refineries absorb nearly 1.8 million barrels per day of Russian crude, making the Indian market worth about $ 40 billion annually for Russian oil companies.

So far, Indian refineries continue to import Russian oil with a small discount. However, the Kremlin may plan for the worst scenario as New Delhi orders to stop these imports for fear of seeing their dispute with the United States. This will be a nightmare for Russian oil exporters. It seems that China, the other main buyer of Russian oil, does not want to raise imports in order to avoid excessive dependence on Russian companies. With China’s exit from the equation, it is difficult to discover other main alternative customers for Russian oil charges in the event of a loss of Indian lifeline. With Ukraine collecting long -term attacks on Russian refineries and pipelines, with 20 percent of Russian fuel production in non -connection to the Internet, the executive managers of Russian energy may not sleep these days.

Moreover, the Russian oil sector faces two other strikes-a serious situation for the sector, which usually provides about a third of the Kremlin budget and is therefore it is very important to the war effort. First, the price of the standard oil in Russia has decreased by more than 20 percent since its peak in early January, a significant weight on oil revenues. Second, the Russian robos was estimated by 41 percent against the dollar since the beginning of the year, which increases the increase in oil revenues by simply turning it into a local currency. To help renew the treasures of the Russian state, the central bank strongly tries to create any additional estimate. In order to reduce the demand for the ruble, the bank canceled the regulations last month, which required Russian exporters to re -transfer and transfer foreign currency profits.

To solve the intractable financial dilemma, the Kremlin now resort to old tactics. The value of the private assets seized by companies and individuals by the government has increased three times over the past 12 months, and has now reached a total of $ 50 billion since the beginning of the war. This amazing seizure occurred in June, when a court in Moscow ruled that the Russian state could stipulate the second largest airport in Russia, Moscow Dumodovo. To support the case, the public prosecutor argued that the airport owners were conspiring against the country by carrying foreign passports. This step was sent the cold through Russian commercial circles, where European and American passports are common.

It is difficult to conduct any types of predictions regarding the chic and results of possible negotiations on the future of Ukraine. With Western diplomats thinking about the following steps, they should remember that economic pressure could have been the only thing that pushed Putin to travel throughout the way from Moscow to Alaska. Now it is not the right time for Western leaders to make concessions on the front sanctions and give Putin the economic breathing room that affects the need. If Europe and the United States are able to maintain patient and unifying this issue, Putin’s increasing fear of the humiliating economic crisis can transfer him to the negotiating table.