Is Russia about to REVOLUTIONISE its Maritime Trade?

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Video originally published on June 15, 2024.

This analysis examines Is Russia about to REVOLUTIONISE its Maritime Trade? in historical and strategic context. It traces how the core developments unfolded, which institutions and actors shaped outcomes, and what those decisions changed on the ground. Rather than repeating headline-level claims, it focuses on concrete mechanisms, constraints, and tradeoffs that explain the trajectory of events. The discussion moves from Key Developments through Strategic Implications to Risk and Uncertainty, then evaluates wider consequences. The goal is to clarify not only what happened, but why these developments still matter for current planning, risk assessment, and policy decisions.

Key Takeaways

What was expected to be a short Russian victory has proven to be anything but.
How has it done this, so far? And does Moscow have an ace or two up its sleeve that it has yet to play?
We don't have newer data, as according to reports by the Wall Street Journal, the Russian government stopped publishing precise economic data since it invaded Ukraine.
The lack of data means it's hard to ascertain the true impact of global sanctions on Russia, and we can only go by context clues inferred through trading Russia does with other countries.
However, China and India have their own oil refinement operations and are therefore more interested in buying Russian crude oil, the stuff that comes straight out of the ground, than the more expensive refined products like petrol and diesel.

Key Developments

What was expected to be a short Russian victory has proven to be anything but. In the north-east, Russian troops are pushing towards Kharkiv whilst the meatgrinder in the south swallows everything that enters it. The Kremlin are simply not ready to abandon the idea of total victory despite haemorrhaging soldiers, equipment and crucially, cash. That's a good point, isn't it. How is Russia able to keep its foot on the gas in Ukraine when western sanctions, according to some, should have crippled its economy months if not years ago? We all know the Kremlin has deep pockets, but how can it continue to sustain its war efforts despite the sanctions its faced? We all know the Kremlin has deep pockets, but how can it continue to sustain its war efforts despite the sanctions its faced? How has it done this, so far? And does Moscow have an ace or two up its sleeve that it has yet to play? Whilst the sanctions placed on Russia by the international community were expected to cripple the Russian economy within weeks or days, their war effort in Ukraine is still going strong as of mid-2024. In fact, The World Bank estimates the Russian economy shrunk by only 4.5% in 2022, with the International Monetary Fund (IMF) putting the figure at 2.1%. We don't have newer data, as according to reports by the Wall Street Journal, the Russian government stopped publishing precise economic data since it invaded Ukraine. The Kremlin did this, in all likelihood, to hide the effects of the sanctions whilst leaving Western governments in the dark. Nobody can truly know the state of the Russian economy, except those with access to the numbers, and therefore any comment on the Russian economy itself can only ever be clever guesswork. This “statistical void” also allows Moscow to saturate the informational environment with the Kremlim's narrative that the sanctions are harming the west more than Russia. This is only further backed up by Russian President Vladimir Putin stating at a recent event “We have growth, and they have decline”. In the absence of concrete figures to prove otherwise, these kinds of arguments take hold very easily in Western media. To learn more about how Russia manipulates the informational environment, video on the topic. The lack of data means it's hard to ascertain the true impact of global sanctions on Russia, and we can only go by context clues inferred through trading Russia does with other countries. Although nations like Iran and North Korea, who Russia have collaborated with extensively to help its war effort, are not exactly forthcoming with information either. This also wouldn't account for secret under-the-table deals and black-market trade. So regardless of what we do or don't mention here, nobody outside of the Kremlin has the full picture.

Strategic Implications

How has it done this, so far? And does Moscow have an ace or two up its sleeve that it has yet to play? Let's find out. Has the Ruble been rumbled? Whilst the sanctions placed on Russia by the international community were expected to cripple the Russian economy within weeks or days, their war effort in Ukraine is still going strong as of mid-2024. In fact, The World Bank estimates the Russian economy shrunk by only 4.5% in 2022, with the International Monetary Fund (IMF) putting the figure at 2.1%. There is a self-imposed, economic “fog of war” that has settled across the country and Moscow is taking full advantage by lurking in the dark. So, what can we learn about the Russian economy at present? We know that Russian financial institutions have done an incredibly effective job at tilting the Russian economy away from disaster. We also know that the sanctions have a few blind spots. Even though the sanctions were designed to be much like a net, suffocating the Russian economy's ability to wage war, the net has some pretty sizeable holes. In theory, Russia should not have access to western goods and services. After the outbreak of war, hundreds of companies left Russia, but not all of them. According to the BBC, PepsiCo is accused of continuing the sale of food items in Russia. Meanwhile, some airlines like Air Serbia, Belgrade's flag carrying airline, continue to openly advertise flights to Moscow and Saint Petersburg. The BBC also tells us that British-Swedish company AstraZeneca, yes, the one that manufactured the COVID-19 vaccine, continues to operate there but have halted any investment. Researchers at King's College London state that Russia can buy Western goods via other countries like Belarus, Kazakhstan and Georgia. Not only has this ensured a steady flow of barred goods into Russia, it also has had deadly results, with the Guardian reporting that drones used by Russia on Ukrainian soldiers sometimes have contained western components obtained commercially. Russia also has what is referred to by geopolitical thinktank The Atlantic Council, as a “shadow fleet” of roughly 1400 oil tankers. This is to keep up with the 8.3 million barrels of oil a day that Russia is exporting, according to the BBC. These boats lack proper insurance, have unknown owners and register for multiple different countries' ship registries, also known as “flag hopping” to avoid detection. The Financial Times indicates this has largely worked. Russia has been able to sustain selling oil at a higher price than the G7's $60 a barrel price cap that was imposed in December 2022. In fact, according to the IMF's estimations, Russia's economy actually grew by 2.2% in 2023 and has grown by 1.1% so far in 2024. So, is it plain sailing for Russia?

Risk and Uncertainty

We don't have newer data, as according to reports by the Wall Street Journal, the Russian government stopped publishing precise economic data since it invaded Ukraine. The Kremlin did this, in all likelihood, to hide the effects of the sanctions whilst leaving Western governments in the dark. Nobody can truly know the state of the Russian economy, except those with access to the numbers, and therefore any comment on the Russian economy itself can only ever be clever guesswork. This “statistical void” also allows Moscow to saturate the informational environment with the Kremlim's narrative that the sanctions are harming the west more than Russia. This is only further backed up by Russian President Vladimir Putin stating at a recent event “We have growth, and they have decline”. In the absence of concrete figures to prove otherwise, these kinds of arguments take hold very easily in Western media. Have the sanctions really not had a tangible effect whatsoever? Russia is fighting a very expensive war where millions of dollars' worth of equipment is being destroyed daily. This gives us a context clue in and of itself. The older equipment we have seen on the battlefield, such as early Soviet-era tanks for example, indicates that Russia doesn't have an extensive stockpile of modern equipment to pick from. They also don't have the ability manufacture more easily due to the immense cost, the complex components required and a shortage of expertise in Russia. This would explain why Russia needs to buy drones from Iran and artillery shells from North Korea, they're trying to bridge the shortfall. The sanctions make Russia's war efforts extremely expensive and the longer it goes on, the more money Russia will haemorrhage in the long term. This, in part, is why the Kremlin is so desperate to stop the West supporting Ukraine economically. Russia also only has access to half of its central reserves to fund the war effort. This equates to around 330 billion dollars. The other half was seized by the West when Russia invaded Ukraine back in February of 2022, as it was held in foreign currencies in foreign markets. What this means, is even if the Kremlin tried to access that money, it couldn't. Whilst 330 billion dollars is a sizeable war chest, it is not infinite. Nor is Russia actually able to use it all, as Moscow needs to hold onto its stakes in foreign currencies, such as Chinese Yuan and Indian Rupees, in order to continue to purchase goods from their markets. A lot of their current reserves are not “liquid”, meaning they cannot easily be converted into cash without a significant loss. A good example of this is that just under half of Russia's accessible reserves, 145 billion dollars, is held in physical gold within Russia.

Outlook

The lack of data means it's hard to ascertain the true impact of global sanctions on Russia, and we can only go by context clues inferred through trading Russia does with other countries. Although nations like Iran and North Korea, who Russia have collaborated with extensively to help its war effort, are not exactly forthcoming with information either. This also wouldn't account for secret under-the-table deals and black-market trade. So regardless of what we do or don't mention here, nobody outside of the Kremlin has the full picture. There is a self-imposed, economic “fog of war” that has settled across the country and Moscow is taking full advantage by lurking in the dark. Russia's oil – while also being a literal physical liquid, economically has more “liquid” characteristics than gold. This makes oil sales critical for the Kremlin to keep a positive cashflow. Reuters reports that Russia needs to keep selling oil at a favourable rate, around $80 a barrel, in order to be comfortable. It also reports that Russia's “National Wealth Fund”, a fully liquidised rainy-day fund to use in emergencies, has dwindled during the war. The Atlantic Council puts Russian oil losses at around 45 billion dollars, with natural gas adding another 30 billion dollars in losses. The Kremlin has had to spend trillions of Rubels to cover the shortfall, it simply isn't sustainable forever. The going rate for Urals crude oil, as of May 2024, is around $68 dollars a barrel, its lowest point since January and below Russia's rate of comfortability, even with its shadow fleet. If the price drops below $60 a barrel, things could get very difficult for the Kremlin. For Moscow, the war has to continue regardless of the cost, but if oil prices continue to fall it could send the Russian economy into a spiral. The hike in energy prices after the war began has benefitted the Russian economy, driving up demand and therefore the price of oil, but this is not a magic bullet for Russia's economic difficulties and they are at the whim of a resource that is extremely volatile. What goes up, can also come down. It is important to remember Russia is being sanctioned by most of the Western world. Even countries like China and Turkey, who have cooperated heavily with Moscow in the past and are currently buying Russian oil, have introduced measures to stop sanction dodging via their own countries. This is likely due to the fear of them being branded as war enablers by the international community and getting sanctioned themselves. The point is, despite the shadow fleet, the sanctions make it much harder for Russia to continue as normal. Russia has another oil problem though: countries like China and India have stepped up, buying a lot of oil to help make up some of the lost European revenue.

Russia's Maritime Trade Challenges Under Western Sanctions

However, China and India have their own oil refinement operations and are therefore more interested in buying Russian crude oil, the stuff that comes straight out of the ground, than the more expensive refined products like petrol and diesel. This wouldn't usually be an issue, most of Russia's oil exports have always been crude, but the EU market, according to Reuters as of 2021 made up 51% of total Russian oil exports, 16% of which was in other more expensive petroleum products. By 2024, the EU market officially makes up 0% of Russia's oil exports. As stated, India and China are trying to fill the gap, but there is no way for them to entirely cover the pre-war EU market loss, and a lack of interest in anything other than crude oil makes it even harder. China and India benefit the most from this deal. The Economist reports that India and China are refining the Russian crude they do buy and selling it on to Europe for a considerable profit. Similar to its issues in war manufacturing, Russia doesn't have the refinement capacity, the equipment, nor the expertise to upscale their refinement en masse. Even if they did, their main buyers for oil aren't interested in it. The rate for oil back in the second half of 2022 was over $80 a barrel, but now that it's nearer to $68, it cuts Russian oil revenues significantly, a cut they can't afford if they want to sustain their war efforts long term. Russia has also played its hand in terms of energy warfare, with Europe disconnecting from Russian oil and gas almost completely, they no longer have the power to affect the supply and demand of the market like they did at the start of the war. In short, they've lost their advantage. If another oil rich power, such as the western-supported Saudis, decided to further drive global oil prices down by upping their own production, Russia's economic lifeline could be starved. According to the BBC this is already affecting areas of Russia. It reports that the Kremlin is prioritising population centres, with economic cuts focussed in more rural areas. Major urban centres are more likely to be hotbeds of uprisings and with the Kremlin's number one priority being regime security, they must quell revolutionary risks at all costs. Al-Jazeera reports 36,000 rural villages in Russia house fewer than 10 people and 20,000 more are abandoned. All of this dictates that Russia can only keep this strategy going for so long, but nobody knows just how long. So, what does all that mean? Is the Russian economy struggling or not? The truth of the matter is nobody can know for sure.

Historical Context: Russia's Arctic Presence and Maritime Ambitions

The Russian economy is hardly in freefall for now, as we stated, the IMF projects it to grow for the second year in a row. However, with its trade severely curtailed and its energy advantage slashed, the Kremlin must be ready to seize any opportunities that come its way, as it is on an unsustainable economic path. Putin has secured Russia in the short term, but he needs a long-term plan to stave off economic disaster. But what is there to do? To the east is the vast Pacific Ocean, to the south, a myriad of allies and enemies it can't rely on, and to the west is a metaphorical hornet's nest in Europe. That leaves only one way to go…. The Bear in the North – Russia's Arctic Operations It goes without saying that the Kremlin sees the Arctic as a key area of strategic importance, given its proximity to the Northern Atlantic Ocean, the Bering Sea, Canada and of course, the United States. However, few people today recognise the true power that Russia holds in the frozen north. Russian President Vladimir Putin himself has driven the agenda in the Arctic. It is no coincidence that in 2001, towards the beginning of Putin's premiership, Russia made a claim to part of the Arctic continental shelf via the UN. Not to mention, the Centre for Strategic International Studies (CSIS) states that the “conquering of nature” is a key element of the modern Russian nationalism that Putin propagates. But Putin's interests in the Arctic aren't solely a part of a mythological desire to challenge mother nature, as much as he might prefer his enemies to believe so. No, Russia's Arctic strategy represents the only thing that Putin values more than his nationalist stance, the security of his regime. Here explain how over the past two decades Russia has been expanding its capabilities in the Arctic, with a three-fold strategy to project power in the Northern hemisphere, expand Russia's economy and crucially, protect the motherland. Russia's presence in the Arctic is one of, if not the largest of any country on earth. Their maritime Arctic territory extends from the Kara Strait in the west to the Bering strait in the east, covering approximately 3,500 miles or 5,600 kilometres. This makes up a large part of what is now known as the “North Sea Route” (NSR) for trade. Until the mid-2010s, when European cargo ships wanted to travel to China, ahead of them was a 20,000-kilometre journey into the Mediterranean, through the Suez Canal, past India and the Bay of Bengal, through the Indonesian Strait of Malacca and finally into the South China Sea.

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Jackson Reed

Jackson Reed creates and presents analysis focused on military doctrine, strategic competition, and conflict dynamics.

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