The Russian economy is surprisingly small. Here’s why it’s so important to you
By Chris Isidore, CNN Business
(CNN) — Russia is not a superpower, at least not as far as the global economy is concerned.
Its gross domestic product makes it the 12th largest economy in the world according to the International Monetary Fund, about 25% smaller than Italy and more than 20% smaller than Canada, two countries with a fraction of its population.
The answer is simple: Oil and natural gas.
Russia is the world’s largest exporter of natural gas and one of the largest oil exporters. Some experts say cutting these exports could push prices of these commodities up by as much as 50% by some estimates, far more than much lower single-digit prices. price spike lived last week.
“It’s not North Korea. It’s not Venezuela. It’s not Iran,” said Josh Lipsky, director of the GeoEconomics Center at the Atlantic Council, an international think tank. “Because of the energy [Russia] exports, it is consistently important and particularly important for the global energy market.”
Sanctions announced this week against Russia included exclusions for its energy industry. Lipsky argues that if the West banned Russian energy exports, it would drive up energy prices in a way that would benefit the Russian economy rather than hurt it. He said Russia would find other buyers for its energy, like China, and it would have more money, not less.
“Yes, a ban on energy exports would seem like an extreme measure,” he said. “But would that really have the desired effect?”
Currently, European countries, which are much more dependent on Russian oil and natural gasare unwilling to take that step, said Gary Clyde Hufauer, a senior fellow at the Peterson Institute of International Economics, a proponent of tougher measures against Russia’s energy exports.
“Europe should have resorted to price controls and rationing,” he said. “It would be very unpopular. They weren’t ready to pay the price.”
Russia also has a rich supply of other natural resources, including timber and many minerals. It is the second largest producer of titanium, which is crucial for aircraft production, and Ukraine is the fifth largest producer of this metal. Boeing could be in trouble if supplies are cut, CEO Dave Calhoun acknowledged on an earnings call in January.
“As long as the geopolitical situation remains calm, no problem. If not, we are protected for a while, but not forever,” he said at the time.
But Russia is not a huge export market for Western countries. The United States exported just $6.4 billion worth of goods to Russia last year, according to Commerce Department data, which may seem like a lot but is actually less than a fifth of exports destined for little Belgium. (In comparison, U.S. goods exported to China last year totaled $151 billion.)
“Russia is incredibly insignificant in the global economy, except for oil and gas,” Jason Furman, who chaired the Obama administration’s Council of Economic Advisers, told The New York Times this week. “It’s basically a big gas station.”
And the nation that first put both a satellite and a man in space has fallen far behind the rest of the world in technology.
Russia remains a leader in military technology and artificial intelligence, not to mention cryptocurrency, Hufauer said. But it depends on imports for most other forms of technology, rather than domestic production. Sanctions on technology exports to Russia will hurt its economy.
The big question is how long will sanctions against a pariah nation last?
Lipsky and Hufauerboth believe they will be in place for years, although US sanctions against North Korea and Cuba have not necessarily been in place for several decades. And the longer the sanctions are applied, the more damaged the Russian economy is,
“Sanctions can take a long time to bite,” Lipsky said.
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