Interviewer: Following Russia’s invasion of Ukraine in 2022, the country faced significant sanctions from the West. Despite attempts to shift to a wartime economy, Russia is dealing with frozen foreign reserves and technological barriers. Some experts argue that irrespective of the war’s outcome, Russia is likely to be the biggest loser. What are your thoughts on this viewpoint?
Anders Aslund: I recently discussed this on Project Syndicate. It’s fascinating to see how President Putin and his inner circle claim these sanctions have made Russia stronger, yet they still advocate for their removal.
Interviewer: Some critics assert that the Western sanctions haven’t had much impact, while others argue they aren’t effective enough. What’s your take on the effectiveness of these sanctions?
Anders Aslund: I believe the current sanctions could potentially shrink Russia’s GDP by 2% to 3% annually, driving its economy toward stagnation. The outlook for Putin appears bleak, which could even restrict his ambitions in Ukraine.
Interviewer: What are the implications for Russia’s financial stability?
Anders Aslund: As of March this year, Russia’s sovereign wealth fund liquid reserves have plummeted from a high of $183 billion in 2021 to merely $55 billion, representing just 2.8% of its GDP. A significant portion of these funds is tied up in illiquid investments. As a result, since the invasion, Russia has capped its annual budget deficit at 2% of GDP. With Russia’s GDP at about $1.9 trillion, this means an annual deficit of roughly $40 billion. This situation suggests that their foreign exchange reserves may be depleted by next year.
Interviewer: Turning to the situation in Ukraine, political science professor John Mearsheimer from the University of Chicago recently shared his views in an interview with Chinese media. He suggested that Ukraine might struggle to survive past 2025 and that the war could end by early next year, potentially transitioning into a “frozen conflict.” What are your thoughts on that?
Anders Aslund: Mearsheimer is a prominent figure in international relations, and his insights suggest that Ukraine could devolve into a dysfunctional state, losing substantial territory along the way. He argues that a viable resolution to the crisis hinges on two straightforward conditions: ensuring Ukraine does not join NATO and maintaining its neutral stance. However, at this juncture, it seems the U.S. is more focused on Ukraine’s NATO membership than on fostering its neutrality.
Interviewer: It certainly sounds like the geopolitical landscape is incredibly intricate right now. Thank you for sharing your insights.
