There are more than 16,000 sanctions imposed against Russia, 11,000 of them aimed at individuals. Forty six hundred at entities including financial institutions and the remaining directed at ships and aircraft. European airspace is close to Russian planes and hundreds of western companies have pulled out of Russia completely. Western sanctions against Russia should have crippled the economy. It should have stopped Russia’s military. It should have crashed Russia’s currency. But remarkably, none of this has happened. If you go to Russian grocery stores, the aisles are full, prices are low, and people are living a normal life. Despite famous western brands pulling out of Russia completely, their latest products are still on the shelves of new stores like this one, selling the latest iPhones and Macbooks.
So how did Russia do it? How could any country in today’s day of age survive a record 16,000 sanctions? What’s even more challenging for western countries to figure out is how did the Russian economy grow by 3.6% last year? Better than any G7 country, and is now forecasted to grow an additional 2.6% this year.
Of course, it’s no secret by now that Russia has shifted to a wartime economy. For the first time in modern history, Russia is set to spend 6% of its gross domestic product on the military as defense spending will exceed social spending in 2024. The war in Ukraine is not only the Kremlin’s biggest priority, it is now also the main driver of Russia’s economic growth at a time when Ukraine’s President Zelensky is scrambling to acquire arms, funds and recruits, Putin seems confident that he can win the war on his conditions.
Meanwhile, some of the most prominent American geopolitical voices are starting to say the hard part out loud. Steven Wall, a professor of international relations at Harvard University, recently advocated in this article for Foreign Policy that NATO should not accept Ukraine for Ukraine’s sake. I also recently sat down with Colonel Douglas McGregor, the former advisor to the US Secretary of defense, who shared this insight about Zelensky, the.
Zelensky regime in Kiev. Because I reject the notion that Zelensky is the popularly elected leader of Ukraine. I have serious doubts about that. I don’t think he enjoys much legitimacy inside his own country anymore. He’s widely hated, but he’s also widely feared because of the Ukrainian secret police that threatens anybody that challenges Zelensky. He is now a fatally wounded animal. He’s dying. His regime is dying. Ukraine is defeated. And as a result, he’s striking out in any way that he can as a last gasp effort to. 1 persuade people that there is some life left in his regime, too, that he could miraculously recover and win. And 3, as a matter of personal vengeance for what he thinks is being done to him.
While the future of Zelensky in Ukraine remain uncertain, we know Russia will be led by Putin for the foreseeable future. So how have 16,000 economic sanctions from some of the most powerful countries on earth fail to derail him? The answer might surprise you, but if you’ve been watching the precious metal market over the past few months, you’ll have seen the price of gold continues to shatter all time highs. The answer is Putin started using an incredible gold strategy. He stole from the United States in order to bypass economic sanctions, which ironically was led by the US it’s actually a very interesting case study on global economics, but one you can also implement in your own investing portfolio, but more on that later. In order for western led sanctions to be successful, they needed to be strategic, targeting the environment. It works in the economic sanctions from the west targeted shipping and trade into Russia. But the gold market is a massive market that was completely left untouched from western sanctions. According to the World Gold Council, Russia is now the second largest producer of gold at 324.7 metric tons in 2023, which only trails China at 374 metric tons. What’s more, Russia is forecasted to increase gold production by 4% a year until 2026.
Here is something you probably haven’t heard in western media before, but something the Carnegie Endowment for peace published just a few weeks ago in this article entitled why Russia has been so resilient to western export controls. Incredibly, Russia has been preparing for economic sanctions since 2013 and manage to isolate its economy from transactions requiring US dollars. Once again, when you break down the facts of what’s happened with these economic sanctions, it’s incredible how ineffective they’ve been in stopping Russia’s growing economy.
Let’s take semiconductor chips, for example. Russia’s domestic chip market is both outdated and undersized. In theory, western sanctions should have crippled Russia’s tech industry. Russian factories operated 65 nanometer chip technology, which is about 15 years behind the US thought that they had Russia trapped in a corner. There was no chance for Russia to develop these chips domestically by cutting off Russia’s access to the newest chips, that should have been it. Russia’s tech industry should have been over. Its military couldn’t possibly build more armory and advanced weapons. The west will win and Russia will be defeated. But none of that came to fruition. And within one year, Russia’s tech supplies have rebounded to pre war levels.
So how did Russia pull this off? They did so by using a three point strategy. First, Russia started importing run of the mill computer chips and components found in consumer products that often come from US manufacturers but are rarely subject to export controls. Second, Russia used a third party network of traders who have access to components for tanks, missiles and drones. And third, Russia took advantage of changing geopolitics. The shift we’ve seen around the globe, moving from a unipolar world controlled by the US to a multipolar world with multiple superpowers gave Russia incredible leverage. Countries like China, India, Turkey and the United Arab Emirates all chose to ignore western sanctions and not only sustain trading ties but expand them. No surprise here, but the country benefiting the most from this expansion and trade was China. In 2020, the total trade value between Russia and China was valued at $107 billion. But fast forward to 2023, and the total trade value between these two strategic partners is now valued at $240 billion, 124% increase in just three years. Half of Russia’s oil and petroleum was exported to China in 2023. And according to Chinese customs data, Russia is now China’s top oil supplier. But if you think imports to Russia are only coming from countries like China and North Korea, think again. I’m filming today’s video in London and whilst reading the times this morning, a new story broke out on the details of how British luxury cars are still being sold in Russia despite sanctions, whilst the UK government stood in alliance with the US by imposing economic sanctions once again. Profits in the chance to cash in among Russia’s elite wealth was just too much of an opportunity to pass. Rolls Royce and Bentley shifted their focus to neighboring countries and started importing their luxury vehicles to Belarus, Armenia, Azerbaijan and Kazakhstan. Now look at the trade numbers and it will shock you. The number of Jaguar Land Rovers ship to Kazakhstan has increased by 5,190% since before the Russian invasion. Meanwhile, UK car exports to Azerbaijan have increased 795%. Verse pre invasion, there were certainly a time in history where economic sanctions carried much more weight and consequences. But in today’s global economy, it seems sanctions are effectively useless. But now let’s break down the economic strategy Putin stole from the United States and how he used it to stabilize his currency an economy. In 2022, Putin decided to peg Russia’s currency, the ruble to goal 5,000 rubles was the standard and can be used to purchase one ounce of gold. Of course, the United States was the last major economy to use the gold standard. The US dollar used to be one of the most stable and valuable currencies in the world, but the purchasing power of the dollar is decreasing every year and has only accelerated even more in recent years with rising US inflation. Usually, the rationale for holding on to gold reserves is to use them to settle foreign transactions at both home and abroad. Gold can be swapped for currencies to settle transactions and then swapped back into Boolean because the world is filled with so much uncertainty and instability, central banks around the globe are stockpiling the asset. Over 1,073 metric tons of gold were purchased in 2022 alone. 2020.