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Russia’s GDP contracted for the second quarter in a row, felling by 4 per cent year on year as the western response to Moscow’s invasion of Ukraine helped plunge the economy into recession. And even inflation is very high in Russia having reached 12,9 per cent in October. Thus, the preliminary data released by the federal statistics service, Rosstat, highlight once again that Russia is not benefiting from the war, that is isolating Moscow at least when it comes to strategic cooperation with the West.

With the EU decoupling from Russia in all ways, including a permanent energy decoupling, Russia is losing a very important economic partner. Exporting large amounts of natural gas to non-European countries is not an option for Russia in the near term: over 90% of Russia’s gas is transported by pipeline, and most of Russia’s pipelines connect to markets and refineries in Europe.
Furthermore, Russia’s isolation is damaging Russian people, namely its youngest generation that could have enjoyed travelling and interacting with many peers in Europe while now could even be involved in forced conscription.

Russia has seen an exodus of over 1,000 global companies and international sanctions: from global businesses to luxury brands, Moscow could loss even many of its best and brightest workers as a result of sanctions. Foreign car sales in Russia have fallen roughly 95 per cent, said a recent Yale’s University quoted in Foreign Policy. Their analysis found that fleeing foreign investment prompted a mass exodus of 500,000 people, most of them highly skilled, educated workers.

Increased brain drain will also reduce the country’s human capital, particularly at the high skill level. Despite Putin’s delusions of self-sufficiency and import substitution, Russian domestic production has come to a standstill with almost no capacity to replace lost businesses, products and talent. This situation has even led to soaring prices and Russian consumer angst and anxiety. All these factors could in the medium long term boost Russian citizens opposition against the war, together with the poor results apparently coming from the military on the ground in Ukraine.

With a deep  economic recession and a increasing opposition among the population, sooner or later the Kremlin should open concretely the doors of peace negotiation.

Written by: Valerio Palombaro