Russia and North Korea: two sides of the same coin

In 2023, the Russian economy will continue to turn inward, with Moscow moving closer to the North Korean economic model, and Russian President Vladimir Putin will finally arrive at a regime where no one can replace him, with oil he cannot sell. and rubles he cannot use.

With Western sanctions imposed after the invasion of Ukraine, Russia can no longer import what it needs to keep its economy afloat. Foreign investors are scarce, a large fraction of the country’s elite has emigrated and the price of Russia’s main export product, oil, has fallen sharply.

The war led by Vladimir Putin has isolated the country on the international scene, and this withdrawal of the Russian economy is expected to accelerate further in 2023, with Moscow moving closer and closer to the North Korean economic model.

The invasion of Ukraine has cost Russia, which relies heavily on the export of oil and gas, dearly. Even if the high prices observed at the start of 2022 supported the country’s finances, the rest of the world adapted quickly, by modifying its sources of supply and, in certain cases, like that of the United States, by exporting more. The price of Russian Urals crude oil has already fallen 40% from its March 2022 peak, and Russia may now run out of resources to cushion the blow of the recession on its people.

Today, the Russian economy is taking the hit. In October 2021, the International Monetary Fund (IMF) predicted 2% growth for the Russian economy in 2023. Today, the agency predicts a 2.4% decline in the country’s GDP, following a contraction of 3 % in 2022. Based on the ruble exchange rate in 2021, this translates into a loss of GDP of some $200 billion.

This will contribute to aggravate the already difficult financial situation. Indeed, the country’s spending has jumped by more than 20% in 2022, mainly due to an increase in defense spending estimated at some $53 billion by economists at the Bank of Finland. The Russian government had to dip into an emergency fund to fill the first budget deficit Russia has faced in many years. It will be increasingly difficult to maintain the convertibility of the ruble into other currencies.

In response to this, Vladimir Putin has already tightened his control and that of his government over the economy, demanding to sign the sale of assets by Western companies in the banking or energy sector. State-owned companies or banks, as well as Kremlin-friendly oligarchs like nickel tycoon Vladimir Potanin, have already bought up banking or industrial assets at low prices, a trend that will only grow stronger.

Far from the scrutiny of foreign investors, Russian companies will be free to take to the next level the rampant corruption that has held back economic development for years. And the Russian president will be able to finalize the installation of a mode where it is irreplaceable, and which has oil which it cannot sell and rubles which it cannot use.

Russia and North Korea: two sides of the same coin