Russia Over the Long Term

 Much ink has been spilled arguing about the impact of sanctions on Russia using such evidence as the "price" or the Russian rouble or GDP figures that turn on the sales volume of exported energy products, but these metrics don't offer much insight into the strength of Russia's ability to sustain itself while antagonizing the world's democracies with renewed imperialist ambition. (This article won't describe those ambitions; anyone interested in them is well served to read Putin's speeches going back the last few decades to appreciate his longing for the era of Stalin and his hope to return Russia to a similarly feared global power of similar size and international influence.)

What's wrong with looking at the price of the rouble to understand the nation's economic strength? The question one might ask is, whose price? The price available in a free market can hardly be assessed in Russia, where post-invasion law promptly forbade forbade banks and brokers to sell dollars, euros, and other foreign currencies to rouble-paying buyer. If you can't sell roubles, how do you know its price? Russian gaming of currency didn't end there, either. Despite having long-term contracts that required Russia to supply energy products to foreign buyers in currencies such as the euro, yen, or dollar, Putin declared that all purchases would be made in Russian roubles or not at all. Basically Putin declared the power to unilaterally change contract terms at a whim and held energy products hostage to enforce it. The upshot is that nobody knows what the rouble is worth in a free market because there is no free market in roubles after Russia's invasion of Ukraine. Nobody who wants to bail out of roubles can. Indeed, nobody who wants to bail out of Russian assets can: foreigners can't sell stock on Russia's exchanges, they can't sell their interests in Russian energy programs, and they can't liquidate any proceeds they do have in local currency in order to leave with their own currency.

Russia simply seized Western investment. Since nobody will be selling it for foreign currency, the "market" in Russian assets, firms, and currency will not depict the exodus.

What will?

Production.

A look at Russia's production of domestic cars yields some insight into the effect of Russia's policies on Russia's ability to produce passenger cars. The year ending March 2023 shows Russia's automotive production suffering a short-term near-halt, with eventual recovery to about one third of the nation's pre-invasion:

Automobiles don't really show the whole range of Russian production capability, but consider the non-mobilized population of Russia and its interest in normal life. With foreign auto makers bailing out of Russian production partnerships and halting export to Russia, Russians face the alternatives of domestic production or imports from Chinese firms which Russians historically avoided. Although Russian auto sales plummeted over 60%, Chinese share of those sales more than tripled to nearly a third of Russia's ailing auto market. Soviet-era auto brand revivals feature Chinese designs and key components.

As interesting as the evolution of seized foreign plants into Russian production centers may be, the story of Russia's consumer vehicle market isn't the story of Russian GDP. Consider something closer to the priorities of Putin's war machine: trucks required to support war logistics. Russia actually needs trucks to re-establish the empire Putin imagines in his fantasies. Trucks have a certain priority. Before Russia's invasion, a February 2022 estimate foresaw Russia's commercial vehicle market growing at over 3% per year through 2028 on the strength of joint ventures with foreign firms bringing their expertise to the Russian market. The dislocations described above killed growth in Russian commercial vehicle production just as the war in Ukraine destroyed thousands of trucks driven by Russia to lose in Ukraine:

Outside the realm of trucks, Russians find themselves relying on suddenly slower, costlier, and more tenuous supply lines for foreign goods ranging from perishable food items to teabag paper.

Given that Russia now apparently depends on China for its domestic supply of automobiles and trucks, one must ask where Russia is getting the money to pay China for the exported parts. Here, at least, there is no mystery: exported raw goods, primarily in the form of energy products. With the departure of experienced foreign operators, Russia's gas production has already fallen 10% in the last year. Gas is kind of a problem, because its existing pipelines to China won't take more volume and Russia lacks the ability to create LNG terminals to shift gas production to export by ship. Making big capital investments isn't really the style of the Russian empire: it expects others to make the investments on which it depends. By contrast, Russia's oil exports have declined only slightly since its invasion of Ukraine:

Russia is selling all the oil it can to the closest buyers it can manage, because each round trip with an oil transport ship to Europe took something like one week whereas it can take months one-way to India. There's not enough ships to handle all Russia's export if Russia ships oil to India, and Europe has slammed the door on it. It turns out that China is close. And it doesn't matter so much what currency China pays for oil, as Russia must immediately pay Chinese firms that same currency to buy the auto parts, computer chips, cell phones, automobiles, drones, communications equipment, food, and everything else Russia imports from China. 

By reducing itself to a raw good supplier and a finished goods buyer, Russia has remade itself into, in effect, a colony. China, recognizing this, has approved a new map model that renames Russian border cities with old Chinese names (e.g., Vladivostok swapped for Sea Cucumber Bay ("Khaishenvai")), and is already publishing the new maps. Border territories are also renamed. Xi does to Putin what Putin does to former Soviet republics: he's reneging on border-fixing deals Yeltzin made in the '90s. 

Putin can hardly object: he's rendered Russia so wholly dependent on Chinese matériel and funds that he's got to accept what China offers. A Chinese-speaking informant who saw Putin appearing with Chinese officials noted that the Chinese translation of Putin's remarks appeared to suggest the entire speech had been written by the Chinese, as the Chinese text veritably drips with language of a vassal addressing his emperor. Putin either accepted this, or he's an oblivious fool. And it doesn't matter which: he's helpless. Russia no longer poses a credible threat of projected military power. China will enjoy this for a while, no doubt, observing the developments in Ukraine, before taking action. However, Russia will have no practical ability to oppose China when China starts changing street names and flags in former Soviet lands that interest Xi. 

As Russian population has failed to keep Russian resources productively employed, Chinese have taken over former Soviet farms and now own and live on land in Russia. There aren't a lot of ethnic Russians in the eastern reaches of what is left of Russia's empire, so the takeover is already well underway. Putin's Russia endures like a frog in a heating pot: at the sufferance of a chef who's already got the rest of the dinner cooking.