Things are escalating little by little as each day passes in the Russia-Ukraine crisis. The West has hit Russia with economic sanctions but how well is the country prepared to handle them?
Russia's economy stands at $1.7 trillion. To put it in context, this makes Russia the 5th biggest European economy and 11th largest in the world. Given its huge landscape, the country has a large number of natural resources. In fact, the country is an energy powerhouse. It is the world's largest exporter of Natural Gas and the second largest when it comes to crude.
The above chart shows the first impact of the sanctions on Russia. However, it's not all that bad. Russia has $630 billion in FX reserves and a foreign currency debt of just 18% of its GDP. While the central bank of Russia can no longer offload its Treasuries, Russia had actually sold off the majority of this US debt held in reserves back in 2018. Source. In fact most of the foreign reserves are held in Gold and Gold has probably returned them more money since 2018.
As far as the local economy is concerned, Unemployment is at 5%, which is OK for a country such as Russia, the country's GDP has been growing in the last few years and there shouldn't be any domestic issues from this fallout in the coming months. Russia also has a current account surplus. Russia's largest trading partners for both its exports and imports are China & European Union. I doubt Russia-China trade will be impacted as a result of the sanctions. In fact, Russia and China have been settling their trade in local currencies since the last year. Source
In the first half of 2020, bilateral trade settlements between China and Russia in the US dollar fell to 46 percent from 90 percent in 2015, while deals settled in the yuan and ruble jumped to 24 percent, a report by Renmin University of China showed last year.
The EU will be forced to cut-off ties with Russia so that trade will be impacted. Russia is the biggest exporter of essential commodities - Wheat, Oil, Natural Gas, Fertilizers, Nickel, and Iron; whereas it imports mostly non-essential items. Among its largest imports and exports, 50% of the trade is with China. Source Along with that, large foreign exchange reserves in Gold mean that Putin is not too concerned about sanctions at the moment.
A lot has changed since the Crimea annexation and Russia is not the same from an economic standpoint, as it was in 2014. They have enough economic cushion to continue with their attack on Ukraine.
The concern for me is the daily escalations little by little. Everyone was expecting the war will not happen but it did. Now Russia has put nuclear deterrent forces on high alert. While we all hope sanity to prevail and this to be seen as a psychological move, escalation means that every side moves a little and then things get out of control. While Russia may be financially ready to fight this war, the world is not ready for anything serious!