March 16, 2025: The cost of the Ukraine War and the subsequent economic sanctions have imposed strains on Russia’s economy. Its major export, petroleum, must surmount an international ban against nations that were long-term customers for Russian oil. The United States, Saudi Arabia and Russia are the three largest exporters accounting for 39 percent of the market and Russia accounts for about 24 percent of that. Overall, Russia produces only about ten percent of all oil exports. The ban on Russian oil exports did not stop them from selling their oil covertly. Their customers had to be careful how they received the Russian oil because violating the sanctions meant the guilty customers could also be sanctioned.

Russia helped with that by establishing a stealth fleet of tankers that covertly took on Russian oil and then covertly transferred it to intermediaries who, for a fee, mixed the Russian oil with oil from other suppliers. Since each oil field produced petroleum with unique chemical characteristics ,you had to either customers who checked for that or only dealt with customers who were willing to accept sanctioned oil if the discount was high enough. There has always been a market for stolen or illegally exported oil. This network used tankers that regularly took and delivered sanctioned or stolen oil and found customers willing to purchase discounted oil with no questions asked.

Another angle was to accept payment in rubles, the Russian currently rather than dollars, which is the usual currency used by international oil traders. Then there was the barter option. Russia would accept other sanctioned goods as payment. The Russian economy was hurt by losing access to European, Chinese and American suppliers. Individual companies in many nations are willing to make such deals. India has an abundance of oil consumers who are willing to take discounted oil and some were willing to trade the petroleum for other raw materials or manufactured goods. There is a vast international network of shady traders who will make risky deals if the payoff is high enough.

Russia found other ways to keep their economy going despite the sanctions. Registering companies in occupied portions of Ukraine makes it easier for illegal trades to take place because the Russian firms get away with pretending to be Ukrainian operations. This was discovered when someone noticed that the economies of war devastated regions were doing a huge amount of international business.

This sort of thing has been going on since 2014 when Russia seized Crimea and the east Ukraine Donbas region. The actual invasion of Ukraine in 2022 simply increased the severity of the 2014 era sanctions. Since the 1990s Russia has been having economic problems and in the last two decades these problems got worse. Russia admits that about a third of its population is living in poverty. Many Russians, and foreign economists, believe the real rate is nearly 70 percent. Russian living standards have suffered continuous disasters since 2013 when the price of the major export oil and gas fell by more than half and has not fully recovered. In 2014 Russia declared it was at war with NATO and Ukraine. That resulted in economic sanctions that have gotten worse since then.

When the current Russian government took power in 2000, it became very popular by keeping a key campaign promise; to reduce the poverty rate. The poverty rate fell from 29 percent of the population in 2000 to just under 12 percent in 2012. Then came economic disasters, some of them self-inflicted. By 2018 the poverty rate was 14 percent and 33 percent in 2019. In 2020 there was a local and international economic recession caused by covid19. That’s why the government's claim that the poverty rate is still a third of the population in 2021 was met with disbelief and derision. Many Russians compared that claim to something not heard since the days of the Soviet Union where official lies were the norm and denying them was a criminal offense. Captured Russian documents revealed that the Ukraine invasion was expected to be quick and profitable. It wasn’t and that made the Russians more desperate to solve the worsening economic problems.

Meanwhile more Russians were noting that China, for the first time, had a larger and more modern military than Russia. The mighty Soviet era Red Army had lost 80 percent of its manpower in the 1990s and nearly as much of its budget. That meant the 1990s Russian army was also smaller than the peacetime American army for the first time. This came at a time when China is quietly taking over the Russian Far east. The official lie is that the Russian Far East is prospering because of massive investments in infrastructure and local businesses. What the government plays down is that all of that is for turning the Russian Far East economy into something that serves and benefits only China. The new roads, pipelines, electric power production and railways are mainly to supply China. The Far East is still unable to attract Russians and more and more of the workforce consists of Chinese and North Koreans, including many there illegally or, in the case of North Koreans, as the equivalent of slave-labor. Chinese merchants and suppliers dominate the local economy and Russians fear that eventually the Chinese will act on its centuries old claims to the Far East and simply tell the Russian government it is ours and the Russian will not be able to do anything about it.

It’s not just the Russian Far east that is dependent on the Chinese economy for survival. All of Russia does now and that is not a popular situation. It’s not a new problem either. Back in the 1960s Russia seriously considered launching a nuclear attack on China before it became a major threat. The American warned Russia to not ever try that. Russia fears China, just as World War II Japan feared Russia. In both cases Russia agreed to be a bystander, at least until it was clear who was losing.