EU says sanctions have 'melted' Russia's ability to finance war, but China and Turkey are helping it bypass the lockdown. The most painful EU sanctions hit the energy and banking sectors, according to an internal EU Commission report dated 10 October, seen by EUobserver.

“Markets are withdrawing from trading in Russian oil months before the EU import ban comes into effect.. Only two-thirds of previously purchased volumes in Europe are redirected at a significant discount of about $25 per barrel,” the EU report says..

Thanks to a temporary spike in energy prices earlier this year, Russia's budget surplus was 500 billion rubles (8 billion euros) in the first half of the year.. At the same time, already in August, oil production fell by 10 percent, and gas production fell by 22 percent year on year, while the surplus fell to 137 billion rubles..

“EU embargo on oil and oil products [due to come into force in December]. combined with a multilateral oil price cap, would significantly reduce Russian export revenues and further cloud the country’s economic outlook,” the report’s authors add..

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With all but one major Russian bank blacklisted by the EU, Russian lenders have closed 670 offices due to significant stress in the sector.

Consequently, the Kremlin will need to recapitalize banks with additional injections, which could amount to about 2 trillion rubles..

At the same time, a very small number of international investors were interested in purchasing Russian bonds.

“Domestic issuance remains perhaps the only source of funds for the Kremlin, but due to the decline in income and problems brewing in the banking sector, demand will inevitably remain weak,” the commission noted..

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As a result of the war and sanctions, Russia has entered a recession that could last for a long time.. The plans of the Russian Ministry of Finance to cover the budget deficit in the next three years through domestic borrowing do not look plausible.

Meanwhile, economic calculations are directly related to the situation at the front in Ukraine, because if Russian President Vladimir Putin is unable to finance a multi-year siege, he will be forced to change military tactics..

EU sanctions also blocked €90 billion of Russian exports to Europe, causing Russian steel production to fall by 30 percent and sawnwood production by 90 percent..

Blocked 30 billion euros a year of high-tech and industrial EU exports to Russia, undermining the ability of factories to produce basic consumer goods, including cars, refrigerators and washing machines..

In addition, the EU countries have frozen the assets of Russian individuals in Europe in the amount of 17.4 billion euros, which causes even more damage..

Approximately 40 percent of the approximately 3,000 foreign companies operating in Russia have left the country or plan to leave. This resulted in the loss of 540,000 jobs.

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China and Turkey.

The EU analysis comes after Yale University research in the US came to similar conclusions in July..

“There is no escape for Russia from economic oblivion as long as allied countries remain united in maintaining and increasing sanctions pressure against Russia,” Yale University report says.

But China and Turkey are leading the way in helping Putin bypass the EU trade embargo..

China's exports to Russia of the 30 most popular items from transport equipment to electrical machines, previously imported from the EU and the US, fell sharply after the invasion, but already in August rose by 20% compared to the same period last year..

Turkey should have been a NATO ally, but since the second quarter, the value of Turkish exports to Russia has almost doubled, with a similar trend in several key sectors.

“Notably, along with this event, the exports of some member countries to Turkey also increased dramatically during 2022,” the document says, which explains ways to circumvent sanctions..

In addition, the commission records a more than four times increase in exports from the EU to Kyrgyzstan compared to pre-war levels..

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Drones, art and Lego.

Meanwhile, some attempts by Russia to get around proved unsuccessful..

“The fact that Russia has begun ordering drones and munitions from Iran and North Korea may indicate that it is experiencing significant difficulties in producing new goods on the scale needed to continue the war in Ukraine,” the commission said..

In terms of everyday goods shortages, Russian efforts to circumvent sanctions have included so-called “parallel imports” of computers, smartphones, consumer electronics, car parts, and even Lego products without the permission of their international rights holders..

“The notable increase in exports from the EU to Russia between 15 and 17 weeks 2022 was driven by a sharp increase in exports of works of art,” the commission notes..

“This area is subject to EU sanctions, however, exceptions are provided, in particular, for the return of art objects borrowed for temporary purposes (for example, exhibitions),” the report says..

The problems of the Russian economy, according to British intelligence, will be added by mobilization.

As reported, due to Russia's aggression against Ukraine, the world is in for bigger problems than expected.. Next year, the world economy will miss 2.8 trillion. dollars. Among the twenty largest economies in the world, Russia will suffer the most.