hashem: how has russia's economy performed under western sanctions? moscow says the countries weathering the storm, so what is the big jerk? this is inside story. hashem: hello and welcome to the program. i am hashem ahelbarra.

western nations imposed some of their strongest sanctions on russia as punishment for invading ukraine. the measures were meant to cripple its economy, but the russian ruble is treating at two year highs against the u.s. dollar. energy sales to the eu have nearly doubled since february when the war began. j.p. morgan since russia's economy is performing better-than-expected. still the imf expects the economy to treat by 8.5% this year. russia's ability to limit the initial shock of sections has frustrated international leaders. russia doubled interest rates to 20% when sanctions picked to

help increase demand for the ruble. most significantly, russia has had a steady flow of foreign currency for its vast oil and gas -- exports. all of that has seen the ruble not only recover, but a cheap higher value than before the sanctions. russia's president says europe is committing economic suicide with its sanctions. >> the rejection of russian energy resources means that europe will become the region with the highest cost of energy resources in the world and now as a result of the chaotic actions of our partners, in

addition to the damage to the european economy itself, we are having an increase in the revenue of the russian oil and gas sector. hashem: mcdonald's is the latest western company to pull out russia. they opened their first restaurant 32 years ago as the soviet union collapsed. it is now selling all of its outlets to a local business. let's bring in our guests. from moscow, vyacheslav mishchenko, energy markets expert. chris weafer, chief executive officer, macro-advisory, a strategic consultancy focused on russia and eurasia. eric chaney, economic adviser to institute montaigne think-tank. how do you explain russia's resilient economy despite the

western sanctions? vyacheslav: it is much better-than-expected. i would like to stress that russian oil and grass -- gas stove flow. -- still flow. the dependence on russian gas is still very high in europe. in some countries like central and eastern europe the reliance is more than 80%. it means it is not easy actually to break -- stop by think.

-- by end. -- buying. hashem: the economists were predicting the gdp of russia to contract by 15%. that does not seem to be the case now. is it because of the high revenues when it comes to oil and gas exports? has a help cushion the collapse of the economy? chris: that is the reason. you have to look at the russian story in two parts.

the financial side and the economic side. the financial side has remained strong because we see continuing high prices for commodities. and russia is continuing to export almost at maximum. the sanctions have not yet slowed it down. the first four months this year, there was $107 billion. that money is coming back to russia. on the economic side, we see deterioration. they are warning there will be a big downturn in the economy. they believe the worst will come in the third quarter. we already hear from companies that there were short of components. they cannot import products so companies are warning about

shutdowns. we will see a rise in unemployment. we have seen a drop in incomes and that is affecting consumption. we are still seeing deterioration in the economy even though the balance sheet is very strong. but right now it looks like the deterioration is going to be significantly less than had been feared. they said gdp to contract by only about 7.5 percent. and that is because the government can afford to continue paying for subsidies. hashem: the central bank managed to handle an economic lapse by increasing the interest rate, limiting the remittances. cannick continued that if the sanctions continue for a longer period?

>> it was a very tough decision to raise interest rates to 20%, but i think the goal was to help keep the currency afloat. you might remember that the ruble in the first stage went down quite sharply. and that is why the central bank raised rates to 20%. but of course there will be huge consequences for the economy. the russian economy is sensitive to interest rates as far as income is concerned. and it seems that for russian companies, they cannot borrow because they are totally excluded from the western, they cannot find a lot of money from the central bank. there will be casualties.

this monetary policy think was quite smart and it has helped to keep the ruble where it is, which is a great success. and i do not think that was expected. but the consequences for the real economy are deeply negative. because you cannot have your cake and eat it. hashem: the russians have assets abroad. can they tap into that to pay for that. they will now -- not allow the russians to use the financial system to pay for their debt. what will that mean for the russian economy? >> it is called technical default. it does mean that russia -- it

does not mean that russia cannot pay. it depends on the positions of the parties. we will see some decrease of the economy, but not to the 8%. it is up to the 5% actually. but the revenues are huge and revenues are very strong from the export activity. it is not only oil. it is all the raw materials. by the way, india has become the number one by your of russian

crude for the last two months. russia is finding new markets. hashem: chris, the european market has always been crucial for the russian economy. but what happens next when the europeans decide it is about time to finally turn their back on the russian gas and oil? chris: it will be damaging, but it is important to remember that russia has been dealing with sanctions since 2014. back then, europe was concerned about dependency on russian energy imports, but moscow started to get concerned that it

was also very dependent on europe as the buyer of its energy. russia has made a lot of progress in diversifying its customer base. right now, china is the biggest trade partner of russia. before 2014, it was germany. the system to some extent has been diversified. russia is no longer as vulnerable to europe as it used to be. russia has been very proactive in the last few months in looking for new markets. india is one that has emerged strongly as a potential buyer. even if russia is offering its oil and gas at a discount, prices are significantly higher than they have been in the last few years. this is why russia is now earning a significant amount of

money. that gives russia a significant amount of financial resources to subsidize the economy. hashem: is europe ready for a day when they will face -- phaseout russian energy and supplies? eric: i do think that it is more a question of one than a question of if. i think the political shock in western europe, but especially in germany, is based on russian gas. it is not only for the

production of electricity, it is also for the german industry, which says it is thanks to russian gas that we are competitive. everybody has understood that russia is not a reliable supplier of hydrocarbons. when vladimir putin decides to cut supply, he cuts supply. it is going to happen, but slowly because germany made enormous mistakes in its own energy policy by putting all of its eggs in the russian pipelines. but the political decision is taken and there is no way europe will shy away from cutting all imports from russia.

there is a strong political resistance from the german industry to do that. that will take time. europe will cut its supplies from russia. oil is a global product. gas is much more complicated. for all these reasons i think that europe will be able to get rid of russian supplies. hashem: when you look at the economy now and you see the indicators. prices are soaring, inflation is likely to affect 20%,

unemployment is on the rise. could this be a real indication that there was something wrong with the economy now in russia? vyacheslav: things have been moving so fast, we cannot rely on the numbers actually. one thing that would like to say. we should not lose the chain. so nobody cut supply sexually. -- actually. it has been harder to supply commodities to the european market. nobody cuts the supply so it

still goes there. back to the numbers. i think we will see some recovery. even the prices are going back. there was an emotional reaction to the events in the political situation and now it is back to normal in the ruble is strong. russia exports much more than it imports now because of the restrictions. hashem: chris, since you started the conversation with us. there was time to look at the financial aspect and the

economy. when you see the economy with exports saying you are likely to see 2 million russians lose their job this year, can this be the indication that there will be a serious structural problem with the russian economy? chris: there is no doubt the economy is facing structural change. there are so many scenarios you could talk about. a lot of it will depend what happens to commodity prices and the government's cash flow. what happens with sanctions. there are so many aspects which will have an input. but the fact that there will be a structural change in the economy is without doubt. russia will have to be more diversified in its trade, in sourcing materials. able have to find ways to create new areas of employment in the

future. that situation will be painful. how people will rely on how much money the government has in the budget. it is too early to say as to whether there will be 2 million people unemployed. we do note the government is very focused on job preservation. we saw this week the announcement that a company is selling its local business to a local supplier. mcdonald's has also sold to a local buyer. it is absolutely focused on job preservation. they can afford to do that in the current situation. the question is how long will that cash flow remain sufficiently large that they will be able to question the

economy for the more pessimistic scenarios. hashem: eric, the west started the sanctions to send up clear political message to the russian government that they would not tolerate the war in ukraine. but the sanctions themselves are triggering an global economic crisis with the soaring prices, particularly when it comes to food and energy. put this back by your in a way or another? eric: that is a very important question. it is not delete the sanctions. the sanctions are having a deep impact on the russian economy. they also have an impact on energy prices. but the fact that food prices are rising are not linked to sanctions.

the russian navy is blocking ukrainian exports of wheat. so it is the war decided by russia that is causing this soaring energy and food prices. and i am afraid that as far as food prices are concerned, the consequences might be very dire. but a lot of countries, egypt for instance, where population is already and very low incomes, and very quick to go to social and political unrest. so we are going to see a lot of consequences. there was a huge debate in germany about what would happen if germany cut its supplies of natural gas from russia. so that will be done progressively. we will have a recession due to this big shock. this is less energy and food

supply. and higher prices. that is one of the reasons of stagflation. this is going to prove temporary. the sanctions so far have been relatively light. hashem: very briefly if you don't mind, russian has been working for quite some time on two key assets. one, inserting itself as a trusted supplier of energy. two, a key player in the global market. and those two assets it is suffering now.

could this be the main setback facing the russian economy in the future? vyacheslav: i do not think so. russian commodities and exports will be looking for new markets. it is not a secret that the key demand is in the south east asia and other countries like africa as we mentioned. not only on energy, but on food as well. my colleague just mentioned wheat. russia implemented an export band for some period of time

because russia is the largest exporter of wheat in the world. the map is there. in the global population is growing so despite the financial troubles and the sanctions, at the end of the day, they actually harmed all the global traits and relationships. i think they will be finding new ways and new platforms. hashem: we have to leave it there. i really appreciate your insight. thank you. and thank you too for watching. you can see the program any time by visiting our website. for more discussion, go to our

facebook page. also during the conversation and twitter. -- on twitter. goodbye for now. ñ■ñ■■ú■ú■úóçóçt■t■ñçñqñqñqñqñññw

♪ ♪♪♪ samantha hawley: as a foreign correspondent, my job takes me to many countries, but stepping into this one, i'm feeling mildly unsettled. after all, this is saudi arabia, home to islam's holiest cities and governed by sharia law. women have few rights here.