In Moscow, Shoppers Feel Far Less Pain than Americans from Ukraine War

By Michael Wasiura – Newsweek

TBILISI, GEORGIA  – 6/15/22 – As the Russian army intensifies its artillery assaults in eastern Ukraine, life in the Russian capital remains relatively unchanged. Despite the exodus of Western brands from the Russian market, the parks and cafes of Moscow remain as crowded as ever.

“I haven’t noticed any change in consumer behavior,” Iakov Yakubovich, head of Moscow’s Tsverskoy Municipal District, told Newsweek. “Other than the obvious rise in price of many goods and services, there’s no difference that’s visible to the naked eye.”

On the streets themselves, Moscow’s annual season of bicycle-lane installation and sidewalk enlargement is already underway.

“We recently allocated an 8% increase to the budget for the improvement of public services,” Yakubovich said.

But underneath the surface, as in the U.S., inflation fears are growing.

“There is a sense that nervousness has increased, that people don’t know what the inflation might mean for their savings,” Yakubovich said. “But there are very few clear, visible signs that anything is different.”

Scenes of Muscovites enjoying the summer months in relative prosperity was not the picture most envisioned when Western countries imposed sweeping sanctions against Russia following its February 24 invasion of Ukraine.

As those sanctions have all but stopped the flow of goods coming in from the West, Russian retailers have begun seeking substitutes. On June 12, at the site where the first McDonald’s franchise in Moscow opened in 1990, a new fast food chain called “Vkusno i tochka” (“Tasty, Period”) opened the doors of its flagship outlet. The menu options bear a striking resemblance to those available at McDonald’s, which ceased its Russian operations back in May.

While it will be more difficult for Russian import substitution to deliver similar quality alternatives to consumers in spheres that require more technical sophistication than burger production, imports from the East are already beginning to fill the void.

“Alexander,” who asked that Newsweek not use his real name, is a shipping entrepreneur whose firm specializes in transporting goods from China to Russia. He has already seen at least one shortage come and go.

“In March, there was a major deficit of paper in Russia,” he told Newsweek. “We got an order for 350 trucks to ship paper products, and now there is no deficit.”

But Alexander does see a change in the quality of the available goods — and not for the better.

“We’re getting more orders for the cheapest types of shoes,” he said. “Before, such goods only sold in the provinces, but now we are delivering them to Moscow as well. It’s a sign that, even in the capital, people are looking to economize.”

For now though, Alexander sees no sign that the Russian economy is on the verge of collapse.

On February 23, the day before Russia launched its invasion of Ukraine, one U.S. dollar cost 78.6 rubles. Over the next two weeks, the price of a dollar in Russian currency increased dramatically, peaking at 135.8 on March 10. Since then, however, the price of the U.S. dollar has fallen below 60 rubles, a level unseen since March 2018.

“There’s definitely tension regarding how long the current situation might last, but I’m not going to panic just quite yet,” he said. “I’m so overwhelmed with the volume of work right now, I don’t have time to think about anything else.”

In purely material terms, Russia’s full scale invasion of Ukraine has been more costly for Russians than it has been for citizens of any country other than Ukraine itself, where the economy is projected to shrink by 45.1%. And yet, after surviving early doomsday predictions about the potentially crippling effects of Western economic sanctions, Russian consumers are comparatively content with their present economic condition. Rather than sparking a widespread anti-Kremlin uprising, the moderate decline in the sAnatandard of living has resulted in minimal visible disruptions on the streets of Moscow.

The value of the Russian ruble reflects this reality. On February 23, the day before Russia launched its invasion of Ukraine, one U.S. dollar cost 78.6 rubles. Over the next two weeks, the price of a dollar in Russian currency increased dramatically, peaking at 135.8 on March 10. Since then, however, the price of the U.S. dollar has fallen below 60 rubles, a level unseen since March 2018.

While the exchange value of the national currency does not offer a full picture of the Russian economy’s health, the Russian Central Bank’s success in staving off a financial collapse that seemed imminent to many only three months ago helps explain why the economic mood in Moscow remains relatively upbeat.

“The ruble is actually stronger than the government would like,” Nikolai Topornin, a professor of international finance at the Moscow State Institute of International Relations, told Newsweek. “For budgetary purposes, they’d actually prefer to collect dollars from oil and gas sales and convert them into rubles at a more favorable rate before paying out pensions and other domestic expenses.”

Paradoxically, the ruble’s strength is at least in part a result of Western sanctions. In the early days of the war, the Russian Central Bank prevented capital flight by limiting hard currency withdrawals while simultaneously offering up to 25% interest on accounts denominated in rubles. Then, as Western companies began closing their operations in Russia, the corresponding decline in demand for dollars on Russian exchange markets acted to drive down the domestic price of the dollar.

While this should not be taken as a sign of Russian economic strength, it nevertheless contributes to the overwhelming sense in Russia that everything is more or less fine.

Topornin explained the dynamic.

“Siemens has stopped delivering trains to Russia; foreign automakers have shut down their assembly plants in Russia; Russia can’t get spare parts and maintenance on Airbus and Boeing airplanes in its commercial fleet,” he said. “But as a result of this, Russia’s current account balance has become more favorable, because it has largely stopped importing goods from the West. People in Russia are very conscious of the exchange rate, and the stronger ruble inspires confidence.”

As for the overall effects on average Russians, Topornin said that most of the economic pain is affecting those at the top of the income ladder.

If someone really wants to buy a Mercedes, then it will be much more expensive than it was a few months ago, but as for the milk, eggs, meat, and grain that the mass of regular people buy, inflation is much more mild. People are worse off, but they aren’t hungry.

Nikolai Topornin, professor of international finance, Moscow State Institute of International Relations

Max, who asked that Newsweek only use his first name, is a politically neutral member of the Moscow creative class, and is one of those Russians whose lifestyle has been hardest hit. Until recently, he had a high-paying job at a major Russian private company. Now he is looking for suitable employment abroad. In the meantime, however, the Russian capital still offers people like him a comfortable standard of living. He spoke to Newsweek via the Messenger app while seated poolside at a Moscow health club.

“Moscow is pretty much unchanged,” he said. “It’s true that the urban institutes and avant-garde museums can’t operate their usual summer programs, because there’s no funding and no foreign experts will travel to Russia to give lectures or exhibit their work. When I go out though, I see the faces of a lot of acquaintances who initially left in February and March, meaning that a lot of people have come back.”

People in Max’s circle have been inconvenienced by the consequences of the war, but their brand of hardship is not exactly the stuff that revolution is made on.

“There are problems with getting content from Spotify and Netflix. Things like sneakers and electronic devices became much more expensive. Imported beer also. Traveling became a pain because there are so few international routes now, and layovers are long,” he said. “People who saved up their money and invested it have seen their plans collapse, and they aren’t sure whether people like them can still build a normal life in Russia.”

Max said most of the people in his social circle are against the war, but aren’t eager to talk about it.

“The longer the war lasts, the less inclined people are to discuss it,” he said. “They’re tired of this negative agenda, and so they talk about music, television shows, plans for the future, anything except for the situation in Ukraine.”

At least, that’s what those who have remained talk about.

“For those who can’t tolerate what’s happening,” Max added, “their only option is to leave the country.”