Alexander Kolyandr

The government did two things at once on Tuesday evening. It legislated, for the first time in binding form, the long-promised ban on imports of refined petroleum products made in third countries from Russian crude. This was the 'refining loophole' that Chancellor Rachel Reeves had championed back in October. Simultaneously, it carved diesel and jet fuel out of the new ban under an indefinite trade licence. The government's framing has been a masterclass in misdirection Petrochemicals, naphtha, heating oil and fuel oil made using Russian crude oil in third countries are now prohibited in UK law. The two products that account for the overwhelming bulk of the refined petroleum trade are not. The government has said it is tightening sanctions against Russia.

Vladimir Putin likes good statistics. At a government meeting on 15 April, even as he acknowledged that growth was slowing, he pointed proudly to Russia's unemployment rate: 2.1 per cent, a record low. Proof, he suggested, that the economy remains fundamentally sound despite everything the West has thrown at it. The Russian president would do better to worry. A record low unemployment rate is not, in normal circumstances, cause for alarm. In Russia's case it signals something closer to a slow-motion emergency. For the first time in its post-Soviet history, Russia has run out of workers.

The head of Swedish military intelligence has dropped what he clearly regards as a bombshell. Thomas Nilsson told the Financial Times this week that Russia's economy is far weaker than it appears, that the Kremlin systematically manipulates its statistics to fool Ukraine's Western allies, and that the central bank is understating inflation, which he believes is closer to 15 per cent than the official 5.86 per cent. For good measure, he endorsed the German intelligence service BND's earlier estimate that Russia's budget deficit is understated by $30 billion (£22 billion). One need not be a Kremlin agent to find this less than convincing. That Russia's economy is struggling is not in dispute.

Apart from windfall revenues from higher oil and gas prices and the political leverage that comes from supplying the Global South with fertilisers, how much sanctions relief can Russia also expect amid the war in the Middle East? Some relief is already here. On 12 March, the United States amended its sanctions on Russian oil tankers already at sea. Under an updated general licence, Washington continued to allow the sale of Russian crude and petroleum products loaded onto vessels as of that date. It also globally extended a month-long Treasury department waiver, issued a week earlier, that had allowed India to buy Russian crude and petroleum products loaded between 12 March and 11 April.

Of all the parties watching the chaos in the Middle East unfold, one should be rubbing its hands together with particular satisfaction. Russia has not fired a shot in this conflict, lost no allies it cannot afford to lose, and has so far gained rather a lot, with more to come. A cynic might call it the perfect war for Vladimir Putin. Moscow's public reaction has been characteristically theatrical. The Foreign Ministry denounced American and Israeli actions as a 'reckless step' and a 'dangerous adventure'. Things have gone no further. There has been no announcement of political or military support for Iran from the Kremlin – nor is there likely to be: Russia needs its drones and missiles for Ukraine.

After losing his erstwhile allies and clients in Syria and Venezuela over the past 13 months, Vladimir Putin ought to be breathing a sigh of relief at the bloody suppression of the protests in Iran. Russia and Iran are natural bedfellows – a marriage of inconvenience, if you will. Both languish under Western sanctions, though Iran's are stricter and have endured longer. Both economies depend heavily on China hoovering up their sanctioned oil at a discount and Beijing flogging them technology. Both deploy shadow fleets to export their oil. Neither has access to global financial markets. The brutal suppression of Iran's protests ought to reinforce Putin's calculus that if dissent cannot be bought off, it must be crushed There are, naturally, crucial differences.

The next year will be challenging for Russia. Yes, we've heard this for almost four years. We've been told that the Russian economy is about to collapse under Western sanctions and the cost of war, yet it stumbles on. There may be no breadlines or toilet paper shortages, but the bill for the Kremlin's past political and economic decisions has finally landed, and it is ordinary Russians who will foot it. What a difference a year makes. Economic growth, fuelled by Vladimir Putin's profligate spending on the defence industry, has virtually evaporated. Oil revenues, which provide a fifth of the government's income, are down nearly a quarter owing to lower global prices and tighter sanctions.

We will wage the war in Ukraine for longer and make you pay more for it. That was the message the Kremlin sent its subjects following the Russian government's presentation of next year's budget and the accompanying economic outlook. The budget, which reached parliament for rubber-stamping on Monday, outlines the Kremlin's vision ahead of the war enterring its fifth year next February: the war will continue at the expense of the economy and people's incomes. Higher taxes are expected to keep the budget deficit at 1.6 per cent of GDP next year. For three years, rising fiscal spending stimulated both economic growth and climbing incomes. The downside of this amphetamine-fuelled growth was double-digit inflation, which the central bank tackled with prohibitively high interest rates.

Moscow's response to the latest ultimatum issued by Donald Trump last week has been to deploy that most Russian of diplomatic weapons: contemptuous laughter. The US president's threat to impose draconian sanctions unless Putin ends his invasion of Ukraine within fifty days has been met with the kind of theatrical disdain that would make Chekhov proud. Foreign Minister Sergey Lavrov, never one to miss an opportunity for diplomatic sarcasm, openly sneered at Trump's intervention on Tuesday. 'We want to understand what exactly is behind this statement. Fifty days. It used to be 24 hours, and then it became 100 days. Russia has gone through all this and now wants to understand what the US president’s motives are,' he said.

The remarkable resurgence the Russian economy has experienced since Vladimir Putin's invasion of Ukraine is losing momentum. Where once Putin could boast about 4.3 per cent growth rates for two years in a row – thumbing his nose at Western sanctions with all the aplomb of a man who'd discovered alchemy – the numbers now tell a somewhat different story. The party, as they say, is over – and the time to crank up sanctions against Moscow has come. For two years running, Putin's propagandists have crowed about Russia's economic vitality as proof that Western sanctions were about as effective as a chocolate teapot. The economy's steroid-fuelled growth, pumped up by hefty fiscal spending, facilitated the steepest rise in household incomes for nearly two decades.

Markets are rife with rumours of impending talks between presidents Donald Trump and Vladimir Putin on a ceasefire for the war in Ukraine. Even before Trump told the New York Post last week that he had spoken with Putin over the telephone and that the Russian president wanted to end the war, stock market traders were rushing to buy stocks from the businesses associated with Ukraine. Ukrainian sovereign bonds, shares in the Austrian bank Raiffeisen, the Ukrainian mining company Ferrexpo and global steelmaker Arcelor Mittal have all posted record gains over the past week. The markets are betting on a prompt ceasefire and for sanctions against Russia to be eased. However, Moscow has refused to confirm the phone call between Putin and Trump and has warned against optimistic expectations.