China's obviously had its own internal

ruptures with the purging of this

general which is a problem but also the

shadow fleet is being targeted big time

by the Europeans now actively going

after the ships actively targeting the

people running them. What does this mean

if the Europeans really are going to

upscale their willingness to to hit

Russia where it hurts in these supply

lines? What do you think that means?

>> This game of sanctions is a very complex

one. hitting a shadow fleet of Russia's

oil tinkers is another blow and it's

certainly not a deal breakaker. It's a

very big an action of pressure and if

combined with you know what Trump is

doing with India threatening China

placing personal sanctions on Ross Nift

Lwell that has taken huge toll on both

companies and Ross Neft the same Ross

Nift was the major supplier to India and

China and then all that combined give

such a compound effect it's very

important [music]

>> this is the global gambit

>> welcome Welcome back everyone to part

two with Constantine Smallov, host of

Inside Russia. Part one, we were talking

about the military, diplomacy, a little

bit about the Epstein Files. Is he a

Russian agent? Go and check out part one

if you haven't. And in this part two,

we've got economics and two exciting

announcements that I'm really milking at

this point, but you should stick around

to the end because they are quite

entertaining. U Constantine, right,

we're going to get into the economics,

which is what we both enjoy chatting

together with the most. It's pretty bad,

isn't it? The Russian economy, I think

Putin accepted yesterday or just earlier

today, I saw an headline stating that

Putin acknowledges that the economy is

only set to grow by 1%.

Is he just accepting the reality now or

or is it even worse than that?

>> Russian economy is not stagnant. It is

in recession. Vladimir Putin sugar codes

a lot and we should take any information

that comes from him with a grain of salt

and especially economic information.

There are numerous proofs of that and

Russian economy is not growing slowly.

It is in recession.

There are different industries that are

in deep recession in crisis mode and

there are quite a few of them. Russian

oil trade has plummeted in the recent

couple of months and then India has

given up on

importing Russian oil altogether. There

are um there are quite a few import

contracts for the next 6 weeks but there

are no new contracts are being signed

right now and oil and natural gas trade

export has always been Russia's bread

maker. So economy is in deep deep

recession. Even some of the officials

say that such as center for

microeconomic analysis smok that's part

of Russian government. Lots of officials

lots of businessmen uh prominent

businessmen in Russia accept that admit

that. So, no 1%. I'm sorry. Even the

official um I believe it's uh

international monetary power world bank

just downgraded prognosis for Russian

economy growth and that's less than 1%.

Okay, that's near zero. So,

>> well Putin

>> Putin

>> I don't know where he gets his numbers

from. Well, his his argument was

speaking from the horse's mouth or war

criminals mouth. This is lower than

dynamics observed earlier. We are well

aware in 23 and 24 growth was 4.1% and

4.3% respectively. He told the meeting

but we also and I quote at this point

know that this slowdown was not simply

expected. One could even say it was

man-made. It was connected with targeted

measures to reduce inflation. So Putin's

argument there is that this slowed

growth is deliberate or it's a

consequence of them trying to get the

inflation under control which is of

course a consequence of the heightened

spending that has been done on military

outlets and obviously rallying up the

economy and output. Is that obviously

all complete nonsense? [clears throat]

Putin has said that not not just this

past time but he said it many times

similar things and his audience is

certainly not economists. His audience

is general population of Russia who are

not very familiar with economic

concepts. For any economist out there

the situation is crystal clear. Okay.

And I'll try to explain it in nutshell.

Russia used to earn much more than it

spent for two decades. So Russian um

government was very smart to have a

little bit every year from that surplus

and save it. So for in 20 years it

accumulated a very large savings

account. Okay. And Russia's main

revenues came from oil and trade. And

good years the share of oil and trade

revenues against everything else was

47%. Imagine that. Everything else you

know exports of raw materials products

just the entire taxes entire Russian

budget consisted for 7 47%

from earnings Russian oil and natural

gas. So that was the picture before the

war. Now Putin decided to invade

Ukraine.

things changed.

First of all, Russia immediately started

spending more that it was earning. That

was okay because there still savings

account. Okay. So, Russian government

started tapping in into savings account

and it was very large despite half of it

was frozen. Still is frozen in Europe.

It was huge. It was 300 billion euro. Um

and in 2022 another phenomena occurred.

Russia was still exporting oil in big

quantities and the price of oil just

skyrocketed. So Russia earned a lot just

in that year and added to that savings

account. But that ended on December 6th,

2022 when Europe decided uh to place

sanctions on Russian oil. Okay. So from

that on Russia started selling less oil

and natural gas it just simply stopped

selling to Europe.

And the more and more pressure was

applied to Russia um to the shadow oil

tanker fleet that Russia is has been

operating more and more sanctions

basically every single step that was

made oil trade the bread maker less

profitable and it's this process has

been going on for the past two and a

half three years and lately the

sanctions have intensified and they

became much stronger. So meanwhile,

Russia was still earning less and less

and and spending more. So you got to

cover that gap. How? From taking your

savings account. And that was where the

numbers were coming from. 4.6%

GDP growth. Where did it come from?

Well, obviously, and it's not a secret,

it came from in Russia. The economists

official Russian state economists call

it the budget amp impulse. It means that

Russian government withdrew money from

savings account and flooded it. Flooded

military-industrial complex with that

money say hey produce more. We're paying

for it. We pay more salary higher

salaries. We pay to more people. We pay

for more rockets more tanks. And that

started driving GDP. And yes, GDP jumped

in 2023

and 2024

um in 2025. But you know what? 2025 we

saw this we started seeing the slowdown

and towards the end of 2025 the money

from that savings account

were gone. They spent it all. Right now

the same situation continues. they earn

uh they spend more and more and they

earn even less now because the sanctions

are working so much better. Okay? And

Russia doesn't have anything else to

offer the world. First of all, it's

sanctioned and then second, it doesn't

produce anything. Even Russian metal is

not needed anymore. Russian ores not

needed. And um the only thing that

Russia successfully exports is uranium

to the USA. But that's peanuts, you

know, that is it. And right now, Russia

is facing a huge problem. There's no

money. The only way to,

you know, decrease that gap between

spendings and earnings is to print

money. That's what I've been doing.

They've been printing around 1.2% of the

entire GDP every single week. We week.

Okay? Any economist understands that all

those actions that have taken place in

the past you know four years they lead

to a catastrophe.

>> The only um difference that a lot of

economists had like had was um we

thought that the catastrophe would come

at different times. I thought it would

come earlier and I was in a camp of the

economists who thought it would be 23 24

but then Russian economy it simply it

had enough money to go through and

finally start crashing in 2025 but make

no mistake this is the crash right now

and it's not just Russian economy what

is Russian economy it consists of

industries companies taxpayers the

government who supervises everything it

consists of people who pay taxes

So we are seeing steep decline

everywhere in every single industry

except for funeral industry which is

doing you know record numbers record

profits and everything else is just

declining. So Putin can say whatever he

wants but can he prove it?

Mhm. I think it's a case of when you

have a resource-led economy as much as

Russia is, if you're overly complacent

or frame your entire economic structure,

policy, social services, and just

political decision-m around it, it's

obviously a huge problem. Saudi Arabia

is a great illustration of this that

Crown Prince MBS is trying to radically

and quickly rapidly reorientate the

economy because of the awareness that

Saudi Arabia's production of oil or

what's known in the industry as peak oil

usage has surpassed. We're already

seeing a a decrease in peak oil from

peak peak oil because more economies are

shifting to renewables. The Europeans

are putting a lot of emphasis on nuclear

for example which I think Germany should

have done ages ago. Um and so when it

comes to Russia certainly this is a a

structural decline which is not

something that you can easily fix. Um

and when you have government spending as

high as it is, but as we say often

Constantine, it's not just government

expenditure on infrastructure. It's not

supply side economics. It's demandled

and it's demandled in military

production which has no shelf life at

all. Because if you're producing ships

or tanks or heavy industrial equipment

used for the battlefield, which then

gets destroyed, okay, sure, you've

produced economic activity, but it's all

being destroyed. You know, the a lot of

emphasis is put on Russia's drone

production, but those drones are they're

unsalvageable because it's not like

they're high-end drones that the US or

even maybe Turkey produces. These are

Shahed equivalent kinds of drones. Uh

there was a statistic I think from two

weeks ago the Iranians have sold up to

$3 billion worth of drones to the

Russian state. Um but that's not money

that they get. That that's not there's

no continuation of that. It's a one-time

sunk cost, right? If you do economics,

you know what a sunk cost is. So we

don't see any any longevity to this. And

ultimately the economy has been

sustained because Russian the Russian

public consumes a lot. But if you're

spending a lot in the government, if

you're a consumer a lot, that leads to

inflationary pressure, which is what

we've seen now with I think it's been

reduced to what 5.6% compared to around

9 and a half last year. And that's the

priority. If the government can't keep

inflation under control, then you run it

runs away. The entire economy becomes

well, look at Venezuela with the hype in

inflation of the past few years. And the

last point I'd say is also that there's

no investment in um there's no aspect of

investment here. So again the

longstanding growth that you could see

doesn't exist and ultimately it leads to

government debt going up. Look at the

look at the ratio of debt to GDP. It's

shut up in the past year 18 months for

Russia hasn't it? And Russia's never

been seen as like a western economy like

Greece or Italy. Well, Japan where their

debt to GDP is what 200%. Russia's has

been going up huge in the past few

months. So, I don't know. What do you

think the the central bank in Russia can

do at this point?

>> Not much. What you said about the

products of Russia's military-industrial

complex do not add value to economy.

It's called there's no economic

multiplier. And you're absolutely right.

And that that's just you take money and

you spend it, you burn it, okay? And it

doesn't leave any trace

>> in the economy except for you had money

and you don't have it. Okay? Because you

produce, you manufacture a rocket uh and

it just flies to Ukraine, blows up and

kills people. You know what good does it

do to anyone? [snorts] So Russian

central bank has run out of options.

What you say in borrowing I call

printing money because Russia it's

really the process of printing money

masked by borrowing. Russian central

bank cannot just buy

government bonds that Ministry of

Finance issues. So it has come up with a

sophisticated procedure called repo

auctions. Basically, it gives Russian

commercial banks a few large stateowned

or state controlled banks, let's say a

trillion

ruble loan, short-term loan for a week

or for a month. Used to be for a month,

now I think it's a weekly loan. So,

7-day loan. And the purpose of this loan

is to buy Ministry of Finance bonds, the

Russian government bonds. Okay? Because

no one else buys them. Russia cannot

sell bonds outside Russia. that

everything is sanctioned and Russian

people obviously they don't have money

and banks it's not time to invest into

Russian government bonds. So this

commercial banks buy bonds in large

quantities for trillion rubles and when

it's time to repay the the the loan they

use bonds as collateral and they give

bonds to the central bank. You see

that's that's the scheme. That's how

they print money. They're just flooding

flooding economy with money. That

results in very high inflation. I mean,

we're both economists. We understand

that because if you flood money, flood

the economy with money, you get get

inflation. There's no way around it.

Okay? They've been trying to keep the

inflation down by keeping the exchange

value the exchange value of Russian

ruble to American dollar and foreign

currencies artificially low. So Russian

rubble is artificially strong right now

and that is one of the tools that helps

to contain uh slow down inflation but

you can't really slow it down with

printing money like that. So imagine

this 2026 5.6% 6% plan for the entire

year. That's the inflation, right? You

mentioned this. Now, just in first two

weeks, 1

62%

just two weeks uh around one/ird of what

is planned for 2026 for the entire year,

just two first weeks of January. new tax

system, VAT increase, um, printing

money, um, and you know, general perfect

storm,

it causes

inflation to start galloping. That's

what we're seeing right now. And there's

not much the central bank can do. They

kept Russian rubal value as the weapon

of last resort to fill the gap that the

budget deficit but they can't use they

can't devalue Russian rubble much

because that's going to fuel higher

inflation already high even higher so

there's not much Russia's central bank

can do the only thing they can do is a

classical tool is to raise the interest

rate the key interest rate but the head

of central bank is so under so much

pressure right now by the

military-industrial complex and her

enemies in other branches of the

government. That's a real struggle right

now. So there's not much they can do.

>> Well, one one can think of obviously

older audience members might remember QE

or quantitative easing that was

implemented during the financial crisis

of 2008 and the implications that had

for the US economy, for the British

central bank. There was a lot of

discussion that led to the historical

low interest rates that the British

government or the bank of England

retained for I think upwards of 10 12

years at around half a percent. Then it

went down to 0.25% and now I think it's

at like 1 and a half. But still point is

that the Russian economy really is is

limited in its options. The central bank

has very limited options. But one point

that people who are pro the Russian

government proin seem to always

emphasize we've discussed this in

passing Constantine before is the ruble

is the ruble doing very well that the

value of the ruble is holding and it's

not appreciating. Um can you explain to

me and viewers why that is not a good

economic indicator for the Russian

economy? I know but clearly some people

rubel rubble talk is a pure propaganda

right now and bragging about how strong

Russian ruble is is to me you know I see

that it influences it touches the minds

of those who don't really understand

much about um currencies and how they

work the thing is rubal is not fiat

currency any longer

rubble is not traded its value is not

estimated by the balance between demand

and supply used to be but then not any

longer. A Russian ruble

the exchange rate is simply set by the

central bank and they can set any single

number any digit whatever they want. As

I mentioned my theory is that they have

used ruble as they have kept rubal

exchange rate as the weapon of last

resort to fight the budget deficit. um

you know to fill up the gap because

Russia does not export much but imports

a lot.

>> I'm sorry that uh um Russia exports um

oil and natural gas and that export is

in dollars. So if exchanges let's say uh

50 rubles for

one American dollar then uh Russia gets

same amount of dollars but then you know

same amount of rubles but then when

exchange rate is say they change it to

100 rubles per dollar then uh amount of

dollars coming in is the same but uh

amount of rubles doubles. Okay. So

that's that's where the trick is. So the

higher exchange rate is the more

Russians spend importing things and then

Russia does not produce much on its own.

It imports everything from China and a

few other countries and they pay in

dollars.

>> So the higher the price of uh American

dollar, the higher the prices of

domestic and everything important food.

Russia's become net importer of food

just know by the way and consumer goods

the prices go up automatically. So that

drives the inflation. So they kept

Russian ruble artificially strong in

order to contain inflation. and then

hoping that one day if they really

needed to get extra money out of thin

air they would simply you know uh

devalue ruble and they would be getting

more rubles for same amount of dollars

coming in from oil and and and gas

they're selling a little bit of gas not

much but still they're exporting but

then now they cannot do that because

inflation is galloping with rubble

strong imagine when they um

you know devalue ruble the inflation is

going to just double skyrocket. Okay, so

that's what's going on with the Russian

ruble. I this is a completely artificial

value that rubble has and whoever is

bragging that Russia is strong currency

just doesn't really understand what what

this whole concept is all about.

>> I'm thinking of Constantine don't

understand anything about anything. They

are often accounts that have no face.

You know, they're not public. They spout

all this crap, but it's all anonymous

because they don't want people to

realize who they actually are, which is

probably a kid living in their mom's

basement. But as always, history has

shown us from other autocratic

countries, former dictatorships. I'm

thinking particularly Latin America, you

know, one of the basic economic tools

that you have to keep your economy going

when it's in difficult times is to

devalue the currency. But you can only

do that to a certain extent and and and

certainly it's not something that would

be very feasible or or opt optimal for

the Russian government to do. But aside

from that, obviously Constantine,

there's been a lot of news on trade. Uh

we can talk about the fiscal policy or

the monetary policy. We've done a bit of

both. But trade policy, of course, the

United States and India have signed or

or or have talked about this potential

deal. Nothing has actually happened on

that. And people can find a video on my

channel where I broke that down into

depth of why it's not what you think

which is simply that you know one on on

one agreement Americans will reduce

tariffs on India if they stop acquiring

Russian energy. What's your assessment

there? Um well first of all this is a

fact and it's been um

reported I think by financial times that

um there are no new

>> oil contracts being signed right now

between Russian and India Indian

consumers

um they still have six weeks to go to

satisfy

to fulfill the existing orders but then

they're not buying new oil. If this

becomes the reality that India stops

buying Russian oil and it looks looks

that way at this point then it's death

sentence to Russian oil trade and

Russian economy. huge blow because at

this point the latest numbers I have

India buys half million barrels a day

from Russia and in July it was buying

two 2 million per day so 75% off and

same goes for China. China was 1 point I

think in July and now it's down to half

million as well. It's already a huge

huge blow and I think Russia will be

selling oil in the future to India and

to China using the shadow oil tanker

fleet. Okay, but then we're talking

about discounts of enormous scale. Right

now there are rumors, I cannot confirm

them, but I've heard the numbers.

Russian oil at Russian ports is being

bought at $20 per barrel, which is which

is definite. It's it's it's you know

whatever the price right that's the in

the budget they need at least 59 um

dollars to to somehow keep the deficit

under control the budget deficit right

right now um $25 that's the conferred

number and already heard $20 and that's

what that uh agreement between America

and India is doing to Russia's oil trade

okay it's becoming nonprofitable for

Russia even to sell oil at this price.

Okay. The big question is what are they

going to do? If this situation

continues, then they might as well start

closing down oil wells.

>> Well, yeah, I would emphasize that this

agreement hasn't been signed. One of the

core points of my video is that the

Trump administration or Trump

specifically has, you know, celebrated

this almighty deal and agreement.

Obviously, New Delhi, nothing actually

has been signed at all. It's all just

words. So, We need to wait for that to

be signed. But certainly if the Russians

lose the Indian market, that's their

second biggest. Um the last time I

remember looking at the oil price level

for Russian uh exports, it was around 34

$35 a barrel, which is still just above

half of what the state duma had planned,

you know, the 2627 budget, I think, for

so if you're saying that it could be at

20.

>> That's the latest number I heard. And I

want to emphasize, I'm not making a

statement here, okay? And you're

absolutely right. The deal hasn't been

signed, but it was announced. They shook

hands and there was announcement. And

there are reports coming in that Indians

stopped signing new contracts.

>> Oh, they did. But that's true. Both the

Chinese, both Beijing and New Delhi have

stopped as soon as Trump threatened

secondary sanctions late last year.

there was a immediate cut back of of

consumption by both major players of the

Russian energy. So certainly when Trump

wants to leverage that punitive measure

saying whatever that that has an impact

on them. But I I did want to ask you one

other question lastly about the shadow

fleet more broadly because China's

obviously had its own internal ruptures

with the purging of this general which

is a problem but also the shadow fleet

is being targeted big time by the

Europeans now actively going after the

ships actively targeting the people

running them. What does this mean if the

Europeans really are going to upscale

their willingness to to hit Russia where

it hurts in these supply lines? What do

you think that means? This game of

sanctions is a very complex one. M

>> hitting a shadow fleet of Russia's oil

tinkers is another blow and it's

certainly not a deal breakaker but it's

a very big blow and it's a very big an

action of pressure and if combined with

you know what Trump is doing with India

threatening China placing personal

sanctions on Ross Nift Luke Oil that has

taken huge toll on both companies. Luke

Oil lost West Ka to one of the most

profitable oil um fields in Iraq. Okay.

And then it's selling its entire foreign

assets to Carlile Group right now.

They're negotiating and that is a huge

blow to Luke Oil and Ross the same. Ross

Nift was the major supplier to India and

China and then all that combined give

such a compound

result. There's a compound effect. So

it's very important. It's very important

and it shows that Europe is strong.

Europe means business. Europe knows

where to hit where Russia's weak spot

is. And if this hits continue, then

Russian economy will not survive 2026.

It will okay, but it's it'll survive

with catastrophic results. And I think

that's where the it's going right now.

And there is no hope. their only hope

and we're going back to our previous

conversation is the only hope is uh the

negotiations, peace negotiations. Oh,

we'll sign this um nuclear treaty with

you again, but then you please lift off

sanctions from this, you know. Oh, we'll

uh you know continue to negotiate with

Ukraine and we're much closer to peace

agreement, but meanwhile don't slamp

more sanctions on this and that, you

know, and this is what Russia is doing.

That's the only hope it has right now.

But this not much. So, um I think it's

>> case of a

>> it's nearing nearing uh the disaster.

>> Case of an ultimate collapse, but not an

imminent one is is sort of the way that

I've come to to distinguish it. And I

think ultimately Putin will continue to

engage in these peace talks partially

from a false pretense but also because

he has to because if he can get some

alleviation by having his economy

reconnecting with the American markets

that would be huge and clearly Trump

wants to do that as well but all of this

of course with Ukraine being stuck in

the middle but Constantine as always

it's been an absolute pleasure and it's

time to share these exciting

announcements which is firstly we're

going to be doing more collaborations

constant has kindly invited me onto his

channel so you get to see my face

speaking more. How fun is that? Uh, I'm

kidding. It's my English sarcasm. But

no, we'll talk about things uh perhaps

from a more global uh global

perspective. I think it would be

interesting to talk about the sort of US

trade deal uh in Russia. But secondly,

some of you were very keen to raise the

idea of a merch store merchandise when

we talked about pigeons. Um, and if you

kill a pigeon, you get a fine, but if

you kill a flock of pigeons, you go to

prison. Well, we now have merch. I made

a mug. I made a t-shirt. There's more

stuff coming, but you can find a link in

the description to the merch store if

you want to buy a mug with a pigeon on

it. Um, was absolutely no obligations or

pressure, but enough of you expressed

amusement and interest that I decided to

do it. So, we now have that. And of

course, we will uh you know enjoy it

with you as well. I'll be sure to be

sipping out of my pigeon mug when one

arrives. But um Constantine, look

forward to doing this again with you

very soon. Thanks very much for your

time as always.

>> Same here. Thank you very much.

>> Take care everyone.