Western sanctions hamper Russian economy, but war in Ukraine still rages at year-end

Russia has felt the sting of Western sanctions that aim to stifle its economy, but the war in Ukraine that triggered those repercussions is still raging at the end of the year.

Missiles fall on Ukrainian cities, soldiers fight and the death toll continues to rise.

Critics may point to continued conflict as evidence that sanctions have failed. But experts say these moves serve to keep pressure on Moscow, and they still serve a purpose even if Russia has not withdrawn its forces.

« I don’t think sanctions will necessarily force Russia to negotiate, » said Alexander Lanoszka, assistant professor of international relations at the University of Waterloo in southwestern Ontario.

However, Lanoszka said the sanctions put the Russian state under pressure and made it harder for Moscow to finance its war.

« [They can] increase the opportunity costs the Kremlin faces when deciding its budget,” said Lanoszka, who believes Western financial and military support for Ukraine will have more tangible effects on the war front.

Less decline than expected

The International Monetary Fund (IMF) estimates the Russian economy will decrease by 3.4% this year — a fraction of the 35% he expects Ukraine’s war-ravaged economy will shrink.

The fall in Russia’s GDP is significantly lower than expectedalthough Sergei Guriev, an economics professor and provost at Sciences Po in Paris, said the measure « overstates the performance » of the country’s wartime economy.

The increase in artillery shell production in Russia gives the impression of increasing GDP, but Guriev noted that « has no positive impact on the quality of life of Russian households ».

A sharp drop in household spending is a real indication of how the war — and the sanctions — have affected people’s lives there, he said.

Joy Neumeyer, a historian and journalist, said Russian state media promote the idea that the sanctions were a costly failure for the West, while domestic consumers are doing well.

“State media also argues, unlike most economists, that Western brands are seamlessly replaced by national equivalents« Neumeyer, who previously worked as a journalist in Russia, said via email.

The sanctions imposed on Russia are wide-ranging: key banks have been taken out of SWIFT banking messaging system; The Central Bank of Russia has been limited in access to US$600 billion in reserves held by foreign banks; Russia has been cut off from access to Western technology and supplies.

Make adjustments

Senior Russian officials have publicly acknowledged the challenges posed by the sanctions.

In July, Russian President Vladimir Putin criticized the « economic blitzkrieg » the country had to face. Still, he suggested it was not doing the damage the West had counted on.

More recently, Elvira Nabioullina, the director of the central bank of Russia, had a similar messagetelling lawmakers that the country’s economy and banking sector had resisted Western pressures – although she notes that their effects have been widely felt.

« The sanctions are very powerful and their influence on the Russian and global economy should not be minimized, » said Nabiullina, who faces sanctions herself.

Russia makes gestures in response to sanctionsin particular by raising its benchmark interest rate to its highest level in this century, according to Reuters.

Janis Kluge, a senior associate at the German Institute for International and Security Affairs, said Russia’s introduction of capital controls at the start of the war was the most significant adjustment it made.

« It helped stabilize the ruble’s exchange rate in the first weeks after the sanctions were imposed, and the stronger ruble reduced the pressure on inflation, » Kluge said by email.

Higher energy prices

Energy prices have soared in the chaos of war, with gas prices in Europe having « more than quadrupled since 2021 ». according to the IMF in October.

Rising gas prices benefit Russia, which is why Western governments — after months of discussions – decreed a cap on Russian oil prices in a bid to limit the revenue Moscow can generate from its exports.

Russian authorities rejected the price cap and threatened to reduce shipments to countries that endorse it.

In response to the sanctions, Kluge said Russia « has captured new markets for its oil exports », selling more oil to China and India.

However, Guriev said the average price Russia gets for its oil is falling, and that has already had implications for its war effort — like when Moscow has turned to a mobilization effort to bring more soldiers to Ukraine.

« He felt he no longer had an unlimited amount of money to spend on hiring soldiers, » Guriev said. « And that’s the major impact of the sanctions so far. »

Western Exodus

The Russian economy has also been affected by the exit of many Western companies — more than 1,000 including have, to varying degrees, reduced their business activities there.

This decline has affected companies as varied as fast food chainfashion brands, convenience store retailers, mining companies and car manufacturers.

Experts say Russia’s key industries – including some keys to its war effort – have been compromised by this exodus and by sanctions that have cut off access to Western technology and finance.

« Russia has not fully understood how dependent its military-defensive complex is on Western components, so now we see that Russia cannot replicate the stock of modern tanks, modern jets, modern rockets » , Guriev said.

Reports suggest Russia can run out of long range precision weapons and that Moscow imports North Korean-made artillery shells and Iranian-made drones.

The future

The war in Ukraine has upset the markets, drives up global food prices and created uncertainty about Europe’s security.

It has also prompted Western countries to act.

Lanoszka, of the University of Waterloo, said the countries involved in the sanctions efforts stuck together more closely than expected.

Ten months after the start of the war, he considers that the differences between them are « more tactical than strategic ».

For Russia, the longer it is isolated from wider interaction with the world, the more damaging the sanctions should be.

“While sanctions are a slow tool, time is on their side,” says Kluge and a co-author written in an autumn briefing for the European Union Institute for Security Studies.

Guriev said the continued strength of the sanctions will depend on how rigorously the West applies them.

If the goal is to hinder Russian industry and its military industry in particular, he said the West must continue to « play this difficult and tiring mole game » of hindering other countries’ efforts to help Russia to circumvent sanctions.