100 days of war in Ukraine | Ineffective, the sanctions?

Buried under a tidal wave of unprecedented sanctions, the Russian economy seems to be holding up. Economic activity continues and the value of the ruble against the US dollar and the euro is higher than before the invasion of Ukraine. Has Russia won the economic war?

Helene Baril
The Press

The resilience of the Russian economy does not mean that the sanctions are ineffective, believes Martin Carrier, lecturer in the political science department of the University of Montreal and specialist in Russia.

“There are things you don’t see,” he said. The impact of sanctions must be considered over a medium and long term horizon. »

For the moment, agrees the professor, Russia has managed to limit the effect of the sanctions on its population.

Thousands of Russians have lost their jobs due to the departure of foreign companies, which, in the long term, could be more complicated for the Russian government to manage, estimates Martin Carrier.

The countries that reacted to the invasion of Ukraine by increasing sanctions thought they could knock out the Russian economy. fast enough. It didn’t happen. Even what has been presented as a “nuclear weapon”, the expulsion of Russia from the international payment system SWIFT, has not had the desired effect.

“The expression was perhaps exaggerated, explains Martin Carrier. And the Russian government was prepared. »

In fact, since the first sanctions imposed on Russia during the invasion of Crimea in 2014, the Russians have increased their foreign currency reserves and set up their own payment system, MIR, which allows trade to continue with allied countries.

Until recently, Russia met payment deadlines on its foreign debt, even as sanctions made some of its foreign currency funds inaccessible.

holes in the wall

The wall that Western countries have built with sanctions to isolate Russia has big holes, oil and gas, which are the country’s main sources of income, explains Angelo Katsoras, geopolitical analyst at the National Bank.

Russia, the world’s third largest oil producer, has no problem selling its product elsewhere in the world, in countries that do not impose sanctions. Oil can travel by boat as well as by pipeline, the analyst points out.

As for natural gas, Russian exports have fallen, but the sharply rising price compensates for the drop in volumes.

The countries of the European Union have agreed to reduce their imports of Russian oil by 90% by the end of the year. “We will have to see the impact of that later this year,” he says, pointing out that Russia is facing soaring inflation and that most observers expect the Russian economy to plunge into recession. in the coming months.

The International Monetary Fund, among others, predicts an 8.5% contraction in Russian GDP in 2022.

There is not much ammunition left in reserve for Ukraine’s allies, apart from cutting Europe off from Russian natural gas, believes Angelo Katsoras.

This is not a short-term solution, he said. “The infrastructure needed to change the east-west flow of gas trade will take years to build,” he said.

What remains to be done is the hardest part, also agrees Martin Carrier. “For democratic governments, it is difficult to make decisions that have a major impact on the economy. »

Russia supplies Europe with 40% of the natural gas it consumes. This dependence is reduced as countries find other suppliers, but Russian gas remains vital for several economies in the euro zone, including that of Germany, a European heavyweight.

According to the German central bank, the country’s economy would plunge by 5% if it were to do without Russian gas.

A resilient economy

The Russian economy is still resisting the onslaught of sanctions quite well, if official government figures are to be believed. According to the Rosstat Institute of Statistics, the country’s gross domestic product rose by 3.5% in the first quarter. Inflation is up, at 10%, but the strength of the ruble is partly offsetting the rise in prices. The ruble has not only maintained its value, but strengthened due to the harsh exchange control measures imposed on individuals, companies and business partners who still do business with Russia, who are forced to pay in rubles.

Increase in export revenue

Russia’s oil and gas export revenues are on the rise, despite a 27% drop in sales volumes since the start of the year. High oil prices, for example, more than offset lower sales in the European market. India, China and several other Asian countries have increased their purchases of Russian oil, and Europe will continue to buy $300 million a day until the end of the year.