The Russian economy is still resisting, despite the unprecedented number of sanctions that have befallen the country of Vladimir Putin since it invaded Ukraine last February. Are economic sanctions even less effective than we thought?
After nine months of war, it is clear that the Russian economy has not collapsed. In fact, against all odds, the country has been more successful economically than militarily since the outbreak of hostilities.
Revenue continues to flow into Russian state coffers, thanks to oil and natural gas still finding takers at higher prices than before the war. Russia is also benefiting from higher prices for several other of its exports, such as fertilizers and wheat.
The announced financial crisis did not occur, despite the use of what was considered the nuclear weapon in the arsenal of sanctions, namely the expulsion of Russia from the international Swift payment system. Everything indicates that Russia has found other channels to carry out its international transactions.
Even the rouble, which had plunged in value at the start of the conflict, recovered quickly, and maintained its value, thanks to capital controls imposed by the Bank of Russia. The sharp fall in imports is also helping the Russian economy to minimize the effect of sanctions.
Russia’s gross domestic product is expected to shrink by at least 3.4% in 2022 and at least 2.3% in 2023, according to estimates by the World Bank, International Monetary Fund and Organization for Peace. cooperation and economic development, and quoted by the Council of the European Union1.
A significant decline is therefore to be expected, but not a collapse of the Russian economy as one might have expected after the departure of foreign companies and the rain of sanctions imposed on Russia. Europe alone is on its eighth package of measures adopted since February 28, 2022. Australia, Canada, the United States, the United Kingdom, Switzerland and Japan have also contributed to the war effort against Russia by stepping up sanctions against Russian companies and individuals.
After nine months, therefore, we cannot say that the results of these thousands of sanctions are very positive. The war continues and the conflict shows no sign of resolution as we approach a winter that will undoubtedly be atrocious in Ukraine and across Europe. We will have to see if some of the measures adopted, but not yet implemented, will change the situation. The application of several sanctions has been staggered in time to allow the countries which suffer the repercussions to prepare.
Thus, the European Union has decided to ban the purchase of Russian oil, but this ban is not yet in force. This will be at the end of the year and should dig a deep hole in Russian finances.
But it may be necessary to go even further to prevent Russia from financing its war by selling its oil and natural gas to other countries. The means that remain are limited and, above all, they deeply divide the allied countries against Russia.
For example, Europe and the United Kingdom have agreed to prevent European insurers and reinsurers from insuring ships that transport Russian oil to countries still ready to buy it. Without insurance to cover their operations, shipping companies will be reluctant to help the Russians maintain their exports. This measure, which should come into force on December 5, worries some countries, including the United States, which fear that it will cause chaos in the oil market. They succeeded in mitigating the impact. A cap on the price of oil has been suggested, so that only oil sold at a price below this price cap can travel in insured freighters, which would reduce the income the Russians can derive from it.
Discussions continue on what could well be the ultimate possible sanction against Russia’s main weapon of war, its oil. After that, while waiting for the arsenal of sanctions to continue to slowly eat away at the Russian economy, we must recognize that this counter-attack by the allied countries has reached its limit.