Are Sanctions Against Russia Working?

Are Western sanctions against Russia having the desired effect, harming their economy and reducing the country’s ability to fight? That’s the question Ukrainians, Central Europeans and world-economy watchers will be hanging on as the Russian invasion grinds bloodily onward.

Are Western Sanctions Having an Effect on Russia?

A new report in the paywalled Foreign Policy argues that the effects on Russia so far have been devastating. The authors, a pair of Yale professors of management, also argue the effects of sanctions will only get worse for Russia.

The key claim is that official Russian government data obscure the scale of the country’s difficulties. Since the start of the invasion, data that was previously updated monthly – capital and commodity in-flows and out-flows, financial statements of major companies and credit availability – have been increasingly withheld. Studying shipping data, consumer data and releases from trade partners can give us a more accurate picture.

Retail sales, according to the authors, are down by 20%. Foreign companies whose revenue represents 10% of Russia’s GDP are curtailing their operations there, with a concomitant departure of high-skilled workers.

A pivot to the east has so far not eventuated. Russian imports are down by 50% and, importantly, imports from China are also down by roughly this same amount. The fact that China exports seven times more to the US than Russia would suggest Chinese businesses fear going against the sanctions regime.

The price of the rouble has held up, but this has only occurred due to regulations preventing Russians from selling roubles or even accessing US dollar accounts. As has occurred elsewhere, citizens are resorting to black-market currency exchanges effectively creating a dual exchange rate.

But most importantly, the article argues the sanctions will continue to bite because Russia cannot simply replace its European gas customers. Prior to the invasion, 83% of its gas was sold to Europe, and these sales are dependent on the network of pipelines which cannot simply be up-rooted and directed to other markets. For this reason, gas production in Russia is down by a third in just the five months since the invasion began.

A Russian soldier in Ukraine.

Oil can be shipped more easily than gas. Yet the lack of demand from Western countries has led to unprecedented discounts on oil imports from Russia for India and China.

Meanwhile, the Russian army has had to offer substantial up-front payments to ordinary people to convince them to enlist. All of this suggests that Russia cannot sustain its military campaign in Ukraine for as long as Western countries can afford to oppose it.

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