Russian President Vladimir Putin delivers a speech during an expanded meeting of the Russian Defense Ministry’s Board at the Defense Control Center in Moscow, Wednesday.
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Russian President Vladimir Putin delivers a speech during an expanded meeting of the Russian Defense Ministry’s Board at the Defense Control Center in Moscow, Wednesday.
Vadim Savitsky/Sputnik/AFP via Getty Images
Over the past year, the United States and many of its allies have imposed a large degree of sanctions on Russia for its invasion of Ukraine.
Notable Russians, including financiers and officials close to Russian President Vladimir Putin, as well as the country’s banking, energy and manufacturing sectors and access to global trade all have been targeted.
However, despite the sanctions – considered never happend in terms of scope, speed and coordination – the Russian economy is still functioning and the Kremlin is still waging war against Ukraine. That leads to the question of whether sanctions are effective. Although they may not perform these kinds of economics Unrest in Russia originally predictedAnalysts say the measures are taking their toll and could have a deeper impact in the future.
“The short answer is yes” – sanctions are in effect, said Edward Fishman, head of sanctions policy at the US State Department after Russia’s invasion of Crimea in 2014.
“They’re not trying to achieve a psychological change in Putin. They’re not trying to get Putin, you know, to wake up in the morning and decide that Ukraine isn’t worth… the effort,” he said. “What they’re really trying to do is just create attrition in Russia’s military-industrial complex and its economy.”
Cut off Russian banks
A protester holds up a banner during a protest against Russia’s invasion of Ukraine, at the Place de la Republique in Paris, on February 26.
Geoffroy Van Der Hasselt/AFP via Getty Images
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Geoffroy Van Der Hasselt/AFP via Getty Images
The USA, Canada and European countries affected Russia got tough with financial sanctions soon after it invaded Ukraine in late February. They cut some of Russia’s biggest banks from SWIFT, a messaging service that connects financial institutions around the world. Some banks later subject to full containment sanctions.
“I think in my day, the idea of imposing containment sanctions on Sberbank, the largest bank in Russia by far, was unthinkable, let alone sanctions against Sberbank. Central Bank of Russia,” Fishman said. a scholar at Columbia University Center for Global Energy Policy. He believes these moves could surprise Putin.
Sanctions Central Bank of Russia freezes nearly half of its assets more than 630 billion USD in foreign exchange reserves. Economists think that the Russian economy will be difficult.
Moscow builds a financial fortress
But Elina Ribakova, an economist with the Institute of International Finance (IIF) in Washington, said the Central Bank has spent years coming up with policies aimed at protecting its financial system from this kind of scenario. . She says Russia has used excess energy revenues to build a “special piggy bank.”
The strategy, which analysts call “Fortress Russia” is intended to help the Russian economy fend off sanctions – but few economists think it will work.
“This Russian Fortress strategy, which has been talked about and some laughed at at the start of the 2022 sanctions, has proven at least partially effective,” she said. “We were expecting a much deeper contraction, myself included.”
Ribakova said that preparation, coupled with the skillful response of Central Bank officials, helped control the immediate financial crisis caused by sanctions, allowing Russia to keep more than $250 billion in project foreign exchange reserves.
Still Estimates of the International Monetary Fund Russia’s economy will shrink 3.4% this year, instead of growing around that amount in 2022 as expected before the war.
Maria Demertzis, a senior fellow at Bruegel, a Brussels-based economic think-tank, said there would have been a bigger drop if it weren’t for sales of oil and natural gas, which are capital accounts for about half of the government’s budget.
“With the amazing increase in gas prices, especially gas and oil, the revenue coming to the Russian authorities and the Russian budget is very high,” she said. “And that, of course, allows the Russian economy to continue to function.”
However, the outlook for Russian oil and gas revenue could soon change. September, Putin cut out most of the natural gas flows to Europe, Russia’s biggest customer. And there’s a new European Union ban on most Russian oil importsas well as limit the price of Russian oil.
Oil imports to China, India and Turkey help offset some of the impending loss, but they are paying a discount for Russian oil.
A gas station is seen on July 29 in Moscow, Russia.
Alexander Nemenov/AFP via Getty Images
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Alexander Nemenov/AFP via Getty Images
Russia is seeing the company flight
Meanwhile, the Russians are seeing their modern economy suffer glaring setbacks. More than 1,000 international companies shut down or completely withdrew from Russia, according to one review by Yale School of Management. Runaway businesses bring capital, technology and expertise.
Imports of Western-made components have decreased, especially affecting production. Columbia’s Fishman said the country’s key auto and railroad industries have seen output halved, which has also left Russian consumers with lower-quality goods.
“Moscow has had to relax regulations that allow domestically produced cars without airbags and anti-lock brakes because they cannot source these parts domestically,” he said. “They used to buy them from Europe and the United States, and they can’t do that anymore.”
Russia is also struggle to get Western-made Semiconductors, which IIF’s Ribakova says is vital to many industries, from agriculture to aviation. “Even in the military, Russia is still dependent on foreign-made chips and other technologies,” she said. “It needs that to continue waging war.”
Russia is trying to establish alternative supply routes from places like China, Turkey and Kazakhstan, but it cannot replace high-tech imports such as semiconductors.
Bruegel’s Demertzis says all sanctions will be a drag on Russia. She said that the economy is in bad shape, but Russia will survive.
“They won’t be removed from the world map,” she said. “But it will become a much, much poorer country” in the future.
